The Edgy Optimist

Events unfolded rapidly in Boston this week, from the bombing on Monday to release of photos of the suspects on Thursday to the citywide manhunt for one brother and the killing of the other. While we now know that the two young men are ethnic Chechens who spent time in Kyrgyzstan, we know nothing as yet about why they did what they did.

But perhaps less important than whatever their rationale turns out to have been is how the United States is reacting to the events of this week. On that score, the initial reactions here suggest that we may have turned a post-9/11 corner, still shocked, still pained, but no longer so fearful, so ready to blame religious zealots, and so willing to discard the freedoms that give us such strengths and yet can, at times, leave us so vulnerable.

There will always be people who find some reason to wreak havoc and inflict pain. Yes, such attacks can kill and maim, and thankfully, the Boston Marathon bombing, horrible though it was, did only limited physical harm considering the number of runners and the size of the crowds. It’s what comes after that shapes our lives even more. It’s how society reacts that affects not the hundreds directly harmed and the three killed, not the thousands of friends and loved ones, but the millions and hundreds of millions who were touched only through their sympathy.

The United States has had only limited experience with these attacks, whether foreign or domestic. While the Newtown massacre was a reminder that America is no stranger to homegrown gun violence, bombs designed to shock as well as kill are rarer. In fact, only in the past 50 years has American society slowly adjusted to the types of theatrical violence that the Boston bombing represented.

In the late 1960s and early 1970s, repeated Cuban hijackings of U.S. planes led to the first installments of security layers at airports, including metal detectors. In 1993, the World Trade Center was shaken by a bomb detonated in one of its parking garages, killing six and wounding 1,000.*  In 1995, the Murrah office building in Oklahoma City was blown up, killing 168. And the September 11th death tally was nearly 3,000.

In a world increasingly framed by economic debates, the phrase “the laws of economics” has become ever more prevalent. As the U.S. Senate prepares to unveil a new immigration bill, much of the discussion centers on the economics of illegal immigration and the incentives for employers to hire undocumented workers. Said a recent Barron’s article: “Immigration policy is a game governed by classic economic rules, especially by Say’s Law, which says supply creates its own demand … Whether the new applicants are seeking stoop-labor jobs in California’s Central Valley or high-tech jobs in Silicon Valley, the laws of economics dictate the outcome: more immigration.”

How about the war on drugs? Said one recent analysis: “We’re losing the war on drugs because it’s a war that defies the laws of economics. We might as well be fighting a war on gravity.”

And how about what history can tell us about our current policies? Said one recent review of Amity Shlaes’ biography of Calvin Coolidge, which makes the case for Coolidge as an exemplar of responsible economic policy:  “Our current political leadership ‑ and we who elect them ‑ are spending the country into ruin. The laws of man can be bent and broken; the laws of economics can not.”

We think of spring as a time of cherry blossoms and renewed hope, as we slough off the depths of winter and ease into the warmer months. These bright days seem a strange time to encounter the by-now widely circulated warnings of impending doom by Ronald Reagan’s budget director, and current gadfly, David Stockman.

In a long essay in the New York Times drawn from his lengthy and just-published book The Great Deformation, Stockman this week made an impassioned plea for Americans to wake up to the looming crisis just ahead. This crisis, he predicts, will be triggered by a stock market collapse that will remove any lingering illusion that we are OK: “When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.”

Stockman has many proposed solutions ‑ abolish Medicare, means-test Social Security ‑ but little hope of any change. The system is broken, the die is cast, sell, sell, sell, sit with cash in your mattress and hope we can make it through the reckoning.

While tiny Cyprus teeters on the brink, dominating much of the news, and elusive peace in the Middle East remains in the headlines, there is another battle going on — the latest in a long war that is shaping our planet far more than the events in Nicosia or the West Bank. Food and water are essential to human existence, yet in the last few decades the ability to increase food supply by technological means has stirred fear and passion. Cyprus’ woes may come and go; the food wars are going nowhere.

