23 June 2010

Forward Or Backward?

Move America Forward, which presents itself as "the nation’s largest grassroots pro-troop organization", has issued a call for ousted General Stanley McChrystal to "come public with the true extent of the Obama Administration’s disengagement with the war in Afghanistan."
“Now that General McChrystal is no longer part of the military chain of command, he is free to expose the mismanagement of the war by the Obama administration, which is what got him in trouble in the first place.” said Move America Forward’s Director of Communications, Danny Gonzalez. 
Has Obama mismanaged the situation in Afghanistan?  There is an argument to be made that he has--certainly there are deep divisions within the Obama Administration over Afghanistan, divisions Obama has not managed to heal, and it is the civilian side of the US presence in Afghanistan, not the military side, that has a growing rift with Afghan President Hamid Karzai.

Yet there are also complaints to be levied against the Pentagon as well.  The glacial pace of the troop buildup in Afghanistan for the "surge" strategy (the last of the 30,000 troops are only now arriving in Afghanistan) can only be laid at the feet of the Pentagon, not the Administration.

If indeed Obama has been "disengaged" from Afghanistan, creating a continuing public controversy over his handling of matters to date is hardly going to assist him becoming "engaged" now.  Operations in Afghanistan are still unfolding, and there will be ample opportunities for General McChrystal to lend his perspective to the strengths and weakness of the Administration's efforts.  To "come public" with inflammatory charges of mismanagement and misconduct does not help the Administration focus its energies on Afghanistan.

Obama has publicly re-committed himself to the "surge" strategy.  In announcing the replacement of McChrystal with General David Petraeus Obama stated: "This is a change in personnel, but this is not a change in policy."

If the goal of  Move America Forward is to ensure the Obama Administration is fully engaged and supportive of the troops in Afghanistan, McChrystal's career-ending flirtation with Rolling Stone has already done most of what can be done to achieve that goal.  Supporting the troops now means standing back and giving the Obama Administration the latitude to manage things as they wish.  Obama remains the Commander In Chief until 2012; for the sake of the troops, that needs to be respected.

McChrystal Out, Petreaus In, Challenge Remains

A day after Rolling Stone published a profile piece of General Stanley McChrystal in which McChrystal and several of his senior staff made caustic, derisive, and arguably insubordinate comments about Obama, Vice President Joe Biden, and several members of Obama's administration, Obama fired McChrystal, replacing him with General David Petraeus, head of the US Army's Central Command (and, ironically, technically McChrystal's superior).

In many respects, Petraeus is an easy choice to make for McChrystal's replacement.  As the architect of the successful "surge" strategy in Iraq that for many has been the model of what needs to take place in Afghanistan, he is arguably the Army's foremost expert on counterinsurgency strategies and tactics (COIN, in the military argot).  As the general many credit with salvaging the situation on the ground in Iraq, Petraeus is quite popular with Republicans in Congress (there has been considerable speculation as to whether Petraeus would be drafted by the Republicans for the 2012  Presidential elections) Indeed, that the new assignment is technically a demotion for Petraeus only serves to underscore the heft Petraeus brings to the table.

What Petraeus does not bring is a substantial alteration to the situation in Afghanistan.  US Ambassador Karl Eikenberry, Obama's diplomatic lead in Kabul, has never walked back the opposition to a "surge" strategy he voiced  last fall in a series of classified cables to Obama (that were subsequently leaked to the New York Times).  Neither has Vice President Biden, who was quoted by Jonathan Alter in The Promise that "In July of 2011, you’re going to see a whole lot of people moving out, bet on it."--an assertion Secretary of Defense Robert Gates emphatically rejected earlier this week.  Despite assertions by Obama in announing McChrystal's ouster that he could tolerate debate but not division, divisions over Afghanistan are everywhere in Obama's Administration:
Secretary of State Hillary Clinton has gone along with the project, but Vice President Joe Biden—who might have been secretary of state had the cards fallen in a slightly different way—has not. Divisions within the administration grow by the day.
Nor does Petraeus have large numbers of troops in his back pocket to take to Afghanistan.  He flies to Kabul alone, to take command of McChrystal's men and execute McChrystal's strategy, on the eve of a major push to retake Kandahar, Afghanistan's second largest city.  The last of the 30,000 troops allocated by Obama to the Afghanistan "surge" are just now arriving on the battlefield--delays in their arrival have been a principal frustration of the Kandahar offensive.  Secretary Gates is counseling patience, to give the strategy time to succeed, but the political reality is that time is running out on Afghanistan; the July 2011 pullout date is fixed in the minds of many, and Americans, by a 53-44 percent margin, do not count the Afghanistan war as one worth fighting--and certainly one not worth American lives.

By replacing McChrystal with Petraeus, Obama is essentially rebutting the crux of McChrystal's Rolling Stone complaints, a lack of strong support for the troops.  However, if all Obama does is replace McChrystal with Petraeus, he will have largely validated McChrystal's complaint.

He may be gone, but McChrystal has managed to box Obama in yet again.

McChrystal and Rolling Stone: Why Obama is losing the Battle of Kabul

General Stanley McChrystal, by opting to be the subject of a profile in Rolling Stone Magazine, to be published in issue 1108/1109 of that publication, touched off a firestorm with the biting criticisms attributed to him and his staff of several members of the Obama Administration, including Barack Obama himself.  The profile piece may very well cost him his career, and could send US military efforts in Afghanistan spiraling into chaos.

There can be no doubt that McChrystal erred by speaking as he did, and by allowing his subordinates to speak as they did, to reporter Michael Hastings.  Not only does Article 2, Section 2 of the Constitution explicitly make the President the Commander In Chief of the Armed Forces and therefore McChrystal's superior in the chain of command, but Article 88 of the Uniform Code of Military Justice makes insults and criticisms by military officers of the civilians placed over the military an offense punishable at court martial:
Any commissioned officer who uses contemptuous words against the President, the Vice President, Congress, the Secretary of Defense, the Secretary of a military department, the Secretary of Transportation, or the Governor or legislature of any State, Territory, Commonwealth, or possession in which he is on duty or present shall be punished as a court-martial may direct.
Yet what many have overlooked is that the Rolling Stone article portrays McChrystal's deepest conflict as being with US Ambassador to Afghanistan former Lieutenant General Karl Eikenberry:
By far the most crucial – and strained – relationship is between McChrystal and Eikenberry, the U.S. ambassador. According to those close to the two men, Eikenberry – a retired three-star general who served in Afghanistan in 2002 and 2005 – can't stand that his former subordinate is now calling the shots. He's also furious that McChrystal, backed by NATO's allies, refused to put Eikenberry in the pivotal role of viceroy in Afghanistan, which would have made him the diplomatic equivalent of the general. The job instead went to British Ambassador Mark Sedwill – a move that effectively increased McChrystal's influence over diplomacy by shutting out a powerful rival. "In reality, that position needs to be filled by an American for it to have weight," says a U.S. official familiar with the negotiations.

The relationship was further strained in January, when a classified cable that Eikenberry wrote was leaked to The New York Times. The cable was as scathing as it was prescient. The ambassador offered a brutal critique of McChrystal's strategy, dismissed President Hamid Karzai as "not an adequate strategic partner," and cast doubt on whether the counterinsurgency plan would be "sufficient" to deal with Al Qaeda. "We will become more deeply engaged here with no way to extricate ourselves," Eikenberry warned, "short of allowing the country to descend again into lawlessness and chaos."

