Waning American influence in the Middle East

Here is a nice article discussing waning American role in the Middle East. Regardless of your attitudes to the Arab-Israeli conflict and the George Bush foreign policy, anyone who is not blind to the facts would acknowledge that the decline of the American influence is due to the inefficient management of the foreign policy by Washington in the past two and a half years.

The quoted article points out the shocking truth - even Israel can afford to care about the US policy much less than it used to:
"In addition, from the Israeli government’s perspective the United States is a less useful ally in the new Middle East that is emerging, analysts say.
“Why does the U.S. have less influence with Israel right now? In part because the U.S. has less influence with the Arabs,” said Robert Malley, a special assistant to President Clinton on the Arab-Israeli conflict."

The article however focuses on teh Arab-Israeli issue, whereas the scope of the US failures in the Middle East is much broader. These include:
1. Alienating Israel and Israelis by consistently picking fights with the Israeli prime minister and reneging on the promises of the previous US administrations. In particular, it includes Obama's overexaggerated focus on the settlements, his insistence on the "1967 borders" (1949 armstice lines), and the policy of linkage (nowadays quietly forgotten), which made Israel responsible for all of the Middle East problems.

2. Failure to exert any preassure on the Palestinians, which allowed their leaders to disregard the US opinion altogether.

3. Failure to influence Turkey and prevent the break of the diplomatic relations between Turkey and Israel, both of which are US allies.

4. Failure to stop Iran nuclear program. The biggest achievement in this field were weak sunctions adopted by the UN Security Council. The recent reports suggest that Iran might have past the "point of no return" in its progress toward nuclear weapon, and, if necessary, can produce such a weapon within a few weeks.

5. Failure to support anti-Ahmadinejad protests that followed the rigged election in Iran.

6. Failure to oppose transition of power in Lebanon from the democratic government to Hezbollah, and failure to promote the international court indictment against the Hezbollah members indicted over the asassination of the Lebanese prime minister, Rafik Hariri.

7. The multiple failures to take a clear and strong position during the Arab spring:
 a) the US attitude to the Egyptian protests went through a full 180 degrees turn;
 b) US allowed brutal suppression of the protests in Bahrain and Saudi Arabia;
 c) US "led from behind" in Libya, calmly watching the mutual slaughter, showing no indication that it wants  Gaddafi gone till the very last moment, and ridiculously refusing to call the events in Libya a "war";
 d) no action in respect to the continuing mass murder in Syria, which has already claimed thousands of human lives.

History of Keynes and Hayek

Some worthy reading on the history of economics and the two influencial economists (I have mentioned Keynes-Hayek debate in the past here.)

One quote:
"After Britain declared war on Germany, Hayek found himself shut out of war work on account of his alien status, despite having become a British citizen. His contribution, he decided, would be to write a book warning Western intellectuals that -- as he had concluded from his own country’s history in the 1920s and 1930s -- the road to totalitarianism, whether of Hitlerian or Stalinist variety (Stalin then being Hitler’s ally), started on the slippery slope of well-intentioned government interference in the private sector."

On stereotypes

Some stereotypes are so persistent that journalists don't even bother to check, whether the stereotype is true or not. A sentence that caught my eye in this article is:
"The only president who absolutely refused to tell jokes at his own expense was Richard Nixon."

It turned out that I know a clear example to the opposite: here is a video of Nixon's farewell speech to the White House stuff: "As you know, I don't like to read books... I am not educated, but I do read books [laughter in the audience]"


Addition: in today's issue of The New Republic you may enjoy extremely funny (and relatively truthful) character assassination piece on Michele Bachman and Rick Perry.

Rothschild or Tahrir? - Spectacular ideological failure of the "Tent City"

While the "tent city"  protests in Israel were supported by the majority of the population and lasted for a few weeks, their ideological failure was spectacular:

- The protesters have never managed to formulate coherent and realistic demands, beyond vague requests for cheaper rent/real estate prices and even more vague "social justice"

- Despite wide support among population, they failed to change in any significant way the support given by the Israelis to various political party. The ruling coalition maintained its support by simply refusing to cave to the silly demands and continuing to propose realistic solutions.

- The protesters failed to form a coherent political movement, apart from jump-starting the political careers of a few leaders.

- They have alienated many observers in Israel and around the World by marching with portraits of mass-murderer Che Guevara, as well as by carrying red flags (Russian Israelis, most notably, could not bring themselves to protest alongside a red flag)

- The p;rotesters's naivete perhaps culminated in renaming the Rothschild boulevard into Tahrir square. This showed the protester's inability to distinguish between what happened earlier this year in Egypt and the protests in Israel: Anti-Mubarak protesters in Tahrir square fought for for basic rights, risking their lives during this fight. The well-off middle-class Israelis in the Rothschild demanded even better life, and used their right to p[rotest, guaranteed by the Israel's democratic system.

Yet, renaming Rothschild into Rothschild-Tahrir demonstrates even greater irony in the "tent city" protesters's quest against the rich and for "social justice": Rothschild was a very rich man who contributed greatly by his fortune and political influence to help the Jewish people and to build the Jewish state. The Tahrir protesters have recently showed that the one thing that is more important for them than "social justice" is... their hatred for Israel.

Current situation and Romney's economic plan

New Greg Mankiw's article in New York Times. Don't disregard it as merely "conservative thinking" - the first half of the article is an overview of the current economic situation which is unbiased and enlightening.

In the second part of the article Mankiw does express his view on the economic recovery: he opposes the "traditional fiscal stimulus", and instead argues for 1) lower taxation of income from corporate capital; 2) more pro-business policies, such as passing the free trade agreement with South Korea and reigning in the National Labor Relations Board, i.e. reducing unions's interference with businesses.

