Blog For Arizona

The problematic disintegration of Syria

By Karl Reiner

In 1970, Gen. Hafiz al-Assad, a member of the minority Alawite sect, took power in Syria following a long period of political instability. Assad's secular Bath Party portrayed itself as an upholder of Arab nationalism willing to defend the nation and its minorities against foreign threats and Islamic fundamentalism. Remarkably, he was able to hold on to the presidency for 30 years and then transfer power to his son, Bashar.

Under Hafiz al-Assad, the Alawites got an opportunity to overcome their second-class status but not necessarily to become wealthy. Repression was always one of Assad's tools. In February 1982, he was faced with an armed Islamist uprising. The general/president decided to make an example of the city of Hama where the rebellion was based. Estimates put the death toll resulting from the devastating attack on the city at between 10,000 and 30,000.

Wartime events had an influence on Arizona’s geographic shape

By Karl Reiner

Early in the Civil War, Gen. Joseph Johnston and his generals in Northern Virginia quarreled with Confederate President Davis in Richmond over the practicality of the president's defensive war policy. While advocating a defensive posture in Northern Virginia, Davis was also eager to extend Confederate power as far as the Pacific. Taking control of California's lucrative gold fields would provide a source of revenue for the haughty, new Confederacy. Any westward expansion of slavery would also be strongly supported by the South's politically powerful large plantation owners.

For years, variations of the expansionist dream of slave owners had been a mainstay of dinner conversations in the South's finest plantations. The objective was to create a confederation in the Western Hemisphere which would include the Southern Slave States, the territories of the southwest United States, possibly Cuba, parts of Central America and northern Mexico. Although it is now largely forgotten, the hazy notion was a subtle part of the ideology driving many of the promoters of secession. The dream held out a promise of an empire based on cotton production and slavery. It offered a sparkling alternative to the fraying relationship the South had in the Union. It was a belief held by many of the South's leaders despite the fact that the institution of slavery was being dismantled in other parts of the world.

The place where illusions shattered and dreams died

By Karl Reiner

In Northern Virginia outside of Washington, DC, the stream valley of Little Rocky Run near U.S. Route 29 and the historic village of Centreville located on the plateau to the stream's west played a crucial role in the early days of the Civil War. It is the place where the dreams and illusions of a divided nation, presidents and soldiers began to disintegrate. Today, less than 40 miles down the road, the fragmented U.S. Congress fritters away time sidestepping issues as it unthinkingly ignores the lessons so painfully learned in the past.

The United States had cracked apart due to a complex series of issues involving the growing industrial power of the North, the shifting of the balance of political power in Congress from South to North and the increasingly toxic issues of abolition and slavery. After Abraham Lincoln, an attorney expert in the emerging field of railroad law, won the presidential election of 1860, the planter class of the South decided to quit the Union. The result was a war that nearly everyone in the North and South expected to be inexpensive, glorious, short and decisive.

The prolonged aftereffect of deficient legislative management

By Karl Reiner

Arizona's legislature has allocated $100,000 to fight subpoenas involving the passage of SB 1070. Passed in 2010, the law is Arizona's belligerent attempt to get more involved in the area of federal immigration law enforcement. Brushing aside suggestions that the lawsuits would go away if the parts SB 1070 not already negated by the courts were repealed, the Republicans (not fiscally conservative in this case) decided funds needed to be allocated to protect their fuzzy concept of what characterizes Arizona's sanctified legislative process. The petulant Republican legislators don't like, and perhaps fear, the insinuation in the subpoena that SB 1070 was motivated partly by racial bias. Given SB 1070's unsympathetic scope, it is quite understandable how a large number of people could arrive at that conclusion.

 

Iran and a host of intertwined problems

By Karl Reiner

On January 12, the P5+1 (the UN Security Council's five permanent members plus Germany) and Iran reached agreement on a joint plan to freeze Iran's nuclear program for six months. The next more difficult step will be to negotiate a long-term agreement. Given the differences remaining between the positions of the parties, many skeptics don't think a final deal can be reached. Other analysts think the effort will

falter because Iran's Supreme Leader, Ayatollah Ali Khamenei, is not willing to give up the option to acquire nuclear weapons. Israeli Prime Minister Netanyahu doesn't like any of it. He sees the talks as a major blunder, an Iranian stall to gain extra time.

