A Culture of Overcompensation

Within the executive suites and throughout the finance industry, a culture has developed that divorces compensation from performance. The rationale is pretty consistent, as described by William Cohan:

The gibberish about needing to pay that much just to keep superstars from fleeing to private-equity firms or hedge funds is just another Wall Street myth. The truth is most of them are lucky to have a job at all and they know it.

Within the finance industry, this has translated into compensation disproportionate not only to performance, but to the value of work performed - "compensation has historically consumed half or more of every dollar of revenue generated on Wall Street".

As for the executive suite, if CEO's truly believed they were worth their salaries, or that they were such hot properties that they could easily get the top job at another corporation, I doubt that they would invest so much energy into fashioning themselves glorious golden parachutes before agreeing to lead a company.
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Update: Let me guess... If they didn't get paid this much, they'd quit? And that would be so sad....

Spinning Conspiracy Theories Is Fun....

But you can be a lot more convincing than this:

Al Franken could win the recount in the Minnesota Senate race.... But odd things have been happening. On Wednesday, the Wall Street Journal noted that Mr. Coleman’s lead has been mysteriously shrinking, even before the recount begins. Election officials in various jurisdictions, mainly liberal, have been discovering “lost” ballots or “miscommunicated” results.

Well, that sounds bad. How about a f'rinstance?

It doesn’t look bright: one very Democratic area has discovered that its ballot-counting machines registered overwhelming support for Barack Obama but somehow didn’t tally any votes in the Senate race. Hmmm. Guess who those will turn out to favour.

Well, you don't have to be very smart to recognize that a district that has any appreciable number of voters, but where zero votes are cast for the U.S. Senate, odds are that you have a bona fide undercount. You don't have to be very smart to realize that in a district that has overwhelming support for Obama is likely to have at least majority support for Franken. And you don't have to be very honest to acknowledge that there's basis for alleging "conspiracy" in the counting of votes that were actually cast but inadvertently omitted from the first vote count.

So, what's the National Post's excuse, other than perhaps a desire to join the WSJ in a "race to the bottom" for editorial page partisan hackery? (And why aren't they obsessing over the vote count in a Canadian riding somewhere? Surely there's a fake scandal they can gussie up somewhere in Canada....)

The result is critical because the Democrats are three seats away from absolute control of the Senate, and two other states - Georgia and Alaska - also remain unsettled. If the Democrats somehow take all three, Republicans might as well spend the next four years on the beach.

For all the National Post's whinging about the possibility of the Democrats having a sixty vote majority in the Senate, I doubt that they would be expressing equal concern over a Conservative majority government in Canada's Parliament. But they should relax. It's extremely unlikely that the Democrats will win all three seats and, even if they do, Lieberman has all-but-promised to join Republican filibusters, so on many important issues they would still really be a seat short.

Corn, Corn, Everywhere....

An analysis of fast food shows that corn is an enormous component of virtually all fast food products. No surprise there. For goodness sake, I'm eating a raw carrot right now but, with the amount of corn in our food supply, I wouldn't be surprise to find out it's somehow made out of corn.

The part that might surprise you, though:

By analyzing the biochemical makeup of the food, the researchers found that 100 percent and 93 percent of the cows responsible for the hamburgers and chicken sandwiches had lived on exclusively corn-based diets.

Let's hope that was intended to be "cows and chickens", because otherwise I really don't want to know how McNuggets are made....

Is It "Unfair" To Let Detroit Collapse

Leave it to a conservative. In comments, CWD raises the question of whether it's fair to allow domestic auto makers to fail given the gargantuan financial industry bailout. Oh, I kid CWD. He actually argues, quite correctly, "I've pretty much always been opposed to the idea that we have to do something stupid and wasteful again just because it wouldn't be 'fair' not to do so".

Certain ideologues who favored the financial industry bail-out, while opposing an auto industry bailout, are engaged in some interesting contortions to avoid admitting their hypocrisy. Charles Krauthammer tells us that one's okay but not the other, because the financial industry is a "utility" - directly analogous to the electrical company. Except the government is not regulating the financial industry in the manner that it regulates utilities - is that something Krauthammer wants? Nor was it ever likely that the entire economy would shut down absent a bailout of the financial industry. It's not clear what would have happened, and fear has played a big role in the size of the bailout and the inadequacy of oversight. And I don't recall the federal government rushing in to save California from brownouts and rolling blackouts back in the glory days of Enron, or rushing in to update the electrical grid after the 2003 blackout.

David Brooks is more poetic in his explanation of the difference,

This is a different sort of endeavor than the $750 billion bailout of Wall Street. That money was used to save the financial system itself. It was used to save the capital markets on which the process of creative destruction depends.

Well, no. In the same sense that Brooks contends that keeping the big three from collapsing would retard "creative destruction", so does the choice to prop up large financial institutions instead of letting them fail, or letting them be carved up and sold off in smaller pieces. There's no sense in arguing the glory of "creative destruction" if you're going to simultaneously exempt from its forces the institutions that supposedly drive it. Also, isn't "creative destruction" about more than destruction - what does Brooks propose will be created in the place of the destroyed automobile industry? (One wonders, also, why Brooks isn't spending any time describing how his employer might avoid "creative destruction", beyond suggesting that it should get a bailout if Detroit is rescued.)

In an interesting series of posts at the Atlantic, Megan McArdle takes on the question of fairness, asking in some earnestness if an auto industry bailout means that the government should also bail out companies like Kodak. But that's a slippery slope argument, already implicated by the financial industry bailout. If we can draw a line before bailing out the auto industry, we can draw a line afterward. McArdle correctly argues that the bailout is unlikely to change "business as usual" at a domestic auto company or the UAW. True, but that's not a distinction from the bailout of the financial industry, which is now preparing to shower its workers with generous bonuses and pay dividends to shareholders courtesy of the U.S. taxpayer.

There are also fundamental differences between allowing a company like Kodak to fail because it didn't sufficiently anticipate and respond to the rise of digital technologies and its effect on the sales of photo chemicals, and allowing the auto industry to fail. Sorry, Kodak, but you represent a much smaller, less vital part of our economy. And unlike a context where a dinosaur is allowed to dwindle or die because it didn't respond to the market calling for a different product, this is a failure in competition between companies offering similar products. Suggestions to the contrary aside, assuming for example that GM fails, a post-collapse consumer is going to buy a roughly equivalent car from one of the remaining auto makers.

Hype green technologies all you want, but the consumer's choice is more likely to be driven by gas prices than by the availability of hybrid or flex fuel technologies, and the Japanese auto companies sell trucks and SUV's with gas engines in order to meet that demand. If the big three fail, cars will continue to be made, but the profits from those sales will flow to foreign companies and the instinct of those companies, faced with economies like the one we're in, will likely be to shutter U.S. plants ahead of those situated in the countries where they are based. High tech jobs in the auto fields will filter out of the U.S., so we need to ask ourselves whether those are the jobs we want to lose? (And that's before considering the jobs and businesses that would collapse across the country in the event of an auto industry collapse. No matter how much you hate unions, it's insane to be hoping for the death of the Big Three.)

I'm less concerned about an unlikely future where this leads to our bailing out Kodak, than I am of GM coming back in thee years, or maybe three months, begging for more cash - can we offer this bail-out without doing exactly what Henry Paulson and GW are doing with the metastatic financial industry bailout?

McArdle is correct in suggesting that any bailout should return a net gain to society, and that it is not clear that the current proposal would do so. Would bankruptcy? The fallout from bankruptcy for GM itself may be worse, but what if you instead used that bailout money to soften those consequences, or held it in reserve to potentially help a stripped-down, post-bankruptcy GM? I'm not big on the Thomas Friedman model of trying to force the Big Three to reinvent their vehicle line-up in his preferred image. The priority needs to be on creating viable companies, not on forcing them to incorporate technologies into their fleets that will either require massive government subsidies or price their vehicles far above competing models.

The WSJ proposal that if we're bailing out the auto industry to the tune of $25 billion or more, existing shareholders should be wiped out, seems to be on the mark. If we prefer a bail-out to bankruptcy, make it "bankruptcy lite" - a more efficient, industry focused version of bankruptcy, but with pretty much the same goals in mind. Not long-term stewardship, micromanagement, or redesigning vehicle fleets by committee. If you want to impose green reforms, do them legislatively and impose them on all new vehicles, so that the "new GM" can compete on equal ground. Perhaps more importantly, it isn't clear that an auto manufacture could survive bankruptcy - that they could maintain the cash flow necessary to stay in operation if they're unable to obtain and maintain enormous lines of credit. A specially legislated "bankruptcy lite" might bring about the benefits of bankruptcy without killing the company or impairing its ability to sell cars.