McChrystal and his team were blindsided by the cable. "I like Karl, I've known him for years, but they'd never said anything like that to us before," says McChrystal, who adds that he felt "betrayed" by the leak. "Here's one that covers his flank for the history books. Now if we fail, they can say, 'I told you so."
While the comments attributed to McChrystal in the Rolling Stone profile do indeed make him and his staff appear, in the words of John Dickerson of Slate magazine, "petty, frustrated, and reckless," Eikenberry's cable last fall--and its subsequent leaking to the New York Times shows him to be equally so (it was Eikenberry, not McChrystal, who alienated Afghan President Hamid Karzai by attending news conferences called by Karzai's opponents in last year's elections).  That incident also showed the intense competition between Eikenberry and McChrystal for resources and support from Washington:
General Eikenberry has been an energetic envoy, traveling widely around Afghanistan to meet with tribal leaders and to inspect American development projects.
He has been pushing the State Department for additional civilian personnel in the country, including in areas like agriculture, where the United States wants to help wean farmers off cultivating poppies. The State Department has tried to accommodate his requests, according to a senior official, but has turned down some because of budget constraints and its desire to cap the overall number of civilians in Afghanistan at roughly 1,000.
He played a significant role, along with Senator John Kerry of Massachusetts, in persuading Mr. Karzai last month to accept the results of an election commission, which called for a runoff presidential ballot.
That Michael Hastings was granted nearly two months of access to the inner workings of McChrystal's staff shortly after the New York Times piece where Eikenberry undermined McChrystal's counterinsurgency strategy leaves one wondering if this was not the latest in a tit-for-tat media conflict between McChrystal and Eikenberry.  Even if it is not, there is no denying that Obama's top diplomat in Kabul and Obama's top general in Kabul do not like each other and are taking steps to undermine each other. There is also no denying that Obama appointed them both to serve at his pleasure; it is difficult to envision Obama being pleased with either man at this juncture.

What Michael Hastings has revealed to the world is that the real battle for Kabul is in fact a clash of egos between the leaders of Obama's military and civilian strategies in Afghanistan--strategies which require each other if Obama's chosen task of building the Afghan nation is to succeed.  McChrystal and Eikenberry appear to view each other as more of an enemy than the Taliban or al Qaeda.

While Eikenberry is poised to win that battle (by default, as McChrystal is likely to be forced to resign), there is little likelihood of the clash of egos ending.  McChrystal's staff and deputy commanders are quite loyal to him personally, and any McChrystal replacement needs to come from those ranks if Obama is to avoid any major disruptions in the execution of the counterinsurgency strategy Obama chose in his speech at West Point last December.  The profile piece showed that McChrystal's staff and deputy commanders share his criticisms of the civilians involved in Afghanistan.

What is most disturbing about this ego clash is that it has been going on even as the military and diplomatic situation in Kabul deteriorates, and that it has been going on under Obama's ultimate leadership; nor is there indication of any effort by the Obama Administration to bring McChrystal and Eikenberry to some form of modus vivendi.  The Obama strategy for Afghanistan is a two-pronged strategy that involves defeating the Taliban militarily while building up the Karzai government diplomatically to withstand other insurgencies in the future.  That strategy demands cooperation and coordination between the military and diplomatic personnel in Afghanistan--between McChrystal and Eikenberry.  Not only has Obama not been getting that cooperation, he seemingly has not been demanding such cooperation.

Whether or not McChrystal loses his job over this is problematic, but regardless of that, unless Obama can get the civilian and military personnel in Afghanistan to play nice with each other, he faces a very serious risk of losing Afghanistan.  As the battle for Afghan hearts and minds has played out thus far, the clear loser at this juncture is Barack Obama. 

10 May 2010

Evil Taking Root in Europe -- The Next Day

How will the eurozone survive crushing debt?
Yesterday's announcement of a €750 Billion bailout of eurozone sovereign debt was cause for some celebration in the world's bond markets.  That celebration appears to have been short lived, as by the end of the trading day today bank swaps and the LIBOR inter-bank interest rates showed pessimism over the viability of the bailout, while the Japanese yen rose against the euro.

The market place assessment of the bailout has been simply this: "That's fine for today, now what about tomorrow and the day after next year?"  The bailout may have arrested the free-fall of eurozone sovereign debt in the marketplace, but it does nothing to eliminate the burden that debt places on the economies of Europe.
“Markets realized quickly that this crisis won’t be cured by adding liquidity, no matter how big it is,” said Toshihiko Sakai, head of trading for currencies and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “The structural problems of the euro zone will persist. I’m not surprised at all the euro is losing strength again.”
Still unanswered are the lingering questions about how successful efforts to trim deficit spending in the eurozone will be--even fiscally prudent Germany's deficit will be in excess of 5% this year, well in excess of the 3% allowed under euro rules.  Nations such as Greece and even the UK are faced with the daunting challenge of growing their economies while drastically slashing government spending, a task that yesterday's bailout mechanism does not even begin to address.

The eurozone is spending the equivalent of $1 Trillion, not to solve their sovereign debt crisis, but to buy (on credit) a little time before they must resolve their sovereign debt crisis.  That does not seem a wise use of increasingly scarce financial resources.  €750 Billion of new debt will not make the existing debt any less troublesome; it will most likely make that debt more troublesome.

The evil taking root in Europe is simply this: to defend a particular bit of money--the euro currency--Europe is prepared to lay waste to its nations' finances and economies.  The marketplace realizes this, and so the euro's downward spiral against other currencies continues despite Europe's spending their very last euro to reverse that course.

09 May 2010

Evil Taking Root in Europe

The Euro is under duress from a slew of unforced errors.
Recently, I speculated on the practical wisdom contained in the Bible verse "For the love of money is a root of all kinds of evil....." Since then, events in Europe have illuminated the Biblical warnings about an inordinate focus upon money, as the $146 Billion bailout of Greece announced on 3 May 2010 failed to soothe global bond markets, resulting in a pan-European debt crisis:
Yields on German two-year debt reached a record low, falling to 0.71pc on safe-haven demand in echoes of credit stress at the height of the financial crisis. This is below the European Central Bank's short-term rate of 1pc. "This is very unusual and indicates concern about systemic risk from sovereign debt," said Stephen Lewis from Monument Securities.
The response of European finance ministers has been to blame the bond markets themselves, laying the need for a fresh bailout of the Euro currency itself squarely on the bond markets:
“In the night, when the markets are opening, we cannot afford a disappointment,” said Finance Minister Anders Borg of Sweden, one of 11 EU nations not in the euro. “We now see herd behavior in the markets that are really pack behavior, wolfpack behavior.”
The solution to the Euro crisis?  Pile on still more money--this time on a scale to rival the US Treasury's TARP program in 2008:
European policy makers unveiled an unprecedented loan package worth nearly $1 trillion and a program of securities purchases as they spearheaded a drive to stop a sovereign-debt crisis that threatened to shatter confidence in the euro.  Jolted into action by last week’s slide in the currency to a 14-month low and soaring bond yields in Portugal and Spain, governments of the 16 euro nations agreed to make loans of as much as 750 billion euros ($962 billion) available to countries under attack from speculators.
Is that really a solution, when every nation in Europe has external debt in excess of one hundred percent of GDP?
  • Greece' external debt is 170% of GDP
  • Italy's external debt is 147% of GDP
  • Germany's external debt is 182% of GDP
European nations are all highly leveraged--far more so than the United States is (external debt is 96% of GDP)--which begs the question of from where do the EU countries presume to get these billions of euros?