There is growing support in Congress for placing additional sanctions on Iran. There are serious doubts about what Iranian President Rouhani can actually deliver. Not everyone believes he has a real mandate for change. There is a suspicion that he is the friendly face sent to shield the stall tactics of Iran's supreme leader. The move in the Senate to impose new sanctions does make President Obama look feeble. With Congress smugly failing to acknowledge the agreements that have been reached so far, President Obama is seen by Iran's hardliners as not being in control of his foreign policy. In this tension filled environment, Iran's policy of non-recognition and hostility toward Israel doesn't help matters.

The troubling trend in Afghanistan

By Karl Reiner

Since 2002, the U.S. has spent $100 billion on nonmilitary aid in Afghanistan, a country considered by many analysts to be the most corrupt nation on earth. Despite the massive amount of aid, Afghan state institutions remain fragile and ineffectual, they do not provide good governance, deliver basic services or provide security. The country ranks near the bottom for GDP per capita income, life expectancy and electricity usage. Although more roads and schools have been built, the Taliban destroys around 100 schools per year. With a population of approximately 30 million, Afghanistan has an unemployment rate of 35%, it is the world's largest producer of opium.

Because Afghan government services are mostly imperceptible in the countryside, Afghanistan is becoming a defining study on how not to give aid. A sizeable part of the aid appears to have been wasted or siphoned off. Planning is said to be poor. The dangerous security situation makes contract oversight difficult allowing cunning contractors and their benefactors to take advantage of the chancy situation. Although the U.S. has spent an additional $51 billion to train the Afghan military since 2002, the local military and police forces are still having difficulty operating on their own. The literacy rate in the Afghan military is around 14%. This impediment makes it tough to perform tasks such as maintaining equipment, reading maps, providing logistics, communications, medical and intelligence support.

Arizona and the repercussions of SB 1070

By Karl Reiner

Passed in 2010, SB 1070 was Arizona's attempt to have local police become more involved in enforcing immigration laws. Although it added a burden on the police, the law generated a great deal of publicity regarding the state of affairs along Arizona's border. It gave fearful people something to think about, taking their minds off of the devastating effects of the Great Recession. Regrettably for Arizona, most of the publicity was highly unfavorable. As the political leadership in Phoenix flaunted its idiosyncratic bizarreness, Arizona became known as a hothouse of intolerance and/or a place where elected officials were too inept to understand the difference between federal and state policing responsibilities.

Arizona's actions antagonized the neighboring Mexican state of Sonora at the same time it brought heaps of unflattering publicity upon itself. All this was occurring at a time when federal border enforcement was on the upswing, the number of illegal borders crossers was dropping and trade with Mexico was increasing. It appeared that Arizona's goal was to freeze trade, encourage tourists to stay away and push up the unemployment rate. The effort to implement SB 1070 soon ran into legal problems as large parts of the law were swiftly negated by the courts. The legal bills mounted as flinty state officials continued to push implementation. In retrospect, the spending on SB 1070 legal fees might have been put to better use supporting the investigation of child protection cases.

The praised and disparaged North American Free Trade Agreement

By Karl Reiner

On January 1, 2014 the North American Free Trade Agreement (NAFTA) reached the age of 20. Still fairly controversial, NAFTA has turned out to be neither the economic marvel nor the calamity its supporters and critics claimed when the agreement went into force. NAFTA did do what trade agreements are supposed to do, it fostered a large increase in the level of trade between the U.S., Canada and Mexico. In 1993, U.S. merchandise exports to Mexico were $41.5 billion, imports totaled $39.9 billion. Trade with Canada accounted for $100.4 billion in U.S. exports and imports valued at $111.2 billion.

In 2012, the last year for which full year data are available, U.S. merchandise exports to Mexico reached $215.9 billion and imports totaled $277.5 billion. Shipments to Canada totaled $292.5 billion while U.S. imports came to $323.9 billion. Although U.S. merchandise trade ran a deficit with Canada and Mexico in 2012, the services trade sector did better. The U.S. had a surplus of $31.5 billion with Canada and $12.2 billion with Mexico. Services include such items as licensing fees, royalties, freight, legal, engineering, consulting, etc.