Something that seems to get lost in the noise, particularly the anti-union, "those workers get paid too much" noise, is that it's not only the labor cost differential that makes it hard for the Big Three to profitably sell smaller, cheaper cars. Take a look at vehicle sales in recent years. If domestic auto makers could avoid the discounting they have to offer to make their "comparable" cars competitive with cars from companies like Toyota or Honda, this would be much less of an issue. Instead, the labor cost differential is magnified by the need to offer discounts and incentives to people who are prepared to pay close to MSRP for a "comparable" quality vehicle.

Some painful truths. It isn't clear at this point that a financial industry-style bailout (no strings attached, here are billions to spend on whatever you think is best) would do more for the auto industry than forestall their collapse by a period of months or maybe years. It does not appear that, left to their own devices, the domestic auto manufacturers will get it together to manufacture vehicles that compete in terms of quality, design, or economy (in what I personally regard as an inevitable return to high gas prices) before they again hit a financial wall. But it isn't clear that any bailout, bankruptcy, or "bankruptcy lite" will turn them into viable companies - the context is created for that possibility, but these are sick giants with a corporate culture that has largely fought, tooth and nail, against the type of evolution that is required. Their progress over the past few years gives some hope, but it's only a modest beginning.

But doing nothing, if it leads to the collapse of one or more of these companies, will almost certainly deepen and prolong our recession while effectively ceding a big money, high tech manufacturing industry to foreign companies. So all said, at this point I would argue for "bankruptcy lite", for any of the Big Three that feels it cannot otherwise survive, and otherwise let market forces prevail.

Meanwhile, In Japan

Because the domestic auto industry's situation is unique, and car manufacturers wouldn't be in this situation if they only built more cars like the Prius, right?

Plans to make the Toyota Prius at the carmaker's new U.S. plant in Mississippi are being reviewed by a new emergency task force charged with propping up the company's profits.

U.S. production of the Prius, originally scheduled to begin in 2010, could now be pushed back to 2011 or later, Japan's Nikkei newspaper reported November 14, without citing sources.

Okay, but if had the domestic auto manufacturers focused on quality, smaller, more fuel efficient vehicles, or didn't have so many UAW plants, they would still be rolling in dough, right?

The task force, chaired by President Katsuaki Watanabe, was formed after Toyota booked an operating loss in North America for the first half and slashed its full-year earnings forecast.

What this illustrates is not that the Big Three have been unduly criticized for their bad management and poor strategies. It highlights how, in an economic downturn, even the best run companies can lose money. And how nothing the critics of an auto industry bailout are advocating is likely to quickly, and perhaps not even slowly, turn around the plight of domestic auto makers. Not even if Toyota handed them its hybrid technology and the keys to its Mississippi manufacturing plant.

Meanwhile, let's keep in mind that the Big Three have a point, in that a lot of domestic auto buyers really do want a huge, overpriced, gas guzzling SUV sitting in their driveway. Gas prices are down this month? Do I even need to tell you what that means, or have you guessed - SUV sales are up. If not for the economic downturn, burst housing bubble and credit crunch, the Big Three would probably be seeing SUV sales figures as high as last year's, as if the summer's record gas prices never happened.

Although the Big Three have improved their quality over the past few decades, they still lag behind major foreign auto manufacturers. I don't want to understate the importance of their ceding short- and (moreso) long-term quality to companies like Honda and Toyota. But there's something else to keep in mind: One of the reasons that auto manufacturers coming out of Europe or Japan build compact, fuel efficient vehicles is that's what their domestic consumers want. It's what we want when gas hits $4/gallon - prices comparable to those long seen in Europe or Japan? Is that supposed to surprise us - we truly believed Europeans and Japanese to be alien creatures who love packing themselves into tiny cars? Are we supposed to be surprised that gas prices hit the $4 mark and, despite the current drop, are going to hit and exceed that mark in the future?

The myopia here is not just out of Detroit - far from it. Congress worked hand-in-hand with domestic auto makers to create the context for this crisis. You know what might have forced the Big Three to develop a business model that is more realistic in a world of $4/gallon gas? Not carving out dishonest exceptions from CAFE standards to avoid classifying SUV's as passenger vehicles.

The very same members of Congress who are presently blocking a bail-out are the ones who happily went along with that deceit, concurred with Dick Cheney's notion that doing otherwise would somehow destroy an American way of life in which consumption is king and conservation is for wusses is a "personal virtue", and gleefully chanted "drill, baby, drill" during the presidential race. They're they types who giggled along with caricatures of "Prius-driving liberals". They were backed up by pundits like George Will, who would happily regurgitate any anti-hybrid propaganda, no matter how absurd, such as the fabrication that a Prius costs $3.25 per mile over its lifetime, while a Hummer costs only $1.95. And now they're lecturing the auto industry that they should have been leading the hybrid race? Or that the Big Three exemplify a failure of leadership? Or that they know more about these issues than, say, heads of cabbage? (Not that those who favor the bailout are necessarily any better.)

I know, I know. Building an economy propped up by debt-driven consumer spending and low energy prices was "the free market at work", and preparing for an inevitable future of higher energy costs or reduced credit would have... somehow... been wrong, even if it might have diminished or prevented the present collapse of the economy.

Joe the Blegger

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Ain't celebrity grand?

The Infuriating U.S. Auto Industry

Living in a state that seems to be in a permanent recession, and where it sometimes appears that the state government's leading solution to decades of economic decline is, "Wait until the auto industry rebounds," it's frustrating to see how short-sighted the domestic auto industry is. The auto industry's decline has been actively abetted by Congress which, rather than pressing for fuel economy standards that make sense in the context of the world's oil supply and demand, has time and time again favored consumption over conservation.

Right now the auto industry is hoping to get its hands on $25 billion in loans, already approved by the Bush Administration, to build more fuel efficient vehicles. How fuel efficient? So that they can meet a 35 mpg CAFE standard by 2020. You know, like the Civic Hybrid's 42 mpg combined average, or the 46 mpg achieved by the Toyota Prius. Oh, let's give the domestic auto industry its due - Ford's compact hybrid SUV's combined average is 34 mpg - they're almost there. Too bad it will take another twelve years and $25 billion to get that extra 1 mpg.

If you approach gas mileage honestly, you already know you don't need hybrid technology to achieve 35 mpg. In 1989, 20 years ago, Honda introduced its CRX HF, which achieved a 45 mpg combined average. The Geo Metro achieved similar fuel efficiency. In fairness, the method for calculating fuel efficiency has changed, and these cars would probably get about 38 mpg combined averages by today's standards, probably a bit less for the Metro, although by the same token we could presently build even more fuel efficient versions of those same cars. What those cars do is demonstrate that if you put a small, fuel efficient motor in a small, light car, you can achieve high fuel efficiency - something that, surprisingly, still needs to be said. This is a context where I'll be the first to admit, the CRX and Metro weren't and aren't the cars for everyone. But let's not pretend it's about technology, as opposed to wanting a large set of features and amenities that increase vehicle weight and decrease fuel efficiency. A huge part of the investment in fuel efficiency is about how to squeeze V8 power out of a V6 engine, or how to reduce vehicle weight without reducing size, performance, or amenities.

Criticisms of the auto industry almost always include a potshot at organized labor, if not an outright call to bust the unions. The history of generous union contracts plays a role in the current plight of the automakers, but not in the way that is typically depicted on the Wall Street Journal's editorial page. The Big Three have actually done a respectable job of paring down their labor costs and raising plant efficiency, to the point where the cost of labor provides only a marginal advantage to foreign auto manufacturers. They are weighed down by their huge obligations to retirees - health and pension benefits. A big part of GM's present cash flow problem comes from its obligation to pay billions of dollars to the UAW, to as part of a deal to transfer pension and retiree health care obligations from its books and onto the union.

But unions do remain a part of the problem, in that their lobbying efforts have largely followed those of the Big Three. When the Big Three were making a lot of money selling inefficient, high margin vehicles, the UAW had their back. Big profits mean profit sharing checks, and a possibility to negotiate higher wages during the next round of contract negotiations. I don't find that insidious, so much as short-sighted. It's their job to try to get more money for their members. But while the auto manufacturers themselves bear responsibility for lobbying (and obtaining) fuel efficiency standards and exceptions that let them "build the cars people want" (when gas is less than $4/gallon), and let them avoid investing in the technologies that might allow them to build comparable cars with much greater efficiency, I think that a union has an obligation to look at the long-term as well. Unions are often very willing to ignore the long-term financial picture for an employer or industry, and to sell out new members in favor of obtaining preferential treatment or benefits for their existing members. A union has an obligation to negotiate for the benefit of its members, but UAW-type negotiations seem to focus on existing membership (often at the literal expense of future members, and sometimes also of retirees) over the short term, without regard for the long-term effects on the employer or even themselves.