Whole Foods and Trader Joe’s just announced they would not sell a soon-to-be-approved genetically modified salmon called AquAdvantage. That follows Whole Foods’ recent announcement that it would require all items sold in its stores to include information on “genetically modified organisms” by 2018. Popularly known as GMOs, these are foods whose genetic code has been scientifically altered. The recent steps are just the latest salvo, and follow a failed ballot initiative in California last fall that would have mandated all GMO foods to be clearly labeled.

These measures were presented as part of ongoing efforts to allow consumers to make more informed choices about their foods, but they also take a clear moral stance against GMOs. In announcing the salmon ban, a Whole Foods spokesperson stated: “We believe all farmed animals — whether raised on land or in water, should be from breeding programs designed to promote their welfare rather than developed solely on production or economic outcomes.” A number of Whole Foods shoppers were already outraged that the chain has been selling products containing GMOs, particularly corn produced from Monsanto’s Roundup Ready genetically modified seeds. One advocate labeled Whole Foods “Wholesanto,” claiming that it only agreed to labeling after too many customers threatened to boycott the store. There was also reference to the policies in the United Kingdom and much of the European Union, where public attitudes towards GMOs are overwhelmingly negative.

Paul Ryan unveiled the House Republican budget this week with an ominous yet familiar warning: “America’s national debt is over $16 trillion.” Having stated the problem, he then offered a solution, one which differed only marginally from what he’s offered the past two years. Namely: restrain government healthcare spending on Medicare and Medicaid, reform the individual tax code, close loopholes, lower corporate taxes, and promote natural gas and energy independence. The goal? A balanced budget by 2023 that will ensure “the well-being of all Americans…and reignite the American dream.”

The strongest part of Ryan’s unveiling is not the specifics, which may not be very strong at all, but the unimpeachable critique of the White House and congressional Democrats for not offering their own blueprint and budget for the future. Some of that is semantics; both the president and congressional Democrats have offered various rough outlines of their long-term budget, and now Senate Democrats offered their counterproposal. But until late they had operated more in the rough-and-tumble of dysfunctional Washington negotiations rather than with explicit, official and formal (and long) outlines of exactly what will be spent and how. Yes, each year the White House, through the Office of Management and Budget, does assess and express views about present spending. That is not the same as an explicit pathway for the future, which Ryan has indeed offered.

Such offerings are vital. You may, as I do, disagree with key elements of what Ryan and the Republicans are proposing. You may, as I do, object to the fixation on the size of the current debt without any consideration of why that debt was incurred and how much it currently costs to service it, given historically low interest rates. But Republicans are offering a set of answers, and Ryan for one is asking for those to be addressed so the process of debating and, yes, compromising can begin. No, the president is not required to offer a detailed budget; the power of the purse lies with Congress, not the White House. But a detailed vision, especially one that contrasts with the Republican one, would be welcome and productive.

Is China about to collapse? That question has been front and center in the past weeks as the country completes its leadership transition and after the exposure of its various real estate bubbles during a widely watched 60 Minutes exposé this past weekend.

Concerns about soaring property prices throughout China are hardly new, but they have been given added weight by the government itself. Recognizing that a rapid implosion of the property market would disrupt economic growth, the central government recently announced far-reaching measures designed to dent the rampant speculation. Higher down payments, limiting the purchases of investment properties, and a capital gains tax on real estate transactions designed to make flipping properties less lucrative were included.

These measures, in conjunction with the new government’s announcing more modest growth targets of 7.5 percent a year, sent Chinese equities plunging and led to a slew of commentary in the United States saying China would be the next shoe to drop in the global system.