Points to ponder as we glide into the New Year

By Karl Reiner

August 2014 will mark the 100th anniversary of the beginning of World War I. The war to end all wars did not end war, it was the starting point for the turmoil that led to World War II. The year 1914 began with a sense of self-assuredness and hope in a Europe where colonialism was an accepted fact of life. Peace had reigned for 40 years, communications were improving and trade was on the increase. Advances in medicine and sanitation were having an effect, living standards were on the rise. Economic ties were thought to deter conflict, Germany and the United Kingdom were each other's largest trading partners. Some observers  saw a problem, they believed the European powers were spending too much on armaments.

The European nations were also facing surges of socialism, nationalism and labor unrest intermingled with hefty doses of communism and anarchism. Although there had been limited conflicts in the Balkans, the people of Europe believed their leaders would be able to keep things under control. Germany and England were in race to build more warships. Russia, bruised from setbacks in the Balkans and the loss of the 1904-05 war with Japan, was stoking nationalism. France remained bitter and vengeful for the drubbing it had received from the Germans in 1871. Germany, unified by Bismarck, was no longer bound by his restraint. It sought empire and world respect.

The complicated transformation of the kingdom of oil

By Karl Reiner

The Kingdom of Saudi Arabia occupies the largest part of the Arabian Peninsula's land mass. Approximately the size of the U.S. east of the Mississippi River, the country is predominantly uninhabited desert. Having one of the lowest rates of rainfall in the world, Saudi Arabia suffers from severe water scarcity. It also has the distinction of being the world's largest country without a permanently flowing river. As the birthplace of Islam, Saudi Arabia has two of the religion's holiest shrines in Mecca and Medina. These locations attract millions of religious travelers annually.

For centuries, nomadic, patriarchal tribes migrated through the desert lands with their animals, changing location with the season. In 1932, ibn Saud, the leader of the Al-Saud family, unified the country after a 30 year struggle. Saudi Arabia is a monarchy. Its people follow a conservative form of Sunni Islam. The nation's legal system is based on Sharia law, the king is the chief of state as well as the head of government. When oil was discovered in commercial quantities in 1938, the country began to make economic changes. After the oil price increases of the early 1970s, development took off.

The policy shift that is remaking China

By Karl Reiner

China has come a long way since Mao Zedong and the Communists came to power in 1949. China's recent successful development has not come easy, its architects had learned from watching the consequences of failing policies. After the chaos of the Great Leap Forward, Mao launched the Cultural Revolution to control the reformist tendencies he disliked. The situation spiraled out of control because the turmoil of the Cultural Revolution led to a 12% decline in industrial production, increasing illiteracy as schools were closed down and at least three million deaths.

Zhou Enlai started the process of reversing Mao's costly and failed policies. Deng Xiaoping, who had been purged twice, came to power in 1978. Deng allowed Mao-era rhetoric to continue while he ushered in more changes, the decentralization of decision making, economic reform and a focus on exports. The Chinese Communist Party's decision in 1992 to create what it called a socialist market economy, increased privatization. Deng's policies helped move China to a market economy that lifted 400 million people out of poverty.

The hopeful and problematic negotiations with Iran

By Karl Reiner

Iran and the five permanent members of the UN Security Council plus Germany reached a preliminary agreement on November 23 in Geneva. Iran will curb its nuclear program for six months in exchange for the dropping of some sanctions. Secretary of State Kerry and Iran's Foreign Minister Zarif have worked to put things on a new course, attempting to end 34 years of mutual hostility. Events have been helped along by Iran's President Rouhani, a regime insider experienced in security and diplomacy. A pragmatic conservative, he considers engagement important to the survival of the Islamic Republic. Rouhani has gained the support of the reformists who want to break Iran's isolation. With the people in charge in Washington and Tehran interested in moving forward, the talks have a chance of succeeding.

It will not be easy because Iran is an Islamic theocracy, dominated by clerics who watch over the functions of the state. Iran's Supreme Leader, Ayatollah Khamenei, does not necessarily agree with the reformists, but has been forced by sanctions to negotiate. Ayatollah Khamenei comes from the hardline right, all aspects of the country's ideological and political life ultimately come under his control. Rouhani, a trusted member of his inner circle, has his backing. Because Khamenei supports the negotiation effort, the response from the Revolutionary Guards and other hardline groups has been muted. The official line being coordinated by the supreme leader's office says that sanctions didn't force the talks. Iran has seen signs that the U.S. is changing its hostile policies and Iran is responding.