Is it needless to say? The UAW has joined GM in its quest for a federal bailout. Getting billions in federal money lets everybody avoid making tough decisions, while avoiding the consequences of decades of selfishness, short-sightedness and incompetence. Many opponents of the bailout suggest that it will simply enable "business as usual", and there's little reason to doubt that's what GM and the UAW most desire.

Fred Wilson, a venture capitalist focusing on technology companies, suggests that we should break up the Big Three instead of bailing them out. Unfortunately, it's not that easy. There's no clean way to divide any of the auto makers by product line, let alone to maintain supply contracts and product distribution by product line. I think that forcing the auto manufacturers to become smaller, more nimble, and able to quickly develop and manufacture new products is a good goal; I just don't see that it can be done by breaking them into smaller manufacturers. (If it were feasible to divide a major auto manufacturer and there were buyers willing to purchase individual car brands, I suspect Cerberus would already be taking bids for the various Chrysler brands.)

Thomas Friedman endorses a WSJ-style solution - and I mean that quite literally. He endorses a proposal by Paul Ingrassia, former Detroit bureau chief for the WSJ, as published in the WSJ (and as linked above).

In return for any direct government aid, the board and the management should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver - someone hard-nosed and nonpolitical - should have broad power to revamp GM with a viable business plan and return it to a private operation as soon as possible.

That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others, and downsizing the company. After all that, the company can float new shares, with taxpayers getting some of the benefits. The same basic rules should apply to Ford and Chrysler.

To me, that proposal seems silly. I am not aware of the magic wand you can wave over a major corporation to replace its upper management with "better people" and instantly transform the company into something lean and competitive. If Ingrassia were honest about it, he would be admitting that's what the Cerberus acquisition of Chrysler was supposed to be about - brilliant financial wizards take the company private, install new management, streamline operations, and transform it into a dazzling success. Yet Cerberus has failed in that effort, and Chrysler stands alongside GM and Ford in seeking a multi-billion dollar handout. It also seems absurd to me that a supposedly conservative, pro-business paper would be suggesting yet another socialization of major American companies, with government-appointed management being the cure-all for the failures of the market. The contempt for contracts is also a curious phenomenon - why are WSJ-brand conservatives so quick to call for the shredding of contracts, when the entire business world revolves around reliance on contractual relationships?

Ingrassia should also be aware that the problem with the Big Three's contracts with suppliers is not that they're overpaying. It's that they've always focused on price, and the squeezing of price concessions out of their suppliers, as a first line approach to cost savings. While a company like Toyota works closely with its parts suppliers to increase efficiency and quality - to save money while maintaining or improving quality - the Big Three have had little regard for anything but the bottom line. Even assuming that the suppliers are able to stay in business after a WSJ-style shredding of their contracts, where's the evidence that turning contracts into confetti will translate into even a penny in cost savings? Similarly, given that the largest burden imposed by union contracts has already been incurred and the cost of labor is no longer much higher for the Big Three than for their non-unionized (or largely non-unionized) competitors, how much will the shredding union contracts actually help? And, as with shredding contracts with suppliers, what of the risk that it will disrupt their ability to make cars? Finally, if the shredding of their contracts is of such import, why not refer them to a bankruptcy court where they can do that through a Chapter 11 filing?

Friedman also has some demands of his own:

Any car company that gets taxpayer money must demonstrate a plan for transforming every vehicle in its fleet to a hybrid-electric engine with flex-fuel capability, so its entire fleet can also run on next generation cellulosic ethanol.

I'm not sure what that means. Is Friedman proposing that all new vehicles incorporate those technologies? That they have the capacity to be "upgraded" to hybrid/flex-fuel vehicles? If he wants those technologies built into every new car, does he believe that the path to prosperity involves increasing the cost of every vehicle by a couple of thousand dollars, while we operate on the assumption that ethanol production will become more green (and be less subsidized) in the future? Seriously, I applaud efforts to increase fuel efficiency, achieve energy independence, make cars cleaner and greener, etc., but I don't see much point in creating a context where the government has to grant a multi-thousand dollar subsidy for pretty much every domestically manufactured vehicle in order for it to be price competitive with imports.

Lastly, somebody ought to call Steve Jobs, who doesn’t need to be bribed to do innovation, and ask him if he’d like to do national service and run a car company for a year. I’d bet it wouldn’t take him much longer than that to come up with the G.M. iCar.

This is cute, but it's a bit like a simplified version of Ingrassia's receiver who will magically replace the upper management of the Big Three with people who know how to run car companies. (People from other industries?) Friedman believes that a culture of innovation (let alone a culture of quality) can be instilled in a company simply by switching it's CEO, but how often does that actually happen? History suggests that the opposite is more likely - an ill-suited CEO will damage or crush a culture of innovation (see, e.g., Hewlett-Packard, Yahoo!, Apple during the non-Jobs years, etc.) Also, sometimes those creative, brilliant leaders bring quirks to their companies that can be as problematic as having boring, conservative, rule-by-committee CEO's. (Remember the period when Apple wouldn't build a desktop PC that required an internal fan?).

Although something of an aside, whatever criticism may be fairly directed at GM's leadership, or to idiotic statements on global warming, this assertion by Friedman seems like a cheap shot:

Nothing typified this more than statements like those of Bob Lutz, G.M.’s vice chairman. He has been quoted as saying that hybrids like the Toyota Prius “make no economic sense.”

Lutz is more fully quoted as saying that Prius-style hybrids make no economic sense because their price will never come down. As I interpret his comments, he was simultaneously talking up GM's plug-in hybrid technology (i.e., the Chevy Volt), talking down a competing product (the Prius) and noting what is pretty obvious: current hybrid technology comes at a premium price and, if you can't eliminate that premium, you're unlikely to get the type of market penetration that people like Friedman supposedly want. Further, he made the comments several years ago, and related them specifically to the price of gas at that time.

It just doesn't make environmental or economic sense to try to put an expensive dual-powertrain system into less expensive cars which already get good mileage, Lutz said at the North American International Auto Show.

* * *

"Hybrids are an interesting curiosity and we will do some," he said. "But do they make sense at $1.50 a gallon? No, they do not."

It seems unlikely that Lutz was arguing that there's no place for current hybrid technology in the GM line-up, as it's offered in a number of models and he was suggesting at the time that it would be added to GM trucks. It may turn out that Lutz is incorrect, and the current hybrid technologies come down in price, but it's also possible that he's correct and the best and cheapest way to bring hybrid technology to the mass market is through plug-in hybrids. But it is clear that in the four years (actually, almost five years) since he made the statement, current hybrid technologies have not come down in price and you continue to pay a significant premium for hybrid cars. That's why, even with record gas prices driving record sales, hybrids make up only about 3% of the U.S. car market.

What do I want to see for the domestic auto industry? I want to see private capital deliver on its promises, rather than "yet another display" of the supposedly brilliant financiers behind companies like Cerberus getting a public handout when they screw up an investment or prove that they're even less capable than the former managers of the companies they're supposedly rescuing. I would like to see GM find a way to get private money to finance its way through this crisis, even if that means making some unpleasant concessions. I would like the auto manufacturers and their workers to internalize the lesson that you can't make up for deficits in quality by creating a context where new car buyers reliably trade in their cars every two years, passing along the defects to the next guy, while your competitors make cars that are remarkably reliable for people who prefer long-term ownership. Yeah, right.

Finally, the one thing I don't want to hear is anybody who supported the financial industry bailout oppose an auto industry bailout on the basis that the domestic auto industry has collapsed due to incompetent management, greed, poor planning, badly designed products, or overpaid employees - that's a distinction without a difference.

Tough Words To Say....

Our society makes it really hard to admit, but the excuses? Come on. A judge in disciplinary proceedings for being intoxicated on the bench explains,

during the alleged drunken appearances, he was taking the painkiller Vicodin for back and knee injuries from a car accident; an anti-inflammatory medicine; Ambien for sleep apnea; and medication for diabetes and high blood pressure.

Let's get one thing straight. You don't take Ambien (or any other sleep medication) for sleep apnea. You take it to help you sleep if you are having trouble with a CPAP or BiPAP machine, the actual treatment for sleep apnea. After you take it you go to sleep. You do not take Ambien and then go to work unless you are either intending to go to sleep on the bench or you are an addict.

