MONDAY, JUNE 28, 2010 ROBERT J. SAMUELSON


The shaky science


“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. . . . Practi- cal men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” —English economist John Maynard Keynes (1883-1946)


A


lmost everyone wants the world’s governments to do more to revive ailing economies. No one wants a


“double dip” recession. The Group of 20 Summit in Toronto was determined to avoid one. In major advanced countries — the 31 members of the Organization for Economic Cooperation and Development — unemployment stands at 46.5 million people, up about 50 percent since 2007. It’s not just that people lack work. Lengthy un- employment may erode skills, leading to downward mobility or permanent jobless- ness. But what more can governments do? It’s unclear. We may be reaching the limits of eco- nomics. As Keynes noted, political leaders are hostage to the ideas of economists — living and dead — and economists increas- ingly disagree about what to do. Granted, the initial response to the crisis (sharp cuts in interest rates, bank bailouts, stimu- lus spending) probably averted a depres- sion. But the crisis has also battered the logic of all major theories: Keynesianism, monetarism and “rational expectations.” Economics has become the shaky science; its intellectual chaos provides context for today’s policy disputes at home and abroad.


Consider the matter of budgets. Would


bigger deficits stimulate the economy and create jobs, as standard Keynesianism sug- gests? Or do exploding government debts threaten another financial crisis? The Keynesian logic seems airtight. If consumer and business spending is weak, government raises demand through tax cuts or spending increases. But in practice, governments’ high debts impose financial and psychological limits. The ratio of gov- ernment debt to the economy (gross do- mestic product) is 92 percent for France, 82 percent for Germany and 83 percent for Britain, reports the Bank for International Settlements in Switzerland. This means that the benefits of higher


deficits can be lost in many ways: through higher interest rates if greater debt fright- ens investors; through declines in private spending if consumers and businesses lose confidence in governments’ ability to con- trol budgets; and through a banking crisis if bank capital — which consists heavily of government bonds — declines in value. There’s a tug of war between the stimulus of bigger deficits and the fears inspired by bigger deficits. Based on favorable assumptions, the Obama administration says its $787 billion “stimulus” program created or saved up to 2.8 million jobs. This might be. Lenders haven’t lost confidence in U.S. Treasury bonds. Interest rates on 10-year Treasurys are just over 3 percent. But in Europe, fi- nancial limits have bitten. Greece’s huge debt (debt-to-GDP ratio: 123 percent) re- sulted in a steep rise of interest rates. Ger- many and Britain are debating plans to cut their deficits to avoid Greece’s fate. That’s lunacy, writes Martin Wolf, chief economic commentator for the Financial Times. Concerted austerity may destroy the recovery. Exactly, echoes Nobel Prize- winning economist and New York Times columnist Paul Krugman, who argues that the U.S. economy needs more stimulus and bigger deficits. “Penny-pinching at a time like this . . .,” he writes, “endangers the nation’s future.” Not so, counters Harvard economist


Ken Rogoff. President Obama’s stimulus package may have “helped calm the panic” in 2009, but boosting spending now — with federal deficits exceeding $1 trillion — raises “the risk of having a debt crisis down the road.” Deficits should be gradu- ally trimmed, he argues. Indeed, some economists believe that


budget cutbacks can stimulate economic growth under some circumstances. A study by economists Alberto Alesina and Silvia Ardagna found that budget cutbacks in wealthy countries often had an expan- sionary effect when spending reductions, not tax increases, were emphasized. Pre- sumably, these budget plans favorably in- fluenced interest rates and confidence without weakening the incentives to work and invest. Like textbook Keynesianism, “moneta-


rism” has also suffered in its explanatory power. This theory holds that big in- jections of money (“reserves”) into the banking system by the Federal Reserve should lead to higher lending, higher spending and — if large enough — in- flation. Well, since the summer of 2008, the Fed has provided about $1 trillion of reserves to banks, and none of these things has happened. Inflation remains tame, and outstanding bank loans have dropped more than $200 billion in the past year. Banks are sitting on massive excess reserves. There’s a great deal economists don’t understand. Not surprisingly, the adher- ents of “rational expectations” — a theory that people generally figure out how best to respond to economic events — didn’t anticipate financial panic and economic collapse. The disconnect between theory and reality seems ominous. The response to the initial crisis was to throw money at it — to lower interest rates and expand budget deficits. But with interest rates now low and deficits high, what happens if there’s another crisis?