Arizona’s muddled border relations

By Karl Reiner

Despite the sour view held by some politicians in Phoenix, not everything on the Arizona-Sonora, Mexico border is dangerous. Arizona's ports of entry process about 22 million visitors a year. They travel and spend money in Arizona. Through September 2013, U.S. merchandise exports to Mexico totaled $167.4 billion. Arizona's exporters accounted for $5.2 billion. The expansion of Mariposa port of entry at Nogales, scheduled to be completed in late spring 2014, is stimulating development in the region. The work doubling the capacity of the port at Guaymas, Sonora will benefit Arizona's economy when completed in two years. Cooperation is increasing between local officials because they realize Arizona and Sonora have intersecting economic interests.

The shrewd Texans have a broader prospective. They study the effect of border wait time on trade. Along with security, the Texas legislature has an interest in international cargo and passenger traffic trends, problems and solutions. This attitude may partly explain why the volume of Texas exports to Mexico is 14 times larger than Arizona's. While approximately 400,000 undocumented migrants live in Arizona, about 1.7 million reside in Texas. The October 2013 unemployment rate stands at 8.2% in Arizona. Although Texas appears to be swamped by undocumented people, its unemployment rate is 6.2%. The correlation between the presence of illegal migrants and unemployment may be somewhat less than we have been led to believe.

General Giap’s fearsome legacy

By Karl Reiner

North Vietnamese Gen. Vo Nguyen Giap died last month at the age of 102. The news stories reporting the general's demise brought back memories of the distant rumble of artillery, illumination flares hanging in the night sky, helicopter rides and the clatter of small arms fire. And the chilly remembrance that the situation in Vietnam was far more convoluted than we had been led to believe. Gen. Giap's strategic decisions affected America's 8.2 million Vietnam era veterans in one way or another, especially the nearly 2.6 million that served in the country. By the time U.S. troops departed in 1973, American losses in Vietnam totaled over 58,000 killed and more than 153,000 seriously wounded.

Giap became active in politics in the 1920s, studied law and political economy. At one time, he taught history. He worked as a journalist in the 1930s. A ferocious nationalist, he joined the Communist Party of Vietnam in 1931. Although lacking formal training, Giap began his military exploits resisting the Japanese occupiers in the latter stages of WW II. In a landmark campaign during the First Indochina War in 1954, Gen. Giap overwhelmed the French forces at Dien Bien Phu. His 55,000 troops occupied the surrounding mountains, dismantled artillery pieces were hauled up the steep slopes by hand. The astonishing and complex effort was supported by the toil of 260,000 laborers.

Good budgetary policy is hard to put into practice

By Karl Reiner

It is an accepted economic principle that governments can run budget deficits to combat recessions.  The resulting debt is then paid down by budget surpluses when the situation improves. In practice, the U.S. runs constant deficits.  Instead of reducing debt in good times, it cuts taxes.  As a consequence, the national debt is over $17 trillion.

The national debt increased an average of 14.2% per year during the Reagan presidency and 11.7% yearly during the term of Bush I. The average yearly increase fell to 3.9% during Clinton's term, the result of the first budget surplus in many years.

Due to war expenses and tax cuts, the national debt increased by an average of 8.3% per year during the administration of Bush II.  Due to recession fighting programs, the yearly increase was running at 11.3% early in President Obama's tenure.

As the U.S. recovers from the Great Recession, the federal budget deficit has declined, slowing debt expansion.  The deficit for fiscal year 2013 was originally estimated at $973 billion by the Congressional Budget Office (CBO).  It was $680 billion, the smallest deficit since 2008.

The U.S. GDP (the market value of the nation's output of goods and services) is running at $16.6 trillion per year.  In 2012, the national debt reached 100% of GDP. While current deficits are shrinking, the CBO estimates they will increase later in the decade due to the cost of supporting an aging population and increased interest payments on the national debt.