Further, how does the creation of still more debt by nations already drowning in debt lend strength and credibility to the euro?  This latest rescue package is still little more than a series of preferential loans to distressed nations--cheaper than what those nations could borrow on the open market, but borrowing nevertheless.  This past week's currency crisis is a debt crisis on steroids, and the European Union's solution is to just borrow more, albeit at more "friendly" rates.  Given that the debt crisis is predicated upon the grave doubt that Greece and other nations will be able to pay off their external debts, further borrowing does not deliver any new assurance that the new debt will be easier to repay than the old debt.

Finally, the bailout mechanism is laden with its own potential instabilities, for it empowers the European Union to reach deeper into the governance of member states than any ratified treaty envisions:
"It is an absolute general mobilization: we have decided to give the eurozone a veritable economic government," said French president Nicolas Sarkozy, once again basking as Europe's action man. "Today we have an attack on the whole of the eurozone. This is a systemic crisis: the response must be systemic. When the markets open on Monday morning we will be ready to defend the euro." 
In the space of a weekend, the EU has determined to arrogate to itself powers well in excess of those contained within the Lisbon Treaty:
But if the early reports are near true, the accord profoundly alters the character of the European Union. The walls of fiscal and economic sovereignty are being breached. The creation of an EU rescue mechanism with powers to issue bonds with Europe's AAA rating to help eurozone states in trouble -- apparently €60bn, with a separate facility that may be able to lever up to €600bn -- is to go far beyond the Lisbon Treaty. This new agency is an EU Treasury in all but name, managing an EU fiscal union where liabilities become shared. A European state is being created before our eyes.
Perhaps this is an inevitable evolution, but it is worth noting that the United States Constitution was hammered out over a summer in 1787, and that the Constitutional Convention was only called after some years of ineffective central government under the Articles of Confederation; similarly, the Treaty of Lisbon--analogous in many ways to the US Constitution--took the better part of a year to craft.  Is zealous defense of a particular currency sufficient impetus to accomplish in a weekend what otherwise would (and, arguably, should) take far longer?

Very likely, the answer will turn out to be "No."  Already, there are consequences to the bailout strategy which reach beyond Athens and Brussels, and even Berlin.  Regional elections in Germany have produced a rejection of German Chancellor Angela Merkel's acceptance of a Euro-centric response to the ongoing financial crisis and with it her control of the Bundesrat, the upper house of the German parliament.
According to a poll on Saturday, 21 % of voters said their decision would be influenced by the bailout.

And the next day they voted the regional coalition of Mrs Merkel's Christian-Democrats (CDU) and their liberal Free Democrat allies (FDP) out of office.
Such are the "sorrows" generated by making currency--money--the center of everyone's attention.  Such are the "sorrows" cautioned against by the Apostle Paul in his letter to Timothy.

The nations of Europe have lived beyond their means for many years--Greece in particular although not exclusively.  For years they have consoled themselves with a conceit that a common currency meant money would always be in abundance.  For years they have ignored the fundamental economic nature of money:
It's time to get back to basic economics. Money--both the paper and electronic varieties--is, in and of itself, worth nothing; it has no intrinsic value. It is a means--and a profoundly important one--of enabling people to more easily conduct transactions without having to go through the clumsy and utterly inefficient barter process.
What the governments of Europe refuse to acknowledge is that the current debt crisis within the Eurozone is not "wolfpack behavior" but a vote of no-confidence by bond markets in those governments' fiscal policies.  There is no denying that is the fiscal policies of European nations that have brought them to this point--the decision to run a deficit is a fiscal decision, after all--and therefore it will be within the realm of fiscal policy that ultimate resolution to the debt crisis will be found.  

This, of course, is the crux of the problem, for no nation wants to take on the hard choices necessary to bring their debts under control.  As Bill Fleckenstein observed in his "Contrarian Chronicles" column:
The ending is not clear, but here's something that is: There's virtually no chance that the Greeks (who have defaulted on debt often in the past) will be willing to adhere to austerity measures just so they can use a colored piece of paper -- the euro. Especially since government workers, the folks who would probably have to give up the most, are the most entrenched.
 Nor is a nation such as Great Britain any more amenable to such policies:
Mervyn King is warning that the victor in next week's election will be forced into austerity measures that will keep the party out of power for a generation, according to the US economist David Hale.
Instead of tackling these issues head-on, the nations of Europe have opted to merely shovel more money on top of the pile, digging themselves deeper into a financial hole, in hope that stabilizing the euro will make all these distasteful duties disappear.

When at last the money runs out, Europe may find itself so deep in a financial hole that not a single one of the institutions it has built up since WWII will survive intact.  Such is the destruction that comes when the evil that is a love of money and currency takes root on a national scale.

04 May 2010

Arizona's Immigration Law -- Affirming Federal Law, Challenging Federal Supremacy

The State of Arizona accomplished something remarkable last week, when, on 24 April 2010, Governor Jan Brewer signed Arizona Senate Bill 1070 into law.  Widely described as "the nation’s toughest bill on illegal immigration", SB1070 empowers local and state law enforcement officers to investigate a person's immigration status in conjunction with the normal investigations carried out during routine stops such as for speeding or other traffic violation.