He admitted that he went on the bench on two occasions after taking Vicodin and consuming alcohol.

On Dec. 6, 2006, he took three or four Vicodins before a 9 a.m. session in Bridgewater, and at lunch that day had two to three glasses of Chardonnay.

When you're gulping down a triple or quadruple dose of Vicodin, with a substantial alcohol chaser, you're either being extremely foolish and reckless in the treatment of your physical pain or you've moved well hinto the territory of addiction.

Sasso said he knew he should not take his daily Vicodin dosage all at once but added that he generally needs a large dose because he is 6'3" and weighs 290 pounds.

More likely, because if you take three or four times your prescribed dose you build up a tolerance. If you are taking prescribed pain relievers and they're not helping, here's what you do: You go back to your doctor and say, "These aren't helping at the dose you prescribed. What do you recommend?"

Similarly, if you find yourself taking Ambien and not falling asleep, you go back to your doctor and say "These aren't helping me sleep. Can we try something else?" If you take Abmien and intentionally stay awake, it's unlikely that you're taking it for any purpose other than its intoxicating effects (which, as Patrick Kennedy (and the officer who investigated his accident) can tell you, are a lot like alcohol intoxication).

Let's draw a line here between addiction and dependence. If you take certain medications for a long enough period of time, including opiates, you develop a physical dependence on those medications. You may also develop a tolerance that requires an adjustment of your dose or a change of medication, and may be dependent to the point that you will suffer withdrawal if you suddenly stop taking your medications. That's not addiction. Where you transition from dependence to addiction is when your medications stop improving your ability to lead a normal life, and your focus shifts to clock-watching or drug-seeking. There's also a syndrome called pseudoaddiction, where somebody who is receiving inadequate pain relief may demonstrate obsessive or drug-seeking behaviors that resemble those of an addict, but those symptoms resolve when their pain is adequately treated. But if you're buying shoeboxes of drugs from your maid (in addition to taking the drugs you get from your doctor), or gulping down huge doses of opiate medication with alcohol, it's safe to assume that you're an addict.

The AA/NA model for addiction dictates that the very first step in recovery is admitting your powerlessness over your drug of choice. I'm fortunate enough not to have a history of addiction, but I can say this: When the Rush Limbaughs, Patrick Kennedys, and even lesser known people like Judge Sasso avoid making that direct, honest concession - when they insist that their addictions are somehow more elevated because they claim to have physical pain, or are somehow more pure because they're abusing prescription pharmaceuticals - they're lying to themselves and to anybody who listens to them.

It would be really nice to hear one of these high profile addicts discard all of the excuses and finger pointing and simply admit, even if prefaced with an explanation of how they became addicted, "I did it because I am an addict." (e.g., "Although I didn't seek out this disease, and had no experience with addiction before I received opiate medication for a back injury, I stole drugs from my charity because I am an addict.")

Addendum: To be clear, I believe that if high profile addicts are honest about their addiction, they will help diminish the stigma of addiction. While we sometimes pretend otherwise, addiction strikes at all levels of our society and, while the rich and powerful are often better able to cover for their addiction or avoid street drugs, nobody is immune.

Provocation as a Defense to Murder

Apparently, in the U.K. it's becoming more difficult to raise infidelity as a basis to diminish a murder charge.

This reminds me of a story from law school... that might put you to sleep if I shared enough information for you to understand it. But it was funny if you were there.

How Can Obama Help Rhee?

Today, Fred Hiatt asks if Obama can help Michelle Rhee reform the D.C. schools. Although he doesn't say so, it seems implicit that the help he wants Obama to offer is assistance in breaking the teacher's union. Hiatt remains the leading advocate of Rhee's "mystery meat" compensation system for teachers - yes, aspects of the proposal are intriguing, but why are the details being kept secret.

For example, given that only short-term funding is available for the new compensation program, a valid question is what happens when the money runs out? Does Rhee expect increased public funding? substantial corporate contributions that continue even after her program is old news? Or will it be "back to the old compensation scheme" but with no tenure? I'm not affected by the proposal and I want to know, so why cant the teachers who are being asked to get behind the proposal?

Hiatt serves up a couple of anecdotes, the first of which is a pretty typical story about Rhee, and I think it highlights why she inspires such support.

A principal recently was defending a teacher whom D.C. Schools Chancellor Michelle Rhee had observed in the classroom and found wanting.

"Would you put your grandchild in that class?" Rhee asked the principal.

"If that's the standard, we don't have any effective teachers in my school," the principal replied.

Recalling that comment a few days later, Rhee is still steaming. "I said, 'That is the standard,' " Rhee says, and you think: Whew, glad I'm not that principal

That story also highlights why she wants to be able to do something about D.C.'s teachers - clean house of perhaps entire schools full of underperforming teachers, and pay enough that good teachers who wouldn't otherwise consider D.C. may consider signing up.

I'm personally skeptical that good teachers can be transplanted into classrooms where the kids don't behave and don't want to learn while retaining their efficacy - achieving and maintaining classroom order, particularly in a difficult school environment, is a separate skill from being a great, inspirational teacher. But other than through high compensation, I'm not sure how else D.C. even has a shot at attracting quality teachers.

On the other hand, this anecdote about Rhee gives me pause:

Recently, she recounted at the Aspen Institute forum, a man approached her, spitting mad about her experiment to pay some middle school students for good behavior and good grades. "It is a sad day," he said, "when we are paying kids to be doing something they should be doing anyway."

"No," Rhee replied, "yesterday was a sad day, when only 8 percent of our eighth-graders were at grade level for math, and we weren't really doing anything about it."

This reminds me of the arguments I have heard for cutting music and art programs while maintaining football - despite its very high cost, it's "necessary" to have football teams because otherwise a body of marginal students would lose their principal incentive to go to school and pass tests. Now they get "paid" as well, to do what every other student is expected to do for free? While the services and amenities that make school a nicer place for diligent and well-behaved students continue to get cut? And what's the lesson? That the only way Rhee wants to throw money at you is if you're a good teacher or a crappy student?

No, really, the idea of throwing money at mediocrity isn't what bothers me. Nor is the funding of school programs for marginal or disinterested students at the expense of the diligent and gifted. Even in a school district that's supposed to be reinventing itself as an example of excellence, what else can you really expect? But dare I ask, is there any evidence that paying students does more than inspire a few more kids to show up in class, if that? Is that truly the best use of the money? And what after the money runs out or a student receives the maximum payment? Even a child can tell you that - literally.

Betts is talking about kids like Daamantae Brown, 14, a tall and lanky eighth grader. He's also a borderline C student and star athlete with a temper that can get him into trouble.

Brown is more afraid of being banned from playing football because of bad behavior or grades than missing out on the cash incentives for good academic and social performance.

Still, the boy says most students will behave as long as the money lasts.

"If the bad students, if they was acting up before this, then after it's done [the program], they're going to act the same," Brown says.

The evidence that this works? Let's ask the principal advocate of this idea, Harvard economist Roland Fryer:

"We don't have any data yet," says Fryer.

To me, "pay for performance" sounds like a gimmick. But you know, I'm willing to wait to see the data. The program is underway, so we'll have a pretty good idea of whether or not it works at the end of the school year. But here's a thought - what if it doesn't work? Will this experiment leave its subjects less motivated to show up in class when they're no longer being paid?

The War on Terror, On Film

In a nutshell, Body of Lies opens well, and starts building an interesting story. Then it goes off on a dubious subplot that isn't very convincing and takes far too long to develop. As the subplot is crucial to the ending of the film - your understanding of the characters, their motivations and their actions - it is indispensable. Unfortunately, it makes the film a bit too long and at times tedious.

The film tell a story that focuses on human intrigue, an expanding network of dysfunctional relationships with Agent Ferris (Leonardo DiCaprio) at its center. That is, as contrasted with a lot of other modern films about the war on terror, it seems to be trying to put story ahead of politics. But make no mistake, this is a very political film, from its outset unapologetically asserting that the war on terror (efforts to fight terrorist cells and capture terrorist leaders) is crucial to the preservation of western values and freedoms. The Iraq war merits mention, but this film is about what its makers seem to see as the real "war on terror" - an often low-tech war with some high-tech components. There's plenty of double-cross and moral ambiguity.