Social Security, Medicare, Medicaid and children's health programs accounted for around 44% of federal spending in 2012.  Americans say they oppose excessive spending and chronic deficits.  They also support benefit spending.  A willingness to be taxed (especially upper earners) is what is lacking.

Although the country needs a functioning government, the Tea Party pushes an anti-government agenda. Budgets are now dictated by sequester.  The government was closed and the debt-ceiling issue driven almost to default.  The deal made in Congress pushed the problems into next year.

The Supreme Court has ruled that the payment of social security tax carries no right to benefits since Congress can change them.  Due to the tepid economic recovery and political gridlock, many younger people believe they are paying taxes for social programs that will not be around in the future.  Their trust in government continues to ebb.

If the U.S. is going to reduce debt to  a sensible level, adjustments will be needed.  Modest shifts in eligibility and benefit levels in social programs that can result in large savings over time have to be explored.  The Tea Party has to stop trying to dismantle programs and drop its opposition to raising revenue.

A growing segment of the public thinks Congress gets paid to make government work, not shut it down.  As a result of the government closing, Republicans have a favorable rating of 28%, the lowest ever recorded.  In the absence of political consensus in Washington, it is a hopeful sign.                          

Political polarization is a symptom of social disintegration

By Karl Reiner

Political polarization is making America ungovernable.  Congress has become so deadlocked that a large part of the federal government has been shut down.  It has been unable to reach an agreement on the federal budget or on raising the debt ceiling.  THe U.S. now faces a danger of default.  Because the dollar is the world's reserve currency, the consequences would be unpredictable and quickly spread worldwide.

The U.S. has the world's most expensive healthcare system.  Healthcare is a $2.7 trillion part of the economy.  While America spends 18% of its GDP on healthcare, nearly 50 million people remain uninsured.  While the U.S. struggles to contain costs, other countries spending far less per capita on healthcare achieve better results.

Arizona's trade and border relationships

By Karl Reiner

In 2012, Arizona's merchandise exports to India totaled $80.7 million.  During the first half of 2013, they reached $64.8 million.  In August, Governor Brewer led a trade mission to India to promote exports, investments and develop relationships with an emerging trading partner.  Although not developing as rapidly as China, India is one of the world's expanding economies.  With a population of 1.2 billion, it has economic potential.

Exports also ship out of Arizona to countries closer to home.  For the first six months of 2013, the state sent $1.25 billion worth of goods to Canada.  During the same time period, Arizona's exports to Mexico (the state's largest export market) amounted to $3.46 billion. Tucson's exporters ship about $2.5 billion in exports to Mexico per year.

Afghanistan's unsettled future

By Karl Reiner

President Obama has committed to winding down American military involvement in Afghanistan by the end of 2014.  After a dozen years of fighting extremists and fabricating a nation, the combat role is ending.  The U.S. and NATO are training the Afghan army and police to assume security duties.  As foreign troops depart, donor nations have agreed to pay $5-7 billion annually to fund Afghan security forces.

At the present time, there are approximately 100,000 foreign troops in the country.  About 66,000 are American, the remainder from NATO allies.  Due to disputes with the Karzai government regarding the status of forces agreement, there is a possibility that no troops will remain in Afghanistan after 2014.

If the stalled agreement is not signed, all foreign troops will leave. This is a problem because the Afghan forces are not capable of providing logistics, medical evacuation, intelligence or air support.  This deficiency results in a need for between 12,000 and 20,000 foreign troops to remain in Afghanistan.  About two-thirds would be American.  The agreement needs to be signed by November to allow planning for a post-2014 military presence.

Has Governor Brewer moderated her view of Mexico?

By Karl Reiner

When Gov. Brewer signed SB 1070 into law in April 2010, few of Arizona's political leaders had anything good to say about Mexico.  SB 1070 provoked a conflict between federal and state enforcement responsibilities and generated numerous problematic civil rights issues.  Picking up on the negative vibrations, Mexico's border state governors refused to attend the border governor's conference if it was held in Arizona in 2010.

The publicity SB 1070 generated encumbered Arizona with an economy damaging negative reputation.  It has been estimated that the SB 1070 affair cost the state a loss of output in the range of $250 million, resulted in the loss of 2,000 jobs and was responsible for a $9 million drop in tax revenue.