JACKSON DIEHL


Flirting with zealotry Another U.S. friend waxes anti-Israel


A


nwar Ibrahim, the leader of Malaysia’s political opposition, has become known over the past decade as one of the foremost advocates of liberal democracy in Muslim coun- tries. His many friends in Washington include promi- nent members of the neocon- servative movement — such as Paul Wolfowitz, the former World Bank president and U.S. ambassador to Indone- sia — as well as such Demo- cratic grandees as Al Gore. Lately, Anwar has been


getting attention for some- thing else: strident rhetoric about Israel and alleged “Zi- onist influence” in Malaysia. He recently joined a demon- stration outside the U.S. em- bassy in Kuala Lumpur where an Israeli flag was burned. He’s made dark in- sinuations about the “Jewish-controlled” Wash- ington public relations firm Apco Worldwide, which is working for Malaysia’s quasi- authoritarian government. Therein lies a story of the Obama era — about a belea- guered democrat fighting for political and personal sur- vival with little help from Washington; about the grow- ing global climate of hostility toward Israel; and about the increasing willingness of U.S. friends in places such as Turkey and Malaysia to exploit it.


First, a little about Anwar: While


serving as deputy prime minister under Malaysian strongman Mahathir Moha- mad in the 1990s, he began pushing for reforms — only to be arrested, tried and imprisoned on trumped-up charges of homosexual sodomy. Freed after six years, he built a multiethnic democratic opposition movement that shocked the ruling party with its gains in recent elections. It now appears to have a chance at winning the next parliamen- tary campaign, which would allow Ma- laysia to join Indonesia and Turkey as full-fledged majority-Muslim democra- cies. Not surprisingly, Anwar is being pros-


ecuted again. Once again the charge is consensual sodomy, which to Malaysia’s discredit remains a crime punishable by whipping and a prison sentence of up to 20 years. Anwar, who is 63 and married with children, denies the charge, and the evidence once again is highly sus- pect. His 25-year-old accuser has con- fessed to meeting Prime Minister Najib Razak and talking by phone with the national police chief in the days before the alleged sexual encounter. Nevertheless the trial is not going well. If it ends in another conviction, Anwar’s political career and his opposi- tion coalition could be destroyed, and his life could be at risk: His health is not great. Yet the opposition leader is not getting the kind of support from the United States as during his first pros- ecution, when then-Vice President Gore spoke up for him. Obama said nothing in public about Anwar when he granted Najib a prized bilateral meeting in Washington in April. After a “senior officials dialogue” be-


tween the two governments this month, the State Department conceded that the ongoing trial again had not been raised, “because this issue was recently dis- cussed at length.” When it comes to hu- man rights, the Obama administration apparently does not wish to be repetitive. Anwar meanwhile found his own way


KLMNO GEORGE F. WILL SAEED KHAN/AFP/GETTY IMAGES


Malaysian opposition leader Anwar Ibrahim speaks at an anti-Israel rally in front of the U.S. embassy in Kuala Lumpur this month.


to fight back. Hammered for years by government propaganda describing him as an Israeli agent and a Wolfowitz- loving American lackey, he tried to turn the tables, alleging that Apco was ma- nipulating the government to support Israeli and U.S. interests. He also said that Israeli agents had infiltrated Ma- laysia’s security forces and were “direct- ly involved in the running of the government.” Najib describes Israel as “world gang-


sters.” But he quickly turned Anwar’s words against him; Apco has been ped- dling the anti-Israel statements around Washington. Anwar is like Turkish Prime Minister Recep Tayyip Erdogan, whom he re- gards as a friend and fellow traveler. Both know better than to indulge in such stuff. Both have recently begun to do it anyway — after a year in which the Obama administration has frequently displayed irritation with Israel. “If you say we are growing impatient with Is- rael, that is true,” Anwar told me. “If you say I am not too guarded or careful in what I say sometimes, that is also true.” Anwar, who was in Washington for a couple of days last week, spent a lot of time offering explanations to old friends, not to mention House Foreign Affairs Committee Chairman Howard Berman and a Jewish leader or two. He said he regretted using terms such as “Zionist aggression,” which are com- mon coin for demagogues like Mah- moud Ahmadinejad. “Why do I need to use it if it causes so much misunder- standing?” he said. “I need to be more careful.” Many of the Malaysian’s friends are inclined to give him a break. “What An- war did was wrong, but considering that he’s literally fighting for his life — physically as well as politically — against a government that attacks him as being ‘a puppet of the Jews,’ one should cut him some slack,” Wolfowitz told me. But Anwar’s story can also be read as


a warning. His transition from pro- American democrat to anti-Israeli zeal- ot is sobering — and it is on the verge of becoming a trend.