One may recognize the points of the economic plan recently unveiled by Mitt Romney - and indeed, Mankiw is apparently advising Romney's campaign on the economic matters.  

Taxes on the "rich": Common sense versus Economic analysis

Below are some additional thoughts regarding the ongoing debate on whether the "rich" should pay higher taxes in order to provide for the well-being of the "poor". I previously touched on the subject here.

(I put "rich" and "poor" in the quotation marks, since in the modern developed countries most of those who qualify for tax purposes as rich/poor are really the members of the middle class.)  

The common sense point of view is based on the concept of "social justice" - some people are more fortunate and should share with those who happened to be less lucky. This point can be perhaps made stronger by noting that the "rich" and their furtunes benefit from the protection of the state that they live in and therefore the state may demand from them to contribute a higher share.

Of course, the opposite argument can be made, based on the concept of "individual freedom": very often  wealth is a result of hard work put into earning and maintaining this wealth, so why should anyone share the results of his/her hard labor with others?

Of course, both of these points are philosophical and can hardly be convincing for the opponents of either. In addition, the debate nowadays is really not about whether the "rich" should help the "poor", but to which extent they should help: the tax-based government assistance ranges rom providing food and shelter to those who are truly poor to funding university scholarships and house-mortgages, which are really the benefits enjoyed by the middle class (although someone truly poor may call them "luxuries")

There are however some economic arguments which make clear that the "tax the rich" debate is not merely a matter of moral attitudes (as could be concluded from the political debates, where each side often blames the opponents for denying "social justice" or "personal freedom" .)

Here are two points to consider:

1. Tax incidence Who pays the tax? Most of the modern "rich" are owners of businesses who benefit from using other people's labor and selling the produce of their enterprize. The businesses minimize the reduction of their profits due to taxation by raising the prices, and lowering the wages or reducing the number of their employees. Thus, a part of the tax levied on the "rich" really falls on consumers and workers. How big is that part is apparently still debated by the economists. Yet, one should be aware that the "tax on rich" may really be more of a burden the "poor"

2. Laffer curve Raising the tax rates does not necessarily increase he revenue that the government receives from the taxes. This is exemplified by so-called "Laffer curve", which is based on a very simple logical argument:

Laffer curve

"The curve is constructed by thought experiment. First, the amount of tax revenue raised at the extreme tax rates of 0% and 100% is considered. It is clear that a 0% tax rate raises no revenue, but the Laffer curve hypothesis is that a 100% tax rate will also generate no revenue because at such a rate there is no longer any incentive for a rational taxpayer to earn any income, thus the revenue raised will be 100% of nothing. If both a 0% rate and 100% rate of taxation generate no revenue, it follows that there must exist at least one rate in between where tax revenue would be a maximum." [Emphasis mine]

If the tax rates are on the downward slope of the curve, then the way to increase the tax revenue is by reducing the rates rather than by increasing them! This observation led to what has become known as the "supply side economics", which was the basis for the tax policies of Ronald Reagan. The policies did not succeed, since every group of the society responds to tax insensitives differently: as the result of the Reagan's policies the revenues did not increase, but decreased. With the government spending on the same level as before this lead to the growing national deficite. 

Yet, Laffer curve may work, if the lower tax rates are applied to certain groups of society that respond to tax insensitives, and such a group of the society turns out to be... the "rich". Here is what Greg Mankiw's economics textbook says on the subject:

"Yet Laffer’s argument is not completely without merit. Although an overall cut in tax rates normally reduces revenue, some taxpayers at some times may be on the wrong side of the Laffer curve. In the 1980s, tax revenue collected from the richest Americans, who face the highest tax rates, did rise when their taxes were cut. The idea that cutting taxes can raise revenue may be correct if applied to those taxpayers facing the highest tax rates. In addition, Laffer’s argument may be more plausible when applied to other countries, where tax rates are much higher than in the United States. In Sweden in the early 1980s, for instance, the typical worker faced a marginal tax rate of about 80 percent. Such a high tax rate provides a substantial disincentive to work. Studies have suggested that Sweden would indeed have raised more tax revenue if it had lowered its tax rates." [Emphasis mine]

Thus, astonishingly, the tax cuts aimed specifically at the "rich" may raise tax revenue to the greater benefit of the "poor"!

In conclusion, I would like to reiterate my main point: the question of whether the rich should pay higher taxes is more than a philosophical discussion of "social justice" versus "individual freedom". Deeper economic arguments can be made to support the point of view that lower taxes on the wealthier members of the society can be beneficial to the poorer ones. In fact, we have to separate the question into two: i) whether the "rich" should be responsible for the well-being of the "poor", and, ii) if "yes", whether the greater benefit to the "rich" (i.e. lower tax rates on high-income earners) and the greater benefit to the poor (more government services due to the higher tax revenue) are mutually exclusive.

Run-up for the Cuban missile crisis

Contrary to the impression that one may receive from the popular historical accounts, the Cuban missile crisis did not come out of nowhere, but had been preceeded by extensive nuclear preparations. It is hardly conceivable that during the previous year either Kennedy or Khrushchev had any doubts that they were gearing up for the total war:

"What followed was a veritable nuclear-testing frenzy. More than 250 tests were conducted in the 16 months following the aborted attempt to put the nuclear genie back in its bottle – more explosions than in the 16 preceding years. One test explosion set the infamous record for the largest-ever manmade explosion: the Soviet Tsar bomb, detonated on October 30, 1961, was the equivalent of 4,000 Hiroshima bombs. It is no coincidence that a year later, in October 1962, the world found itself on the brink of nuclear war during the Cuban missile crisis." [Emphasis mine]