Everyday, we are treated to a new peril: Today we have sequestration, a word not much in anyone’s lexicon until recently. The mandated cuts to the federal budget, $85 billion by last count, will further stunt anemic economic growth, or so economists and the Congressional Budget Office guesstimate. The prognostications surrounding the sequester have been grim, with White House Chief of Staff Denis McDonough warning of a “devastating list of horribles,” ranging from severe travel snafus to the end of vital education programs.

In the political media, in Washington, and in the defense industry (which will see especially draconian cuts), all of this is Big News. But after months of buildup, the end-of-days drama is ending with a resounding thud. The meh reaction of financial markets of late is particularly telling (the Dow flirted with its all-time high this week). Markets are mood rings, and the mood now is one of boredom and fatigue. Even the New York Times led page 1 not with the sequester but with a studied picture of a nun saying goodbye to the retiring pope.

This is a good thing. Since the housing market imploded six years ago, we’ve been suffering from black swan fever. When Nicholas Taleb penned his passionate polemic about the inability of financial markets to allow for unanticipated and rare events (“black swans”), he did us all a great service in highlighting the narrow-mindedness that can have dire consequences.

Why the U.S. would be lucky to become Japan.

By Zachary Karabell

Over the past few years, it’s become ever more common to hear comparisons between the United States and Japan. They are not favorable. They come in the form of dark warnings that the current policies of the United States will lead to a fate similar to Japan’s over the past 20 years: stagnant growth with no end in site.

Let’s just say for the moment that the United States is becoming Japan – a nation of little to no economic growth, high public debt and a broken financial system. How bad is that? Is becoming Japan really a worst-case scenario?

The past 20 years for Japan have been called the lost decades. Government debt is in excess of 200 percent of GDP. The country has suffered from chronic deflation, a sluggish job market, an aging population, an insular culture and growth stalled at between 1 percent and 2 percent a year. Governments have come and gone. What’s most notable is that until recently, Japan has rarely been at the forefront of economic news the way it was in the 1980s and 1990s, even though it is the world’s third-largest economy and one of its wealthiest. If you factor in deflation, Japan hasn’t just seen tepid growth; it has seen none: Nominal economic output has barely budged since 1992.

President Barack Obama made the middle class the focus of his State of the Union address on Tuesday. He was lauded by some as fighting for jobs and opportunity, and even for launching a “war on inequality” equivalent to President Lyndon B. Johnson’s 1960s War on Poverty. He was assailed by others for showing his true colors as a man of big government and wealth redistribution.

Yet the initiatives Obama proposed are striking not for their sweep but for their limited scope. That reflects both pragmatism and realism: Not only is the age of big government really over, so is the age of government as the transformative force in American society. And that is all for the best.

Wait a minute, you might reasonably object: What about healthcare? What about the proposals for minimum -wage increases, for expanded preschool, for innovation centers, for $50 billion in spending on roads and infrastructure? Surely those are big government and aim, effectively or not, for transformation?

After a pleasant lull over the past six months, panic over the fate of Europe has flared once again. Just weeks ago the elites of Davos exuded confidence that the crisis had passed; the events of the past weeks showed how ephemeral such certainty can be.

But the easy resumption of dark prognostications is just that: easy. The siren call of Euro-pessimism should be ignored. It was wrong in 2010, and it will be wrong now. Europe faces hard years with no clear path, but that is not the same as dissolution and chaos.

So what changed? The British government of David Cameron spoke with atypical candor about the possibility of Great Britain leaving the Union. Scandals rocked the Spanish government of Prime Minister Mariano Rajoy, and Rajoy himself was accused of accepting illegal payments. In Italy, one of the larger banks, Monte dei Paschi, revealed that it had lost close to $1 billion in hidden derivative transactions. More worrisome, looming parliamentary elections that have seen the incredible (for anyone outside of Italy) resurrection of former Prime Minister Silvio Berlusconi, who has managed to surge in the polls even while on trial for paying an underage woman for sex. The prospect of Berlusconi’s return coupled with a crippled Spanish government have raised the prospect that neither country will continue their long march to structural economic reform.