POST PARTISAN


Excerpts from The Post’s opinion blog, updated daily at washingtonpost.com/postpartisan


KATRINA VANDEN HEUVEL


A free pass for the corrupt


Hold on to your wallet. In a galling decision Thursday, the Su- preme Court has made it clear: American government exists to protect unprincipled corporations and corrupt public officials from citizens, not the other way around. In their evisceration of the federal honest- services law, which states that American citi- zens have an “intangible right” to expect “honest services” from corporate executives and public servants, the nine justices have essentially deemed it more important to save the top dogs of business and government from prosecution than to protect Americans from getting fleeced. Justice Antonin Scalia has been eager to


attack the honest-services law for some time. The law, he wrote last year, is “invoked to im- pose criminal penalties upon a staggeringly broad swath of behavior.” But if you have any doubt as to whether the ruling was a good idea, look at the first two beneficiaries of the decision: Enron’s Jef- frey Skilling and Hollinger’s Conrad Black. Because their convictions were based on


violations of a law now determined to be too vague to count, Skilling and Black — two of the 21st century’s most rapacious CEOs— get


a mulligan in their legal efforts to spring themselves from jail. Now, the court did include some nuance in its decision: Bribes and kickbacks will con- tinue to be illegal under the law. But unless the law is rewritten (which Justice Ruth Bad- er Ginsburg, a New York Times editorial stat- ed, “practically invited” Congress to do), oth- er dishonest behavior will be tolerated be- cause it isn’t explicitly outlawed. Though the majority opinion stated that


the “solid core” of the honest-services law re- mains intact, Melanie Sloan, executive direc- tor of Citizens for Responsibility and Ethics in Washington, disagrees. Bribery, she says, which must entail a specific quid pro quo, is hard to prove in corporate and governmental realms. And in the Enron and Hollinger scandals, kickbacks weren’t part of the pros- ecutors’ cases. In the public sector, lobbyist Jack Abramoff created a climate of corrup- tion that included free dinners, tickets to sporting events and overseas trips, but he did not specifically engage in tit-for-tat bribery with government officials. Still, Sloan says, after being showered with such largess, “Public servants were willing to do things that were not in the public interest.” But if a CEO can come up with a newway to loot his company, says Sloan, there is little the law can do to stop him from robbing shareholders. Because the honest-services law is the single most-used statute in the prosecution of corrupt public officials, the ruling robs prosecutors of a vital weapon.


tellectual snap, crackle and pop, here are some questions the Senate Judicia- ry Committee can elate her by asking:  Regarding campaign finance “re- forms”: If allowing the political class to write laws regulating the quantity, con- tent and timing of speech about the political class is the solution, what is the problem?  If the problem is corruption, do we not already have abundant laws pro- scribing that?  If the problem is the “appearance” of corruption, how do you square the First Amendment with Congress re- stricting speech to regulate how things “appear” to unspecified people?  Incumbent legislators are constant- ly tinkering with the rules regulating campaigns that could cost them their jobs. Does this present an appearance of corruption?  Some persons argue that our nation has a “living” Constitution; the court has spoken of “the evolving standards of decency that mark the progress of a maturing society.” But Justice Antonin Scalia, speaking against “changeabili- ty” and stressing “the whole antievolu- tionary purpose of a constitution,” says “its whole purpose is to prevent change — to embed certain rights in such a manner that future generations cannot readily take them away. A soci- ety that adopts a bill of rights is skepti- cal that ‘evolving standards of decency’ always ‘mark progress,’ and that societ- ies always ‘mature,’ as opposed to rot.” Is he wrong?  The Ninth Amendment says: “The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.” The 14th Amendment says no state may abridge “the privileges or immunities” of U.S. citizens. How should the court determine what are the “retained” rights and the “privileg- es or immunities”?  The 10th Amendment (“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”) is, as former Delaware governor Pete du Pont has said, “to the Constitution what the Chicago Cubs are to the World Series: of only occasional ap- pearance and little consequence.” Were the authors of the Bill of Rights silly to include this amendment?  Should decisions of foreign courts, or laws enacted by foreign legislatures, have any bearing on U.S. courts’ in-


E.J. DIONNE JR.


change in the way liberals argue about the judiciary. Democratic senators are planning to put the right of citizens to challenge corporate power at the center of their critique of activist conservative judg- ing, offering a case that has not been fully aired since the days of the great Progressive Era Justice Louis Brandeis. It was Brandeis who warned against


the “concentration of economic pow- er” and observed that “so-called pri- vate corporations are sometimes able to dominate the state.” None of this means that Kagan’s nomination is in jeopardy. On the con- trary, she will be approved easily, and should be. She will be calm and reas- suring during the hearings that start Monday. And unless we live in an age of partisan double standards, she can’t be asked to be any more forthcoming about her views than were Chief Jus- tice John Roberts or Justice Samuel Alito.