As overt as the politics often are, as contrasted with a film like Babel or Syriana, the films largely avoids feeling like a condescending lecture or becoming lost in its convoluted plot. But you'll still get some elements of a political lecture, with characters dropping comments here or there describing how "torture doesn't work" (which isn't to say that those same speakers find no use for it) or that Islamic terrorism is predicated upon a misinterpretation of the Koran (while making it clear that you'll have no luck convincing the adherents of that interpretation that they've made a mistake).

I haven't read David Ignatius's book, but if the screenplay is any indication he's given a great deal of thought to the "war on terror", the mistakes we have made, and the reasons for our continued difficulties in identifying and stopping terrorist leaders and terrorist cells. This film sees great value in human capital (agents working in the field, and their building relationships with locals), and is often scornful of the U.S./CIA preference for surveillance technology that arose following the end of the cold war, as well as their treatment of the locals who risk their lives (or die) while working with or assisting field agents. In the film, Agent Ferris is morally elevated over his boss not because of what he does for those harmed or killed by his actions, but because he wants to offer assistance before indifferently accepting that it's not forthcoming.

But Ignatius is no Luddite - far from it. The film depicts whiz-bang, nifty keen technologies in all, or perhaps most of, their glory. While highlighting the limitations of technological surveillance, he also illustrates its usefulness, and showcases how even one or two people can orchestrate a massive disinformation campaign through the Internet.

Leonardo DiCaprio is well cast in this film, although the character he plays will be familiar to those who have seen his recent work. (His accent may change, but it's essentially the same character he played in Blood Diamond and The Departed.) His character is suited to his role. I suspect that Ridley Scott had fun with Russell Crowe, chubby and aged, commenting to DiCaprio at one point that a decade earlier he could have taken him in a fight. (Believe it or not, yes, it's almost a decade since Scott directed Crowe in Gladiator.)

The Word That Could Not Be Said....

It couldn't be said during the election, at least not by his supporters, but the whispers have begun.

Could it be?

Obama is an...

intellectual!

McCain's Campaign Failed, Because....

The right hand didn't know what the right hand was doing?

Take it from Charles Krauthammer: Sarah Palin was a huge mistake.

Palin was a mistake ("near suicidal," I wrote on the day of her selection) because she completely undercut McCain's principal case against Obama: his inexperience and unreadiness to lead. And her nomination not only intellectually undermined the readiness argument. It also changed the election dynamic by shifting attention, for days on end, to Palin's preparedness, fitness and experience -- and away from Obama's.

McCain thought he could steal from Obama the "change" issue by running a Two Mavericks campaign. A fool's errand from the very beginning. It defied logic for the incumbent-party candidate to try to take "change" away from the opposition. Election Day exit polls bore that out with a vengeance. Voters seeking the "change candidate" went 89 to 9 for Obama.

No, take it from Pat Buchanan: Sarah Palin is our hero and savior, and perhaps the second coming of, er, Reagan?

Yet by Sept. 10, McCain, thanks to Sarah Palin, whose selection had proven a sensation, had come from eight points behind to take the lead, and Joe Biden was wailing that maybe Hillary would have been a better choice for Obama.

I disagree with both of them, to some degree. Krauthammer exaggerates the import of Palin, and continues to overestimate the "he lacks experience" theme that by the time McCain chose Palin no longer seemed to be resonating with the public. Look at the polls before and after the convention/Palin bubble - McCain was losing on the experience argument. That's not to say it isn't a good argument or a relevant issue, but McCain's campaign apparently recognized that if they didn't introduce a "game changer" they were going to lose. McCain's choice of Palin left conservative elites like Krauthammer tied up in knots, but she was red meat to Pat Buchanan. Palin energized the religious right and helped McCain ensure their turn-out, and provided him with the ability to launch scurrilous attacks on Obama by proxy. In the weeks leading up to the election did you see Obama's support increase? No, it held steady while McCain's support increased - wavering Republicans returned to the fold.

But Palin turned out to be something well short of a net positive. Her lack of experience wasn't so much the issue as her poor performance. That, coupled with the economic crisis, hurt McCain, because it suggested that he lacked judgment. Krauthammer implies that McCain's post-convention/Palin bounce reflected a permanent advantage,

Then Lehman collapsed, and the financial system went off a cliff.

This was not just a meltdown but a panic. For an agonizing few days, there was a collapse of faith in the entire financial system - a run on banks, panicky money-market withdrawals, flights to safety, the impulse to hide one's savings under a mattress.

This did not just have the obvious effect of turning people against the incumbent party, however great or tenuous its responsibility for the crisis. It had the more profound effect of making people seek shelter in government.

Seriously? So Krauthammer is bucking the trend among right-wing pundits and is arguing that the election result gives Obama not only a mandate for massive change, but a mandate to impose socialism? He doesn't like Sarah Palin, but he's clearly been sipping her Kool-Aid. Odd as it seems to say this, for a more rational perspective (albeit one that doesn't survive past the end of the paragraph) let's turn back to Buchanan:

Then came the collapse of Lehman Brothers, the bailout of AIG, McCain’s assertion that the economy was fundamentally sound, and his panicked return to Washington to assist Bush and Hank Paulson push through a wildly unpopular bank bailout - using 700 billion in tax dollars to buy up rubbish paper the idiot bankers had put on their books.

Right up to the point of the collapse, McCain was repeating the mantra, "The fundamentals of the economy are strong." Right up to the point of the collapse, his campaign was dispatching its proxies to savage Obama's economic proposals, to call Obama naive, and to ridicule comparisons between our present financial situation and the great depression. Reality intervened, and how did McCain respond? By trying to convince the people that when he said, "the fundamentals of the economy are strong" he actually meant, "American workers are strong", and then fumbling a suspension of his campaign such that he simultaneously looked manipulative, disingenuous and inept.

How did Palin then hurt him? Not by being inexperienced, and certainly not in her appeal to "the base", but by appearing to undecided voters as further evidence of bad judgment - like the supposed suspension of his campaign, the Palin choice appeared at best to be a cynical manipulation that, despite the McCain camp's spin, put campaign ahead of country. McCain's defense of his choices wasn't "straight talk", and it wasn't mavericky - it was sad and disappointing. He wedded himself to G.W. not so much by his voting record and policy choices, but by his refusal to concede even obvious mistakes and his insistence that his mistakes were in fact good choices.

I'll grant that he couldn't exactly say, "I regret my choice of Sarah Palin" - and it isn't clear that he should have regrets, given that Palin largely did her job by energizing evangelical voters and social conservatives - and perhaps he had dug himself too deep a hole with statements reflecting himself as out-of-touch with the economy, but he didn't have to demean himself or to try to advance lines that, simply put, are ridiculous. Nobody with an ounce of sense is going to believe that living near Russia translates into having foreign policy experience. And if you're going to claim that somebody "understands the energy issues better than anybody I know in Washington, D.C.," you had best make sure she's not going to turn around and stick her foot into her mouth. Repeatedly.

Buchanan believes that McCain could have won the election by acting more like Palin - attacking gay rights, advancing a rigid, pro-life agenda, attacking Obama as supposedly wanting to eliminate any restrictions on abortion, smearing Obama with tales of his association with Ayers and Wright, etc. - I don't think that would have worked, and in fact it might have hurt. There's a reason that the McCain campaign happily launched that brand of attack through Palin, while trying to keep McCain himself above the fray, and my guess is that it's because their internal polling suggested that those attacks would hurt him with swing voters (not to mention demolishing the public perception that he's not hostile to abortion rights). What better evidence of this than Krauthammer's horror at Palin and everything she represents?

I personally would argue that what hurt McCain the most with swing voters was his overt efforts to appeal to the Buchananite/evangelical wing of the Republican Party. You can still easily find people who lament that they weren't able to vote for the McCain who ran in 2000, and how they wished that guy had been in the race. That guy apparently concluded early on that he couldn't win his party's nomination without making serious concessions to religious and social conservatives, and apparently later concluded (probably correctly) that it was more important to "turn out the base" - have those reliably Republican voters come out and support him on election day - than to try to hold or win over the middle. Krauthammer writes,

McCain thought he could steal from Obama the "change" issue by running a Two Mavericks campaign. A fool's errand from the very beginning.

But he misses the point that the leading factor, and perhaps the only factor, that made McCain a serious contender in the race was the distance he had historically emphasized between his own positions and those of the Republican Party. Whether you believe that to be reality or myth, that McCain - the McCain of 2000 - could legitimately declare himself a candidate of change. The reminted McCain running in 2008 could not. And he lost.
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Update (via lies.com):

Amendment vs. Revision of the California Constitution

At Volokh, Dale Carpenter offers a thoughtful post on the distinction between amendment and revision of California's constitution, and whether Proposition 8 should properly be categorized as an amendment (requiring simple majority vote) or a revision (requiring "approval by two-thirds of each state house, followed by a majority vote"). Without having looked deeply at the issue, I suspect that the distinction was supposed to offer a procedural safeguard, but Carpenter raises interesting points about stripping away people's constitutional rights by majority vote.