The reaction of the Obama Administration has been one of condemnation:
Speaking at a naturalization ceremony for 24 active-duty service members in the Rose Garden, he called for a federal overhaul of immigration laws, which Congressional leaders signaled they were preparing to take up soon, to avoid “irresponsibility by others.”
The Arizona law, he added, threatened “to undermine basic notions of fairness that we cherish as Americans, as well as the trust between police and our communities that is so crucial to keeping us safe.”
How does SB1070 "undermine basic notions of fairness"?  By strict enforcement of Federal immigration statutes, as stated plainly in Section 1 of the bill:
The legislature finds that there is a compelling interest in the cooperative enforcement of federal immigration laws throughout all of Arizona. The legislature declares that the intent of this act is to make attrition through enforcement the public policy of all state and local government agencies in Arizona. The provisions of this act are intended to work together to discourage and deter the unlawful entry and presence of aliens and economic activity by persons unlawfully present in the United States.
It is certain that a number of mis-statements have been reported about the bill.  The New York Times, for example, incorrectly stated that the bill criminalizes a failure by immigrants to carry their immigration documents with them at all times:
The law, which proponents and critics alike said was the broadest and strictest immigration measure in generations, would make the failure to carry immigration documents a crime and give the police broad power to detain anyone suspected of being in the country illegally. Opponents have called it an open invitation for harassment and discrimination against Hispanics regardless of their citizenship status.
In fact, such failure has been a misdemeanor under Federal law since 1952, and may be found at 8 USC §1304(e):
(e) Personal possession of registration or receipt card; penalties
Every alien, eighteen years of age and over, shall at all times carry with him and have in his personal possession any certificate of alien registration or alien registration receipt card issued to him pursuant to subsection (d) of this section. Any alien who fails to comply with the provisions of this subsection shall be guilty of a misdemeanor and shall upon conviction for each offense be fined not to exceed $100 or be imprisoned not more than thirty days, or both.
8 USC §1306(a) enhances the penalties for willful non-compliance with this requirement:
(a) Willful failure to register
Any alien required to apply for registration and to be fingerprinted in the United States who willfully fails or refuses to make such application or to be fingerprinted, and any parent or legal guardian required to apply for the registration of any alien who willfully fails or refuses to file application for the registration of such alien shall be guilty of a misdemeanor and shall, upon conviction thereof, be fined not to exceed $1,000 or be imprisoned not more than six months, or both.
What SB1070 does do is add to the federal misdemeanor offense a state offense of trespass, according to Section 3 of the bill:
Additionally, SB1070 explicitly defers to Federal authority in determining a person's immigration status:
However, SB1070 does not, in fact, enhance the criminality of being in the United States illegally.  The Arizona Criminal Code already defines trespass in sections 13-1502 and 13-1503, in both sections establishing the criteria of "Knowingly entering or remaining unlawfully" at a particular property.  Arguably, then, even without the provisions of SB1070, an illegal immigrant is guilty of trespass wherever he or she goes, within the jurisdiction of Arizona law.

Thus SB1070 becomes a most paradoxical articulation of states' rights--an affirmation of the right (and perhaps duty?) of a state to enforce and thus re-affirm Federal law.  The historical expressions of states rights generally run counter to this, as far back as the Kentucky and Virginia Resolutions of 1798 and 1799.  

Penned by Thomas Jefferson and James Madison, respectively, the Resolutions asserted the power of states to nullify Federal law on the basis of unconstitutionality, as the Kentucky Resolution of 1798 declares quite forcefully:
Resolved, That the several states composing the United States of America are not united on the principle of unlimited submission to their general government; but that, by compact, under the style and title of a Constitution for the United States, and of amendments thereto, they constituted a general government for special purposes, delegated to that government certain definite powers, reserving, each state to itself, the residuary mass of right to their own self-government; and that whensoever the general government assumes undelegated powers, its acts are unauthoritative, void, and of no force; that to this compact each state acceded as a state, and is an integral party; that this government, created by this compact, was not made the exclusive or final judge of the extent of the powers delegated to itself, since that would have made its discretion, and not the Constitution, the measure of its powers; but that, as in all other cases of compact among powers having no common judge, each party has an equal right to judge for itself, as well of infractions as of the mode and measure of redress.
South Carolina, in enacting its Ordinance of Nullification in 1832, was similarly emphatic in proclaiming the power of an individual state to invalidate Federal statute on the basis of unconstitutionality:
We, therefore, the people of the State of South Carolina, in convention assembled, do declare and ordain and it is hereby declared and ordained, that the several acts and parts of acts of the Congress of the United States, purporting to be laws for the imposing of duties and imposts on the importation of foreign commodities, and now having actual operation and effect within the United States, and, more especially, an act entitled "An act in alteration of the several acts imposing duties on imports," approved on the nineteenth day of May, one thousand eight hundred and twenty-eight and also an act entitled "An act to alter and amend the several acts imposing duties on imports," approved on the fourteenth day of July, one thousand eight hundred and thirty-two, are unauthorized by the constitution of the United States, and violate the true meaning and intent thereof and are null, void, and no law, nor binding upon this State, its officers or citizens; and all promises, contracts, and obligations, made or entered into, or to be made or entered into, with purpose to secure the duties imposed by said acts, and all judicial proceedings which shall be hereafter had in affirmance thereof, are and shall be held utterly null and void.
Far from nullifying Federal law, SB1070 declares a most unequivocal support of Federal law--specifically, the willingness of Arizona to expend state resources in its enforcement.

How is it, then, that Arizona's immigration law has earned especial opprobrium from Obama, his Administration, and a number of commentators throughout the media?

One possible answer may be that Arizona's statute, as it affirms the probity of Federal law, also affirms Arizona's power and prerogative as a state in enforcing all the laws governing its territory--including Federal law.  While such affirmation is not a direct challenge to Federal authority, it does pose a challenge to Federal supremacy.  Arizona, with passage of SB1070, has declared itself co-equal with the Federal government in enforcing immigration law.  With SB1070, Arizona need not await the pleasure of Immigration and Customs Enforcement (ICE) agents to investigate the immigration status of persons contacted in the ordinary course of law enforcement; Arizona proclaims for itself the autonomy to undertake such investigations, and to act on the results.

However, the Constitution only asserts that Federal statute is superior to state statute:
This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
The Constitution is silent upon whom has the authority to enforce Federal law, and the 10th Amendment certainly opens a window for a state to assert a role in such enforcement.  The Constitution makes it clear that Federal law is fully upon a state, and the courts of every state are obligated to uphold Federal law; what state courts are obligated to uphold, state law enforcement officers might reasonably be tasked to enforce.  As the Constitution does not expressly delegate exclusive enforcement jurisdiction of Federal law to the Federal government (and in fact expressly delegates some measure of jurisdiction to state courts via the Supremacy Clause), the reservations of the 10th Amendment may reasonably allow states to declare for themselves a role in enforcing Federal statute:
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
Federal law enforcement is not a power prohibited by the Constitution to the states--a fact somewhat acknowledged in the 1956 Supreme Court Case Pennsylvania v Nelson:
It should be said at the outset that the decision in this case does not affect the right of States to enforce their sedition laws at times when the Federal Government has not occupied the field and is not protecting the entire country from seditious conduct.
Setting aside the particular merits and demerits of Arizona's immigration law, that Arizona would seek to enact such a statute is a challenge to reassess the relative roles and powers of state and Federal government to an extent not seen since the 1830s.  Whether the legislation is intended as a confrontational arrogation of state authority in the face of Federal inaction on immigration enforcement or as an effort to complement Federal resources with state resources, Arizona has issued a potent reminder to this nation that our system of government presents two government tracks--state and Federal--wherein neither can entirely dominate the other.

02 May 2010

The Love Of Money -- Thoughts On Finance and Financial Reform

For the love of money is a root of all kinds of evil: which some reaching after have been led astray from the faith, and have pierced themselves through with many sorrows. -- 1 Timothy 6:10

Greece is being pierced with many sorrows at the moment, facing the prospect of years of deflation induced by drastic cuts in government spending, imposed as a condition of the $146 Billion the EU and the IMF have jointly agreed to lend Greece.