But if Kagan’s job is to get con-


firmed, the task of progressive mem- bers of the Senate Judiciary Commit- tee is to reverse the effects of years of conservative propagandizing over the stakes in our debates about the na- tion’s highest court. They will be pushing the narrative


away from the hot-button social issues that have been a distraction from the main game: the use of the Supreme Court as a redoubt against progressive legislation, the right of plaintiffs to call corporations to account before juries and the ability of the political system to protect itself against corruption. Leading this charge will be two re- cently elected Democratic senators who are free of the constraints im- posed by the controversies of the past, Sheldon Whitehouse of Rhode Island and Al Franken of Minnesota. Whitehouse, formerly his state’s at-


torney general, was one of the most outspoken voices during Justice Sonia Sotomayor’s hearings last year. He bat- tled — largely in vain — against Re- publican efforts to turn the hearings into a rally on behalf of a definition of “judicial restraint” that would have judges approve whatever items hap- pen to be on the conservative agenda. It’s amazing how often conservative


judges use the “original intention” of our Founders to conclude that Jef- ferson, Hamilton and Madison were simply card-carrying members of the American Conservative Union. This time, Whitehouse told me, he


Whose court is it? T


his week’s hearings over Elena Kagan’s nomination to the Su- preme Court will mark a sea


Questions for Kagan P


ursuant to Elena Kagan’s ex- pressed enthusiasm for confir- mation hearings that feature in-


R


A15


terpretations of the Constitution or federal laws (other than directly bind- ing treaties)?  The Fifth Amendment says private property shall not be taken by govern- ment for public use without just com- pensation. But what about “regulatory takings”? To confer a supposed benefit on the public, government often re- stricts how persons can use their prop- erty, sometimes substantially reducing the property’s value. But government offers no compensation because the property is not “taken.” But when much of a property’s value is taken away by government action, should owners be compensated?  In Bush v. Gore, which settled the 2000 election, seven justices ruled that Florida vote recounts that were being conducted in different jurisdictions under subjective and contradictory standards were incompatible with the Constitution’s guarantee of “equal pro- tection of the laws.” Were they right?  In Bush v. Gore, five justices held that Article II of the Constitution gives state legislatures plenary power to set the rules for presidential elections. The Florida legislature fashioned elec- tion rules to produce presidential elec- tors immune from challenge by Con- gress. But the legislature said that im- munity depended on electors being chosen by a certain date, which could not be met if further recounts were to ensue. The court held that allowing more recounts would have contra- vened the intent of Florida’s legisla- ture. So the recounts were halted. Was the court’s majority correct?  Justice Thurgood Marshall, for whom you clerked, said: “You do what you think is right and let the law catch up.” Can you defend this approach to judging?  You have said: “There is no federal constitutional right to same-sex mar- riage.” But that depends on what the meaning of “is” is. There was no consti- tutional right to abortion until the court discovered one 185 years after the Constitution was ratified, when the right was spotted lurking in emana- tions of penumbras of other rights. What is to prevent the court from simi- larly discovering a right to same-sex marriage?  Bonus question: In Roe v. Wade, the court held that the abortion right is different in each of the three trimes- ters of pregnancy. Is it odd that the meaning of the Constitution’s text would be different if the number of months in the gestation of a human in- fant were a prime number?


georgewill@washpost.com


plans to focus on how conservative courts have limited plaintiffs’ rights to challenge corporations before juries by restricting the right to sue and on the evidence that can be brought into play.


“Corporations hate juries,” White- house said. “It’s the one part of govern- ment you can’t buy.” He will link this argument with a challenge to the Su- preme Court’s appalling Citizens Unit- ed decision, which gives corporations virtually unlimited rights to spend money to influence elections. Invok- ing the baseball-umpire metaphor made popular by Roberts, Whitehouse observed that “corporations have a dif- ferent strike zone in the Supreme Court than regular people.” Franken previewed his approach in a powerful speech to the American Constitution Society this month that has made conservatives unhappy. Franken argued that the right has dominated the judicial debate by sug- gesting that “the Court’s rulings don’t matter to ordinary people” through a focus on cases involving late-term abortion, flag-burning and pornog- raphy. The time has come, Franken said in an interview, for progressives to recog- nize that Roe v. Wade has distracted at- tention from what is now at the heart of the judicial controversy: the ability of individuals to assert their rights against corporations.


“If you use a credit card, if you work, if you drink water, you’re affected by the court,” he said. “Roe is important, but there’s this whole other area we weren’t talking about.” In his speech, Franken cited a long list of conservative rulings that power- fully affected average citizens: deci- sions against shareholders’ rights, against workers fighting for their pen- sions, against small-business owners battling price-fixing, against environ- mentalists trying to protect wetlands — and, note well, in favor of Exxon when it capped punitive damages for the Valdez oil spill. How will this argument affect Ka-


gan? It puts her in a perfect position to tell Republican senators what they claim to want to hear: that she is reso- lutely opposed to “legislating from the bench.”


At this moment, those words would signal her refusal to join a conserva- tive majority on the court determined to enhance the power of private corpo- rations and to undermine the right of our government’s elected branches to legislate and regulate in the public interest.


ejdionne@washpost.com


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48