Personally, I can't help but wonder if the amendment process itself should be amended (or is it revised). I recognize that it's a double-edged sword - if you make it harder for the people to amend the constitution, you effectively leave that power in the hands of legislatures who may be slow or reluctant to honor the wishes of a clear majority of the population on subjects like medical marijuana. But you also get bad policy, and it seems particularly bad tax policy, enshrined in the constitution, with the likely result that you will have financially mandated tax inequalities and budget problems. And you raise questions of whether matters arguably best addressed by legislation should be enshrined in a state constitution.

That is, you may try to fix a cyclical problem (e.g., budgeting issues) and end up creating a structural problem (a constitution that prevents the government from obtaining the tax revenues it needs to fulfill basic functions, or enshrining discriminatory tax policy that may deter immigration into a state or unduly burden a subset of state residents).

Sarah Palin Didn't Know What?

Don't push it....

The recriminations against Palin, launched from within her own party, seems unnecessary and... well, they're pushing past the point of credibility. We're to believe Palin didn't know that Africa was a continent, or that it is comprised of many nations? Palin may have said something that reflected her lifelong disinterest in global affairs, including something that suggested a lack of familiarity with the nation states of Africa, but come on.

What's the point of all of this, anyway? We shouldn't be surprised that many within the McCain camp are eager to point the finger of blame elsewhere for their loss of the election, but Palin's nomination was a pretty obvious Hail Mary. Her addition to the ticket was perhaps a symptom of the campaign's collapse, but not its cause.
_______________
Update: Sometimes when allegations appear to be pushed past the point of credibility it's because they're fake. This leaves open the question, why didn't the (post-election) McCain campaign aggressively deny the claims?

Update 2: Attacks from within the McCain campaign, crossed with opportunistic scamming, crossed with the McCain campaign's failure to rally to Palin's defense, leave the picture very confused. I'm still giving Palin the benefit of the doubt on such issues as supposedly not knowing that Africa is a continent, whatever the source of that allegation.

It Was Only Eight Years Ago....

That, as G.W. Bush became President Elect of the United States, I commented that he was inheriting a gloomy financial picture and that I didn't envy anybody who was taking over as President, and wondered if either candidate could have looked forward to more than a single term presidency. And from day one until the day history took over, G.W. seemed intent to prove me right.

Looking back, it's amazing how good things were - exceptionally good - as contrasted with the gaping chasm left for Obama by the Bush Administration. Is there anything Bush touched that didn't turn to, um, lead?

Put the audacity on hold - it is time to hope, but perhaps more modestly, that we've reached a point where there's nowhere to go but up. I don't actually believe that - things could get much worse - so I guess that's where the hope comes in.

The Decency of "Writing A Check"....

With somebody else's money?

In advancing the notion of George W. Bush's "decency", Michael Gerson first goes off on a tangent, arguing that our nation's judgment of George W. Bush is unfair because "Iraq is on the verge of a miraculous peace". This, he argues, is because George Bush showed "Truman-like stubbornness" and "pushed to escalate a war that most Americans" had abandoned. Some of Gerson's observations about Bush make sense - Bush is by all appearances pathologically stubborn, and the same stubbornness that got us into Iraq (with no exit plan) has kept us there through the worst of his incompetence and into the present.

It's possible that the roses Bush promised us by the end of 2007 (or at least a couple of them) actually will start to bloom in 2009. Gerson states only that "the decision to pursue the surge in Iraq will be studied as a model of presidential leadership"; well, perhaps as a study of what can happen when failed leadership leaves a President, too vain and stubborn to admit to a mistake, with no other options. But what does any of that have to do with "decency"? Maybe nothing.

Gerson changes the subject:

Because of the passage of Medicare Part D, nearly 10 million low-income seniors are receiving prescription drugs at little or no cost. No Child Left Behind education reform has helped raise the average reading scores of fourth-graders to their highest level in 15 years, and narrowed the achievement gap between white and African American children.

So Bush, the man who ballyhooed the Texas "patient bill of rights" during his 1999 campaign, and then did his best to kill it and anything like it when he became President, is "decent" because he ushered in a new prescription drug benefit? And because standardized tests show a narrowing of an achievement gap between nine-year-olds of various races? You know, as much as I favor helping sick, elderly people, and helping kids succeed in school, I'm not yet feeling overwhelmed by this argument.

The President's Emergency Plan for AIDS Relief has helped provide treatment for more than 1.7 million people and compassionate care for at least 2.7 million orphans and vulnerable children.

Yet all that "decency" didn't stop Bush from mandating that 1/3 of this AIDS prevention funding be directed toward absolutely useless "abstinence only education", or barring its use for needle exchanges. But Gerson tells us, the true mark of Bush's decency was in funding an initiative to fight malaria:

Before the Group of Eight summit in 2005, the White House senior staff overwhelmingly opposed a new initiative to fight malaria in Africa for reasons of cost and ideology - a measure designed to save hundreds of thousands of lives, mainly of children under 5. In the crucial policy meeting, one person supported it: the president of the United States, shutting off debate with a moral certitude that others have criticized.

And this brings me back to my initial observation. Gerson's greatest illustrations of Bush's decency, his efforts to fight AIDS and Malaria in Africa, involve his writing checks. With other people's money. Gerson tells us,

I saw how [Bush's] moral framework led him to an immediate identification with the dying African child, the Chinese dissident, the Sudanese former slave, the Burmese women's advocate.

Or maybe Gerson saw an heir who, hit with a sad story, was happy to support a charitable cause by writing a big check... from daddy's bankbook. Because what has Bush ever done for any African child, Chinese dissident, Sudanese former slave, or Burmese woman's advocate other than shake his head sadly and cut a check that somebody else pays for?

If Gerson lets me write checks to charities from his bankbook, I'll be happy to show him how decent I am, right down to his last penny. Like Bush, I'll pick causes that truly touch my heart, I'll be very sincere as I cut those checks, and I'll revel in Gerson's assurance that I have demonstrated my decency. But by my measure it would mean more if I used my own money, and perhaps even committed some time and effort.

Graceful vs. Graceless

Michael Gerson attempts a graceful concession to Obama's victory and, other than spinning the fiction that Obama has no mandate and whining about the evils of bloggers¹, largely succeeds. You can't, however, sensibly deny that a candidate who openly runs on a platform of ending the war in Iraq and laying the foundation for universal health insurance, then wins with a majority of the popular and a decisive majority of the electoral vote, has no mandate to implement those policies. No matter how many people are assumed to have voted for Obama "even though" he made those promises, as opposed to "because" he made those promises, there was nothing hidden about his agenda and it's more than reasonable for him to assert that he has a mandate to carry it out.

Barack Obama's first years may well be dominated by a recession and a swiftly arming Iran. Some conservatives will be tempted to take joy from his inevitable struggles; others to spin conspiracy theories from his background and associations. It will be easy to blame every emerging challenge on the faults and failures of an inexperienced young president. But it will be more difficult for me.

* * *

There is a tremendous sense of history and responsibility that comes with serving in the White House. You gain an appreciation for the conflicted choices others have faced - and for the untamed role of history in frustrating the best of plans. It becomes easier to understand a president's challenges and harder to question his motives. Ultimately, I believe that every president, and the staff he hires, feels the duty to serve a single national interest. And, ultimately, we need our presidents to succeed, not to fail for our own satisfaction or vindication.

This presidency in particular should be a source of pride even for those who do not share its priorities. An African American will take the oath of office blocks from where slaves were once housed in pens and sold for profit. He will sleep in a house built in part by slave labor, near the room where Lincoln signed the Emancipation Proclamation with firm hand. He will host dinners where Teddy Roosevelt in 1901 entertained the first African American to be a formal dinner guest in the White House; command a military that was not officially integrated until 1948. Every event, every act, will complete a cycle of history. It will be the most dramatic possible demonstration that the promise of America - so long deferred - is not a lie.

On the other hand, Melanie Phillips is off her meds:

America’s belief in itself as defending individual liberty, truth and justice on behalf of the free world will now be expiated instead as its original sin. Those who have for the past eight years worked to bring down the America that defends and protects life and liberty are today ecstatic. They have stormed the very citadel on Pennsylvania Avenue itself.