What sort of sorrows?  Essentially, Greeks will be working more for less--and will do so for the foreseeable future.  Among the new government spending cuts imposed by the bailout package:
  • Scrapping bonus 13th and 14th month wages for public sector workers as well as for retired people from both the public and private sectors.
  • Raising the retirement age for women from 60 to 65, bringing it in line with that for men;
  • Raising the sales tax from 21pc to 23pc this year.
Politically, the sorrows include a passing of a measure of sovereignty from Athens to Berlin, as Germany's pivotal role in assembling the bailout package empowers them to dictate many of the conditions:
Berlin was Europe's capital last week, basking in summer heat of 26 degrees. The heads of the European Central Bank and the International Monetary Fund (IMF) – both French, oddly – arrived as supplicants, pleading with Chancellor Angela Merkel and a stern finance committee of the Bundestag to save monetary union. Nowhere else mattered. The markets have stopped listening to Paris or Brussels.
On the other side of the globe, China is struggling to avert the sorrows of a bubble economy,  raising bank reserve ratios and employing other mechanisms to stave off inflation but with no immediate impact:
China’s third increase of bank reserve ratios this year left benchmark interest rates and the yuan’s peg to the dollar unchanged, risking the need for more concerted effort to contain property prices and inflation in coming months.
The common thread in both financial events is a subordination of policy and basic economic activity to a quest for currency.  Greece's bailout is driven by their accumulation of so much sovereign debt that they are effectively excluded from capital markets, while China's manipulations are calculated to curtail a growth of the money supply without curtailing the economic expansion behind the money supply:
The latest move adds to a government crackdown on property speculation after record price increases in March and came on a holiday weekend, with Chinese markets shut today. Within an hour of the central bank announcement, Finance Minister Xie Xuren said that officials remained committed to expansionary policies to cement the nation’s recovery. 
These events make it worth reminding oneself of the fundamental nature of money, and its relevance to economics at any level.  As Steve Forbes notes:
It's time to get back to basic economics. Money--both the paper and electronic varieties--is, in and of itself, worth nothing; it has no intrinsic value. It is a means--and a profoundly important one--of enabling people to more easily conduct transactions without having to go through the clumsy and utterly inefficient barter process.
Money is important only in that it makes transactions by which we convert other resources into the things and services we desire for whatever reason--and utterly irrelevant in all other aspects.  Money is a measure of value only.

As the above quotation from Timothy points out, a focus on money invariably leads to trouble.  Artificial manipulations of various money metrics, such as interest rates, serves mainly to distort the value statements implicit in the prices of goods and services.  Artificially pushing prices down (as China seeks to do) implicitly declares things to be somehow less valuable, even as the desire and demand for those things is otherwise unchanged. Constant borrowing, the particular fiscal sin of Greece (and, indeed, of a great many nations including the United States), explicitly involves paying for those things without surrendering other resources--in essence curtailing one-half of every transaction.

Perhaps nowhere is the irrationality of a focus on money itself more apparent than in the contradictory efforts in Washington to "reform" America's finance industry.  While on the one hand the SEC is pursuing a fraud case against one of the largest of the Wall Street banks, Goldman Sachs, Congress is pursuing "reform" legislation that would encourage Goldman to engage in still more of the behavior for which the SEC is seeking redress:
Recall that during the financial implosion of late 2008, Goldman was not bailed out directly by taxpayers, but instead received tax dollars as a creditor of AIG. Goldman received $12.9 billion in the “backdoor bailout” of AIG because of the credit default swaps it owned that AIG had insured. Goldman and other of AIG’s counterparties were paid by the government 100 cents on the dollar in this bailout, whereas creditors in bankruptcy court often get less than 50 cents on the dollar.
Bear in mind that Goldman Sachs was, ostensibly, an "investment bank" until 21 September 2008, when Goldman and Morgan Stanley, the other major investment bank in the United States at that time, opted to become "bank holding companies" and submit themselves to regulation via the Federal Reserve. Bear in mind also the presumed purpose of an "investment bank" is to assist "...corporations and governments in raising capital by underwriting and acting as the agent in the issuance of securities."

There is no denying the value to business of intermediaries such as a Goldman Sachs in gathering together the necessary funds to build a new factory or bring a new product to market. There is also no denying that the buying and selling of derivatives that has fascinated Wall Street in recent years has little to do with the actual raising of capital. Indeed, the financial crisis of 2008 did much to prove Warren Buffet's prescient 2003 description of derivatives as "financial weapons of mass destruction"; indeed, much of Greece's present financial dilemma appears to stem from their use--and apparent mis-use--of derivatives to sustain years of deficit spending.

A love of money, it seems, has the capacity to wipe out the economies of entire nations.

Perhaps, then, the Biblical caution offers some guidance for how to reform both financial markets and public finances.  If we are to focus less on money itself, one way to do that is to focus more on the actual value of things.  If we can remember that, in the act of purchase, we are merely converting one resource into another--e.g., turning a day's labor into food for the table--and that money is never a resource but merely the medium, perhaps we can see how to order our affairs--both public and private--so as to avoid the sorrows an inordinate focus upon money brings.  If governments can absorb the grim reminder of Greece that even sovereign debts must in time be repaid, they can muster the institutional will and discipline to not borrow beyond their capacity to repay.  If banks can acknowledge their contribution to value lies solely in their capacity to facilitate non-financial business activity, perhaps they can be dissuaded from the reckless and risky gambles that derivatives transactions have proven themselves to be.

From a practical policy perspective, the Biblical caution invites governments to restrain their spending to such revenues as may reasonably be raised--that while there can and should be debates over how much government should tax, and what government should tax, there should be little debate that government should not borrow except in extraordinary circumstance.  Similarly, the Biblical caution suggests that investment banking should return to its original focus--helping businesses raise capital--and should not "invest" in synthetic means with derivative pseudo-securities whose connection to tangible assets is increasingly nebulous, and that proper government regulation of financial markets would be to maintain clear relationships between investment securities and underlying tangible assets, and that money supplies be allowed to grow--or shrink--as a rational response to the expansion or contraction of an economy's asset base--not manipulated to gain transitory advantage over other currencies in other markets.

So long as governments and financial markets focus inordinately on money, and not at all on the actual values of things, the sovereign debt crisis of Greece and the private debt crises of Wall Street are dramas that will be replayed again and again.  Any effort to "reform" financial markets should begin with moving market focus away from money itself.

18 April 2010

Afghanistan -- A Chance

Last fall I opined that the Afghani conflict against the insurgent Taliban was an internal civil conflict that was not and should not be the concern of the U.S. Military (Afghanistan: Never America's War). In an interview with The Sunday Times of London, Taliban leader Mullah Mohammed Omar confirms my assertion, while also creating an opening for peace in that troubled region, and a chance for American troops to return home.
At a meeting held at night deep inside Taliban-controlled territory, the Taliban leaders told this newspaper that their military campaign had only three objectives: the return of sharia (Islamic law), the expulsion of foreigners and the restoration of security.
Obama himself articulated three objectives for America's military campaign in Afghanistan in his December 2009 speech to the cadets at West Point, when he announced a military buildup in that country:
To meet that goal, we will pursue the following objectives within Afghanistan.  We must deny al Qaeda a safe haven.  We must reverse the Taliban's momentum and deny it the ability to overthrow the government.  And we must strengthen the capacity of Afghanistan's security forces and government so that they can take lead responsibility for Afghanistan's future. 
It is important to note that al Qaeda--the terrorist movement that remains the justification behind American military adventures in Afghanistan--is not a movement borne of the Taliban but is as foreign to Afghan soil as Americans, being the inspiration and creation of Osama bin Laden, born in Saudi Arabia to parents of Yemeni descent.  Bin Laden is the sole connection between Afghanistan and al Qaeda, as the Afghan guerilla war against the invading Soviet army gave bin Laden his first opportunity to engage in jihad.
Son of a wealthy construction magnate, bin Ladin had taken to the religious sermons of Abdullah Azzam, a Palestinian and disciple of Sayyid Qutb. While he participated in few actual battles in Afghanistan, bin Laden became known for his generous funding of the jihad against the Soviets.

However, bin Laden's ambitions extended beyond the boarders of Afghanistan, and he began to develop a complex international organization. He set up a financial support network known as the "Golden Chain," comprised mainly of financiers from Saudi Arabia and Persian Gulf states. Using this immense new fund, bin Laden and Azzam created a "Bureau of Services," which helped channel recruits for the jihad into Afghanistan. With Saudi Arabia and the United States pouring in billions of dollars worth of secret assistance to rebels in Afghanistan, the jihad against the Soviets was constantly gaining momentum.
The link between Afghanistan and Al Qaeda went dormant in 1989, after the Soviets pulled out of that country, and bin Laden returned to Saudi Arabia:
When the Soviets pulled out of Afghanistan in early 1989, bin Laden and Azzam decided that their new organization should not dissolve. They established what they called a base (al Qaeda) as a potential general headquarters for future jihad. However, bin Laden, now the clear emir of al Qaeda, and Azzam differed on where the organization's future objectives should lie. Azzam favored continued fighting in Afghanistan until there was a true Islamist government, while bin Laden wanted to prepare al Qaeda to fight anywhere in the world. When Azzam was killed in 1989, bin Laden assumed full charge of al Qaeda.
This aspect of al Qaeda history takes on new importance in light of the Taliban's potential peace overtures, for the very simple reason that Obama and Mullah Omar might actually agree on two of three military objectives: removal of foreigners, and securing Afghanistan and its borders. Both sides want a secure Afghani government, and while Obama focuses on denying al Qaeda safe haven within Afghanistan, the political reality is that, if al Qaeda is expelled from Afghanistan, the rationale for a continued American presence evaporates; expell al Qaeda and all foreign forces will be happy to return home.

If the Taliban's statements are sincere and credible, the only real sticking point between Obama and the Taliban should be the matter of making Sharia Law Afghan Law.  If the Taliban's statements are sincere and credible, the only major obstacle to negotiating that point is the US policy prohibiting direct talks with the Taliban.  Taliban sincerity is and should always be presumed problematic, but the Taliban statements to The Sunday Times are certainly in keeping with their articulated three objectives:
Looking back on five years in government until they were ousted after the attacks in America on September 11, 2001, the Taliban leaders said their movement had become too closely involved in politics.
Abdul Rashid said: “We didn’t have the capability to govern the country and we were surprised by how things went. We lacked people with either experience or technical expertise in government.
“Now all we’re doing is driving the invader out. We will leave politics to civil society and return to our madrasahs [religious schools].”
The Taliban’s position emerged as an American official said colleagues in Washington were discussing whether President Barack Obama could reverse a long-standing US policy and permit direct American talks with the Taliban.
Mullah Omar's interview also highlights another area of agreement with the United States: The Karzai government is corrupt and of questionable electoral legitimacy.
The Taliban objectives specified on their website had already shifted, Nato officials said, from the overthrow of the “puppet government” to the more moderate goal of establishing a government wanted by the Afghan people.
This objective fits rather nicely with another highlight of Obama's West Point speech:
This effort must be based on performance.  The days of providing a blank check are over.  President Karzai's inauguration speech sent the right message about moving in a new direction.  And going forward, we will be clear about what we expect from those who receive our assistance.  We'll support Afghan ministries, governors, and local leaders that combat corruption and deliver for the people.  We expect those who are ineffective or corrupt to be held accountable.  And we will also focus our assistance in areas -- such as agriculture -- that can make an immediate impact in the lives of the Afghan people.
This much, therefore, is certain: in this moment, at least, the Taliban are saying the right words to move towards a real process of negotiations and ultimate peace. It is also certain that Obama's surge is costing the United States a minimum of $30 Billion, and it is also certain that over 1,000 American servicemen have lost their lives in Afghanistan, and it is therefore certain that more American troops will perish in Afghanistan if a pathway to peace is not found.

Whether Mullah Omar's words open that pathway is the great unanswered question.  The possibility his interview is nothing more than a posture calculated to slow and stymie the troop surge within Afghanistan is real and cannot be dismissed.  Yet the question should be answered--the lives of American soldiers and the tax dollars of American citizens demand it.

Answering that question will require direct talks with the Taliban, if only because neither the United States nor the Taliban has demonstrated any great confidence in the legitimacy of the Karzai government, rendering Karzai and his administration completely compromised as a negotiations partner for either side.  Mullah Omar is suggesting the time for those direct talks is now; if he is sincere, then he is right.  For Obama, the question reduces to one of how to engage the Taliban directly without compromising troop deployments vital to the surge or otherwise ceding vital initiatives to the Taliban.

If Mullah Omar is on the level, and Obama can seize this moment of diplomatic opportunity, then his surge in Afghanistan will have succeeded beyond all expectations. Proper respect for the Americans who fell in Afghanistan-and the Americans who will yet fall in Afghanistan--demands that Obama explore every diplomatic avendue to engage the Taliban and pursue peace rather than continued war.  Mullah Omar has given Obama a chance; pray God Obama finds the courage and the vision to pursue it.

07 April 2010

Obama's Nuclear Posture Review Is Nothing New--And That's The Problem

Barack Obama announced on Monday, 5 April 2010, a substantial revamping of US nuclear strategy, presumably to "substantially narrow the conditions under which the United States would use nuclear weapons."

There's just one problem: Judging by the excerpts of the "new" strategy published by the New York Times, there is very little that is substantively "new" about the strategy.  The United States has been trending towards a more limited strategic mission for nuclear weapons for decades.