Millions of Americans remain lion-hearted, decent, rational and sturdy. They find themselves today abandoned, horrified, deeply apprehensive for the future of their country and the free world. No longer the land of the free and the home of the brave; they must now look elsewhere.

So you're asking yourself, "Who's Melanie Phillips"? She's a British author, who lives in a town she has deemed Londonistan. Apparently, when you're as brave and free, lion-hearted, decent, rational and sturdy as she is, you don't even have to live in the U.S. - so if you share her politics, call her up and see if you can bunk on her sofa.
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1. Gerson suggests that bloggers who oppose his political agenda live in "an ideological world of their own creation, viewing anyone outside that world as an idiot or criminal". I've never found a home with the likes of the Kossacks, but I can tell Gerson this much: I think he's the dumbest person to hold a regular, syndicated column at a national newspaper because, by all appearances, he is. Gerson's brand of "compassionate Christianity" is far less offensive than Krauthammer's brand of thoughtless obstreperousness, he doesn't lose himself in a narcissistic haze like Bill Kristol, and he's more intellectually consistent than George Will, but he's still by all appearances the least intelligent of the lot. Sorry. (I once described Gerson as "the feeling man's Republican" - I still think that's apt.)

Paulson's Got Some Explaining To Do....

CJR looks behind the claims that Goldman Sachs didn't benefit from the AIG bailout, and finds that's not actually the truth. And it gets worse:

The AIG bailout, it is now apparent, is basically a pass-through from taxpayers to the counterparties. It is clear the tax money is barely stopping at AIG for a cup of coffee.

Even AIG’s former chief Hank Greenberg, not exactly Ralph Nader, says the bailout is going straight to Wall Street banks on the worst terms.

* * *

Can the U.S. get a better deal? I have no idea.

But what strikes me as utterly unacceptable—a true scandal—is that the recipients of U.S. taxpayer funds in the AIG bailout are not even disclosed. We pay them, and we don’t even get to know who they are? Has this ever happened before?

This is disgraceful, and something Congress should remedy.

Fred Hiatt's Last Minute Potshot

Remember Fred Hiatt's execrable column on how everything's coming up roses in Iraq? His editorial page mindlessly regurgitates his views today, in a last minute potshot at Obama. But apparently, this time around nobody wanted to sign the thing.

You Only Have To Fool Enough of the People...

The magic Palin brings to the McCain campaign is her remarkable ability to lie about pretty much everything. Apparently, Matt Drudge dredged up a January interview where Obama describes how carbon emission "cap and trade" works, and now Palin's hard at work lying about it:

• Lie: "You hear Barack Obama talking about bankrupting the coal industry" - Truth: You hear Obama state, "this notion of 'no coal', I think is an illusion" given its huge role in powering the U.S. and even greater role in powering China. He raises the question of how we can use coal without creating greenhouse gases. He observes that under a cap and trade system, if cleaner methods of producing coal energy are not developed, new coal power plants will not be economically viable. It's the person who ignores the carbon tax and builds a dirty coal plant who goes bankrupt, not the coal industry.

  Obviously, under any cap and trade system, sources of energy that produce high levels of carbon emission may lose their viability - that's the point of cap and trade - so the coal industry's focus needs to be on developing cleaner energy technology.

• Lie: "John McCain and I, we will not let that happen to the coal industry." - Truth: John McCain also supports a strong "cap and trade" system for carbon emissions, and if he's telling the truth about that his policies will produce exactly the same outcome as Obama's.

• Lie: Palin's demand to know why the video was "withheld from the electorate" suggesting a conspiracy by the media - Truth: "audio of the interview has been available on the web site of the San Francisco Chronicle since mid-January, when Obama made the comments in an interview with the newspaper's editorial board."

They say that when you've got nothin', you've got nothin' to lose. And I guess, when you've given up your honor, you've got nothin'.

Don't Diminish the Value of Education

Roger Cohen shares a "rags to riches" story:

Fazal Fazlin has an American story. Raised in Karachi, Pakistan, he came to the United States in 1969 with an engineering degree and little else. Now he lives on a five-acre estate in the waterfront mansion that once belonged to Nelson Poynter, luminary of the newspaper business.

This reminds me of when I was in law school, and a classmate from a well-off family shared that the carpet in his dorm room was from his parent's first apartment in the U.S., the one-room apartment where he had also spent his earliest years. I didn't know anything about his background, save for it being pretty obvious that his parents were now quite wealthy, and I asked, "You mean your parents started out here with nothing? He laughed, "Yeah, if you count their Ph.D.'s in the hard sciences as 'nothing'".

"My First 100 Days Start Today"

Whoever wins tomorrow, I want to hear more than an acceptance speech. I want to hear the President Elect explain that he recognizes the gravity of the problems our country faces, and that he's assembling a team that is going to be working hard over the next two months to put together policy proposals and draft legislation that can be quickly introduced, debated, and enacted after January 20. I want to hear that congressional leaders from both parties will be consulted and kept informed so that nobody can claim surprise and so that, if they wish, their parties can contribute to the effort or prepare their own proposals.

Let's stop G.W.'s slow train wreck, and get things back on track as quickly as possible.

The Worst Government Money Can Buy....

Whatever the outcome on Tuesday, let's hope it's at least marginally better than what we're continuing to suffer under Bush. We've seen the harm caused by Bush's many incompetent appointees, and now we're being, in essence, robbed by one of his few competent appointees.

The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.

These are dynamite facts that demand immediate action to halt the bailout deal and correct its giveaway terms. Stop payment on the Treasury checks before the bankers can cash them. Open an immediate Congressional investigation into how Paulson and his staff determined such a sweetheart deal for leading players in the financial sector and for their own former employer. Paulson's bailout staff is heavily populated with Goldman Sachs veterans and individuals from other Wall Street firms. Yet we do not know whether these financiers have fully divested their own Wall Street holdings. Were they perhaps enriching themselves as they engineered this generous distribution of public wealth to embattled private banks and their shareholders?

Meanwhile, bailout money is being used to fund astronomical "bonuses" for the employees who ran their companies into the ground. In the U.K. they saw that possibility coming, and thus forbade it as part of their bailout package. Here Paulson saw it coming as well, and made sure that the recipients of taxpayer $billions had a green light to shovel taxpayer money into their pockets.

I can only hope the next President tells companies like Goldman Sachs, "We appreciate that you needed to fritter away the bailout money we gave you in order to pay bonuses to the people who bankrupted you. And don't worry - we're still here for you. Yes, if you need an additional penny of taxpayer money to stay afloat, we'll help you be taken over by a competent institution in the manner of Merrill Lynch, or help you enter the bankruptcy process in the manner of Lehman Brothers. Feel free to ask, any time."

Entrepreneurship and Taxes

Although there are some valid points buried within, it is hard to discern why ABC News deemed this editorial by Michael Malone worthy of publication. Although I agree with him, that entrepreneurship plays an enormous role in the success of our economy, and that laws and government regulations are nonetheless constructed in a manner that is favorable to large businesses, and in many ways unfavorable to small businesses and start-ups. I don't think that it can be reasonably disputed that this has become worse under G.W., who right now is trying to gut antitrust regulations on his way out the door.

But a lot of what he claims is just plain stupid. Platitudes like, "Sen. Barack Obama, being a Democrat, seems to have very little idea of how the economy actually works" and "Sen. John McCain, being a Republican, has a marginally better understanding of the economy and the role of business - but his attention, as usual with GOP elders, is focused upon established companies, which undergird our economy, but do little to create new jobs or new wealth" - as if McCain's expressions about the limits of his understanding of economics are reduced to vapor by his party affiliation, or as if Obama would have an economic epiphany if he switched parties. Facts? Evidence? Who needs those when you have stereotypes and caricatures.

Malone's observations about entrepreneurship are similarly trite,

Meanwhile, established and big companies understandably hate entrepreneurship and will do almost anything to slow the progress of entrepreneurs - like all of those onerous regulations described above. And it has worked: This year has seen almost no high tech company IPOs, traditionally that moment when entrepreneurs gained their freedom and rewarded their teams.

A low level of high tech IPO's can, it seems, only result from start-ups being stifled and crushed by the iron fist of established companies. It has nothing to do with, for example, their number, the economy, or their state of readiness for going public. Malone also forgets how rare it is for a company to go public, and glosses over the fact that, once public, they're well on their way to being one of the "established and big companies" that supposedly "hate entrepreneurship".

These days, the only recourse for a hot start-up company is to sell out to an established company - further consolidating power and wealth. And meanwhile, of course, those older companies find it much more pleasant to buy these new competitors than compete with them.