The Department of Defense' Nuclear Posture Review from 1995 summarized the role of nuclear weapons in US military strategy thus:
The U.S. National Security Strategy states: "We will retain strategic nuclear forces sufficient to deter any future hostile foreign leadership with access to strategic nuclear forces from acting against our vital interests and to convince it that seeking a nuclear advantage would be futile. Therefore we will continue to maintain nuclear forces of sufficient size and capability to hold at risk a broad range of assets valued by such political and military leaders." Recent international upheavals have not changed the calculation that nuclear weapons remain an essential part of American military power. Concepts of deterrence and survivability must adapt to the new international environment, yet continue to be central to the U.S. nuclear posture. Thus, the United States will continue to threaten retaliation, including nuclear retaliation, and to deter aggression against the United States, U.S. forces, and U.S. allies.
Alliance relationships are an important element of U.S. security. Through forward basing and power projection capabilities, overseas U.S. military presence -- including nuclear capabilities -- helped promote regional stability, avert crises, and deter war. In recent years, there has been a dramatic reduction in both the overall size of the U.S. military presence abroad and in the nuclear capabilities deployed overseas. Yet maintaining U.S. nuclear commitments with NATO, and retaining the ability to deploy nuclear capabilities to meet various regional contingencies, continues to be an important means for deterring aggression, protecting and promoting U.S. interests, reassuring allies and friends, and preventing proliferation. Although nuclear capabilities are now a far smaller part of the routine U.S. international presence, they remain an important element in the array of military capabilities that the United States can bring to bear, either independently or in concert with allies to deter war, or should deterrence fail, to defeat aggression. Thus, the United States continues to extend deterrence to U.S. allies and friends.
Obama's "new" pledge to the world is this:
The United States will continue to reduce the role of nuclear weapons in deterring non-nuclear attacks. To that end, the United States is now prepared to strengthen its long-standing 'negative security assurance' by declaring that the United States will not use or threaten to use nuclear weapons against non-nuclear weapons states that are party to the Nuclear Non-Proliferation Treaty and in compliance with their nuclear non-proliferation obligations. This revised assurance is intended to underscore the security benefits of adhering to and fully complying with the NPT and persuade non-nuclear weapons states party to the Treaty to work with the United States and other interested parties to adopt effective measures to strengthen the non-proliferation regime.
How does this alter substantially the deterrent role of nuclear weapons outlined in 2005's Joint Publication 3-12: Doctrine for Joint Nuclear Operations?  Looking at that document (which though officially "cancelled"--meaning removed from the public domain, was never officially renounced as a guiding strategic document for the US military), it doesn't:
Deterrence. US nuclear forces deter potential adversaries by providing the President the means to respond appropriately to an attack on the US, its friends or allies. US nuclear forces must be capable of, and be seen to be capable of, destroying those critical war-making and war-supporting assets and capabilities that a potential adversary leadership values most and that it would rely on to achieve its own objectives in a post-war world. Thus, US nuclear forces deter potential adversary use of weapons of mass destruction (WMD) and dissuade against a potential adversary’s development of an overwhelming conventional threat.
Thus, even after Obama's "new" strategy is implemented, the role of US nuclear weapons is still to dissuade other nations from acquiring or using nuclear weapons.  Note the fine parsing of Obama's wording: only states who are a party to the Nuclear Non-Proliferation Treaty and in compliance are promised immunity from nuclear strike.  That wording puts not only the non-signatory nations such as India, Pakistan, and Bangladesh on the wrong side of Obama's promise, but also signatory states such as Iran, who quite arguably is already in flagrant violation of the Treaty. Russia and China remain nuclear states and, thus, even in Obama's "new" strategy, are vulnerable to nuclear attack.

The one shift that is substantial is a refining of the language regarding weapons of mass destruction.  JP3-12 hedged by referring to that broad category of weapons, which includes biological and chemical weapons in addition to nuclear weapons.  Obama's strategy limits nuclear weapons use to response against nuclear weapons; biological and chemical attacks and/or threats will be dealt with conventionally:
In making this strengthened assurance, the United States affirms that any state eligible for the assurance that uses chemical or biological weapons against the United States or its allies and partners would face the prospect of a devastating conventional military response - and that any individuals responsible for the attack, whether national leaders or military commanders, would be held fully accountable.
Given the catastrophic potential of biological weapons and the rapid pace of bio-technology development, the United States reserves the right to make any adjustment in the assurance that may be warranted by the evolution and proliferation of the biological weapons threat and US capacities to counter that threat.
However, even that is not a new policy.  "Prompt Global Strike" has been a strategic initiative of the United States since 2006, and envisions fitting conventional explosives onto ballistic missiles:
U.S. Strategic Command chief Gen. James Cartwright has said he needs a prompt global strike capability to hold fleeting targets at risk. He would like a conventional weapon that could arrive on target within one hour of an order to launch, a capability currently offered only by nuclear-armed missiles. A conventional alternative would make U.S. threats more credible against targets such as a terrorist leader staying briefly at a safe house or a North Korean nuclear missile being readied on a launch pad, defense analysts say.
Obama's "new" strategy is to refrain from using nuclear weapons against non-nuclear states--restating long-standing US nuclear doctine--and to pledge "devastating conventional military response" against non-nuclear threats or attacks--restating "Prompt Global Strike" from the Bush administration.  In short, Obama's "new" strategic doctrine is the same as the "old" strategic doctrine.

That is what is most troubling about Obama's announcement of the doctrine, because by making his announcement he breached one of the longest-standing principles of nuclear deterrence: ambiguity.  As JP3-12 states explicitly:
The US does not make positive statements defining the circumstances under which it would use nuclear weapons. Maintaining US ambiguity about when it would use nuclear weapons helps create doubt in the minds of potential adversaries, deterring them from taking hostile action. This calculated ambiguity helps reinforce deterrence. If the US clearly defined conditions under which it would use nuclear weapons, others might infer another set of circumstances in which the US would not use nuclear weapons. This perception would increase the chances that hostile leaders might not be deterred from taking actions they perceive as falling below that threshold.
Obama's new policy is to formally publish what was previously unpublished: the terms and conditions of a US nuclear strike--which is a strategically absurd thing to do.  The danger of the new policy is not that the United States is less armed, but that a threshold of bad behavior is being set which avoids the extreme response of nuclear attack, when deterrence is the only real strategic value of nuclear weapons.  To quote Robert McNamara in his 1967 "Mutual Deterrence" speech:
No sane citizen, political leader or nation wants thermonuclear war. But merely not wanting it is not enough. We must understand the differences among actions which increase its risks, those which reduce them and those which, while costly, have little influence one way or another. But there is a great difficulty in the way of constructive and profitable debate over the issues, and that is the exceptional complexity of nuclear strategy. Unless these complexities are well understood rational discussion and decision-making are impossible.
Obama's overplaying of a minor clarification in US nuclear weapons policy does not present as an action which will reduce the risk of nuclear war or US nuclear strike.  By carving out a set of permissible bad behaviors, he creates the potential risk that a malefactor on the world stage--be it a nation such as Iran or a trans-national entity such as Al Qaeda--will back the US into a corner where only a nuclear strike will remain a viable option.

Obama would do well to remember the goal of deterrence is the elimination of all bad behavior by all parties.

04 April 2010

We Need Businesses, Not Jobs; Self-Employment, Not Employment

In March of 2010, the US economy added approximately 162,000 jobs--the largest expansion of payrolls in three years.

By most measures, this bit of economic data would be cause for celebration, but the details of those jobs does much to dampen the celebration of the moment.A significant proportion of those jobs were government jobs brought on by the decennial census (and which will disappear again after just a few months as a result), and while total private-sector payroll growth was 123,000 jobs, the overall unemployment rate remained at 9.7%.  The economic impact of these jobs may be fairly summarized thusly:
The economy is growing again, but at a pace unlikely to quickly replace the 8.4 million jobs erased in the recession that began in late 2007. More than 11 million people are drawing unemployment insurance benefits.
Larry Summers, director of the National Economic Council, acknowledged that employment in this country still "has a long way to go."  When Treasury Secretary Timothy Geithner appeared on the Today show, he  informed host Matt Lauer that unemployment "is still terribly high and is going to stay unacceptably high for a long time."  Even though the jobs outlook in this country improved, the palpable effect of that improvement is practically nil. 