It's not the only recourse, but obviously when the economy is bad it can become a superior alternative to trying to ride out a recession - not every company is Google. But really, prior to the original dot-com bubble, how many software companies dreamed of an IPO rather than, for example, being purchased by Microsoft? How many V.C.'s, investing in these companies, expect every company in their portfolio to end up going public as opposed to accepting favorable buy-outs from established companies? And sometimes a buyout is the best option for a company that has no viable stand-alone business model. How many start-ups like YouTube can afford to operate at an extremely high cost indefinitely, while their owners struggle to come up with a way to monetize their content? For that matter, what's so bad about being purchased by a major player, whether pre-IPO or post-IPO?

Nothing in McCain's campaign suggests that he understands any of this, or will change the status quo. To look more hip and in-the-know about the tech world, the senator likes to point to the fact that eBay's Meg Whitman is his campaign's advisor on business.

She is, in fact, one of the finest business executives I know, but Meg is not an entrepreneur.

Wait - didn't Malone just tell us that an understanding of the economy can be inferred party affiliation alone? Okay, so even he knows that's bunk. But to attack McCain's association with Meg Whitman, as an attempt to "look more hip" because, although one of the best business executives in the nation who helped elevate eBay from a start-up to a titan, she didn't personally start eBay? Of all of the companies that have rapidly risen from start-up to multi-billion dollar enterprises, how many have done so without bringing in professional management? How many entrepreneurs are their who are considered to be word-class, great, or dare I say even good CEO's once their businesses went public? (I'm only half-joking here - Ford, Jobs (in the latter part of his career), Ellison... Do I need both hands to count them?) For the most part, professional managers don't start businesses, and entrepreneurs reach a point where they need to bring in professional management.

And this suggests that a McCain presidency is not going to come to the aid of America's entrepreneurs - and that the best we can hope for is that it will get out of the way, at least when it comes to taxes. That may work, but it will be a long, slow recovery.

So we've switched back from high tech to the more generic category of "entrepreneur", with a lot of entrepreneurs being decidedly low tech, most employing only themselves, and almost none earning so much as to not benefit from Obama's tax cut. But no, neither candidate is going to give the type of tax relief that would make a typical entrepreneur smile - relief from self-employment taxes, or (something that could benefit all wage earners) eliminating the double- and triple-taxation of income that results from payroll taxes.

Surely here Malone is focusing solely on capital gains taxes, something that would be a pressing issue for a minority of entrepreneurs - those seeking venture capital, with capital gains taxes figuring into the V.C.'s calculation of return on investment, and those giving out stock options and intending to go public. (I'm not overlooking other circumstances where capital gains taxes can arise; but most small businesses aren't actively looking for investors or buyers, and they typically don't fall from the sky.)

As for Obama, leaving aside all of his other proposals for massive social change, the single most frightening plank in his platform is his plan to increase the capital gains tax. If there is one single factor in the U.S. economy that defines the rate of new company creation, it is taxation on capital gains - in particular, the differential between the capital gains and regular tax rates. To understand the long Reagan/Bush/Clinton boom of 1980-2000, you need only look at Reagan's slashing of that differential.

Leaving aside for the moment the "sheer terror" of a 20% capital gains tax, did it occur to Malone that he should actually read Obama's tax proposal before attacking it?

The Obama plan will ... Eliminate capital gains taxes for small businesses, cut corporate taxes for firms that invest and create jobs in the United States, and provide tax credits to reduce the cost of healthcare and to reward investments in innovation.

Truly terrifying.

Assuming that his comments about "corporate greed," etc. indicate that he has no intention of getting rid of Sarbanes-Oxley or any other crippling corporate regulation, then Obama's plan to raise the capital gains tax will all but kill creation of new companies - especially new tech companies - in America.

Yeah, "raising" the capital gains tax to zero will do that.... But let's pretend that Malone has a point - let's pretend that we're entering a business environment where the capital gains tax rate will be 20% instead of fifteen percent:

No new Apples or Facebooks or Twitters, no explosive new industries spinning off endless amounts of money and jobs, no new competitive advantages in the global economy.

That first example is fascinating. Apple, Inc., of course, was founded in 1976. You know, when the maximum capital gains tax rate was 49%. And yet Jobs and Wozniak still started their company? Amazing. Well, they reportedly incorporated on April Fool's day, so maybe they just didn't "get" that they were supposed to wring their hands and fret about their eventual capital gains tax exposure instead of starting their company.

Then Reagan came along and saved the world by cutting capital gains taxes to... fifteen percent? You're joking, right?

The late 1970s and early 1980s brought decreases to the top rates for both ordinary income and capital gains. The top tax rate on ordinary income dropped 20 percentage points to 50 percent in 1982. The capital gains exclusion increased from 50 percent to 60 percent in 1979. As a result of the exclusion and rate cut, capital gains tax rates fell from a maximum of 39.875 percent including an add-on minimum tax, which was widely applicable in 1978, to 20 percent in 1982.

The tax rate differential was eliminated by the Tax Reform Act of 1986 (TRA86) at the same time that top ordinary income tax rates were slashed to 28 percent. When tax rates on ordinary income increased in 1991, the top capital gains tax rate was held fixed at 28 percent. It was subsequently cut to 20 percent in 1997 and to 15 percent in 2003. In comparison, the top tax rate on ordinary income is now 35 percent.

Well there you have it - and don't go believing your lying eyes - we had no boom in tech start-ups, tech IPO's, or flood of so much money into tech businesses that we created a dot-com bubble, because the capital gains tax rate was at or above 20% until 2003. And we've had a boom in tech start-ups, IPO's, etc., since that time because... no, wait, Malone insists we haven't, and that it's a real problem. How is that possible? Maybe he's looking for his answers in the wrong place?

Now about those new Facebooks and Twitters? Those are Malone's best examples of businesses that might not have been started under a 20% capital gains tax, that should go public, or where it would be somehow a tragic loss if they were purchased by an established company? It sounds like Malone is trapped in a time warp - it's 1999, and all a tech company needs to justify a multi-billion dollar valuation and an IPO is a large user base. A business model? A path to profit? An ability to so much as break even? That's so old-school.

Facebook reminds me of the housing bubble. Back when things looked good, people were talking about its being worth $15 billion, and it was spurning proposals for acquisition by companies like Yahoo!, reportedly in the $billion range. Various companies wanted to buy in; Microsoft purchased a 1.6% share of Facebook for $246 million, suggesting a market value in excess of $15 billion. And it tried, and tried, and tried to turn its huge volume of user eyeballs into profit, and the result of those efforts?

As most of Facebook’s growth is outside the US, you’d expect that most of their revenue comes from advertisers targeting international audiences, as well. But that’s not the case. As TechCrunch pointed out months ago, many, many countries generate little to no advertising revenue per user.

* * *

Despite raising probably over half a billion in cash over the last two years, cash reserves are quickly depleting the future may be even more grim for Facebook as the economy slows. Advertising dollars may be one of the first things to be cut. However, as TC points out, Facebook CFO Gideon Yu is in Dubai, looking for more funding for the company.

Facebook grew quickly upon fantastic speculation about its possible future value, spent investor money like a drunken sailor, and is looking at a future where it may not be able to raise enough cash to sustain its operations. So are you thinking, "Why isn't this company going public", or are you thinking, "It needs to be bought out by somebody who has deep pockets and a way to either turn it into a money-maker or to use it to augment their existing money-making operations"?

Twitter is a clever concept, and it has a devoted user base, but it has no obvious path to profitability. Meanwhile, dare I say "established" companies like Facebook have added Twitter-like features to their user interface, to keep those eyeballs on their own sites. And they're having trouble with reliability - with their bandwidth exceeding their capacity - forcing the implementation of policies that may alienate some of their users.

Malone may have a point, that investors paying capital gains taxes at 20% won't invest in companies like pets.com, webvan, eToys.com, kozmo.com, Flooz.com, boo.com, mvp.com, kibu.com, Go.com, Twitter and Facebook, because the marginally lower potential return on investment makes it less desirable to invest in a company that may never develop a viable business model. He may also see companies like Twitter and Facebook as those most likely to turn into corporate giants after an IPO, rather than crashing and burning when they can't even hit a break-even point and run out of money. But let's not pretend that history supports him.

Basicaly, Malone misdirects uninformed attacks at both candidates, gets basic facts wrong, has no clue about the history of the capital gains tax, and seems to know just about nothing about, well, anything. And you know what? If you read the parts of Malone's piece I didn't discuss, you may conclude that I'm being too easy on him.