New York TImes columnist Thomas Friedman offers up an interesting bit of economic history that may explain why the March jobs figure fails to be all that encouraging:
Here’s my fun fact for the day, provided courtesy of Robert Litan, who directs research at the Kauffman Foundation, which specializes in promoting innovation in America: “Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less,” said Litan. “That is about 40 million jobs. That means the established firms created no new net jobs during that period.
Friedman's restatement is equally thought provoking:
Message: If we want to bring down unemployment in a sustainable way, neither rescuing General Motors nor funding more road construction will do it. We need to create a big bushel of new companies — fast.
Consider for a moment some historical figures on employment, courtesy of the US Census:
  • In 2002, companies with 500 or more employees had a total of 56,034,362 employees. Total number of paid employees in companies of all sizes was 112,400,654.
  • In 2004, companies with 500 or more employees had a total of 56,477,472 employees.  Total number of paid employees in companies of all sizes was 115,074,924.
  • In 2002, there were 17,646,062 firms that had no paid employees.
  • In 2004, there were 19,523,741 firms that had no paid employees.
  • From 1988 to 2003, there was only one year, 2001, when companies with 500 or more employees supported more than 50% of all paid employees for that year.  In all other years companies with 500 or more employees accounted for less than half of all paid employees for that year.  
These results may be summarized thus:  small companies (and, extending Litan, new companies) create and sustain the bulk of all jobs in this country.  If President Obama is indeed "preoccupied" with creating jobs, he is focused on the wrong target.  Friedman has the sense of it: America will find jobs by creating new businesses.  Business growth drives jobs growth--that is the logical extrapolation of Litan's data.

Moreover, Americans as a whole are focused on the wrong target.  Instead of seeking out a new job at a new employer, Americans should seek to create new businesses instead.  If the primary engine of economic activity in this country is the small business--is the new business--then the solution to this nation's somnolent economy will be found not through employment but through self-employment.

The worker-as-business owner would be, in essence, a return to the fundamentals of capitalism as articulated by Adam Smith in his treatise Wealth of Nations.  Smith's conceptualization of labor begins with the worker functioning as an independent entity:
In that original state of things, which precedes both the appropriation of land and the accumulation of stock, the whole produce of labour belongs to the labourer.
This situation begins to change with the introduction of private property, which separates other resources from the resource of labor:
As soon as land becomes private property, the landlord demands a share of almost all the produce which the labourer can either raise, or collect from it. His rent makes the first deduction from the produce of the labour which is employed upon land.
It seldom happens that the person who tills the ground has wherewithal to maintain himself till he reaps the harvest. His maintenance is generally advanced to him from the stock of a master, the farmer who employs him, and who would have no interest to employ him, unless he was to share in the produce of his labour, or unless his stock was to be replaced to him with a profit. This profit makes a second deduction from the produce of the labour which is employed upon land.
It is important to note from the nature of Smith's language that he formulated his economic theories in an era before mass industrialization, and attributes to the individual worker the initial ownership and dominion over the fruits of his labor.  Switching to Karl Marx's epic Das Kapital, we find a considerably different view of labor:
THE change of value that occurs in the case of money intended to be converted into capital, cannot take place in the money itself, since in its function of means of purchase and of payment, it does no more than realise the price of the commodity it buys or pays for; and, as hard cash, it is value petrified, never varying. Just as little can it originate in the second act of circulation, the re-sale of the commodity, which does no more than transform the article from its bodily form back again into its money-form. The change must, therefore, take place in the commodity bought by the first act, M—C, but not in its value, for equivalents are exchanged, and the commodity is paid for at its full value. We are, therefore, forced to the conclusion that the change originates in the use-value, as such of the commodity, i.e., in its consumption. In order to be able to extract value from the consumption of a commodity, our friend, Moneybags, must be so lucky as to find, within the sphere of circulation, in the market, a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labour, and, consequently, a creation of value. The possessor of money does find on the market such a special commodity in capacity for labour or labour-power.
By labour-power or capacity for labour is to be understood the aggregate of these mental and physical capabilities existing in a human being, which he exercises whenever he produces a use-value of any description.
But in order that our owner of money may be able to find labour-power offered for sale as a commodity, various conditions must first be fulfilled. The exchange of commodities of itself implies no other relations of dependence than those which result from its own nature. On this assumption, labour-power can appear upon the market as a commodity only if, and so far as, its possessor, the individual whose labour-power it is, offers it for sale, or sells it, as a commodity. In order that he may be able to do this, he must have it at his disposal, must be the untrammelled owner of his capacity for labour, i.e., of his person. He and the owner of money meet in the market, and deal with each other as on the basis of equal rights, with this difference alone, that one is buyer, the other seller; both, therefore, equal in the eyes of the law. The continuance of this relation demands that the owner of the labour-power should sell it only for a definite period, for if he were to sell it rump and stump, once for all, he would be selling himself, converting himself from a free man into a slave, from an owner of a commodity into a commodity. He must constantly look upon his labour-power as his own property, his own commodity, and this he can only do by placing it at the disposal of the buyer temporarily, for a definite period of time. By this means alone can he avoid renouncing his rights of ownership over it.
In the modern era, Marx's view of labor and, thus, of jobs, certainly seems more attuned to the reality.  Certainly workers at Ford, Caterpillar or even Microsoft do not appear to have any initial claim on the fruits of their labors.  These workers, if one follows Marx, are a commodity, something bought and ultimately sold along with the raw materials that go into any manufacturing process.

A governmental focus on jobs plays into this thinking: jobs are created by providing incentives for companies to hire more workers--to purchase more labor.  Yet, looking back to Litan's job creation comment, companies appear not to want to purchase more labor; over time, companies if anything strive to purchase less labor.

Might Marx have been wrong?  Might labor be something besides a commodity to be bought and sold?  Friedman certainly gives one cause to think so:
But you cannot say this often enough: Good-paying jobs don’t come from bailouts. They come from start-ups. And where do start-ups come from? They come from smart, creative, inspired risk-takers.
What Friedman points out, what Smith has right, and what Marx has wrong, is the realization that the benefit of labor is the creation of value, and, as a direct consequence, can never be regarded as a commodity to be bought and sold merely.  All labor must be in its essence a creative undertaking.  "Good" jobs, therefore--jobs with significant pay and stature--come from new ventures seeking new ways to produce, or sell, or distrubute (or all of the above).  Good jobs come from new companies, not established ones.  Good jobs, then, are the result of individuals seeking new ways to impart value upon human effort. Good jobs are reflect Adam Smith and not Karl Marx.

Thus, for all the governmental focus on spurring the creation of jobs, such efforts are doomed to failure--certainly the application to date of the American Recovery and Reinvestment Act has failed to produce the upturn in employment forecast by Presidential economic advisors Christine Romer and Jared Bernstein.  These efforts fail because they do not address the fundamental aspect of value creation that defines the "good job".

Echoing Friedman, and recalling Adam Smith, it is not enough to merely speak of jobs.  A thriving economy must speak of and dwell upon business.  Each person must, in thought if not in reality, become an enterprise unto himself.  Government policy must encourage such thoughts and encourage individuals to translate such thoughts into action, to create new businesses and new engines of value creation.  Instead of 162,000 new jobs, America's goal should be 162,000 new businesses.

Now that would be cause for celebration indeed.