Route I-11 could boost Pima County's economy

By Karl Reiner

Work is continuing on seaport improvements at Guaymas, Sonora.  The Mariposa port of entry in Nogales is being enlarged.  Due to the expanding trade volume, freight traffic between the U.S., Canada and Mexico is increasing.  If the proposed I-11 interstate highway (which would be part of the Canamex trade corridor) is constructed, Tucson would be nicely placed to become a regional distribution center.

The Pima County Board of Supervisors may reconsider its opposition to the highway project.  Although opposed to the I-11 concept since 2007, county supervisors are now looking at the benefits from expanding Mexican trade as well as reviewing the reasons for their opposition.  American history is replete with examples of infrastructure projects that helped develop cities. I-11 could benefit Tucson in the same way.

Trends and factors that could affect Arizona's economy

By Karl Reiner

The global consumption of energy has grown by 30% during the past 10 years.  Almost all of the increase was in the developing nations.  Due to conservation and increases in efficiency, energy demand appears to have stabilized in the developed countries. Economic growth drove the increase in usage in the developing lands.  The developing countries now consume a larger share of the global energy supply than the developed nations.

 

Iran's election and the Syrian dilemma

By Karl Reiner

Taking office in August, Hassan Rowhani becomes Iran's new president at the age of 64.  The former nuclear negotiator got over 51% of the vote in a race with five other candidates. He received 18.6 million votes. About 75% of eligible voters went to the polls.  Rowhani won because Iran's reformist groups considered him the best candidate available.

Supreme Leader Ayatollah Ali Khamenei and his hardliners control key aspects of Iran's political system.  Despite their efforts to put a conservative into the president's job, the race was won by the most moderate of the approved candidates.  Rowhani, a member of two of Iran's top governing bodies, is experienced in economics and social issues.  While he has an Iranian revolutionary's suspicion of the West, Rowhani does not value ideology and resistance over pragmatism and results.

The conflict between security needs and the media is timeless

By Karl Reiner

Some things never seem to change.  Government and the media exist in an uneasy relationship, especially in time of war.  The unhappy association is replete with competing and conflicting interests.  The rights of the media often conflict with the government's need for secrecy.  During the Civil War, generals such as Lee, Johnston and Sherman believed newspapers were a hindrance to them because they published information that was useful to the enemy.

Commanders on both sides avidly read newspapers published in enemy territory because they were good sources of information. Since the governments of the United States and Confederate States maintained the tradition of allowing the press to function relatively freely, the complaining generals may have had a point.

The complexities and economics of Arizona's border relationship

By Karl Reiner

Although it is of little concern in the state capital, Arizona's exporters had a good first quarter of 2013.  U.S. merchandise exports to Mexico totaled $53.5 billion, an increase of $487 million over the same period last year. Texas was the leading state with $24.16 billion, followed by California, Michigan and Louisiana.  Arizona ranked fifth with $1.65 billion, up $132 million over the previous year's first quarter.

Mexico's stock market hit an eight-month low in May.  Sluggish sales to the U.S. (Mexico's largest export market) during the first quarter of 2013 slowed the economy.  Mexico's economic growth forecast was reduced to 3.1% from 3.5%.

Rutgers professor ends bid to become president of Iran

By Karl Reiner

Dr. Hooshang Amirahmadi has halted his campaign to become president of Iran.  The Guardian Council, the theocratic body that vets candidates, has announced its selections.  It has approved eight conservative men to be candidates in Iran's June 14 election.  It appears that all the moderates and reformers were disqualified by the Guardian Council. Expecting the situation, some moderate potential candidates skipped the disqualification process.  They did not make an effort to register as candidates during the registration period at the interior ministry.

Fears, unpleasant trends and actuality

By Karl Reiner

Many ardent conservatives believe the country is spiraling downward, the future bleak.  They urge buying gold, stocking up on food and arms, getting ready for the collapse of society.  The gloomy mindset may be a reaction to the fact that the recession was partly caused by the banking deregulation they advocated.

Their sense of unease is not completely misplaced.  The government reaction to the 2008 financial collapse sent budget deficits soaring and held interest rates to near zero.  Although the actions prevented the Great Recession from turning into a depression, the economic hit was hard, a consequence of the misallocation of resources to the housing sector.

Before the crisis, the growth of the financial sector provided some benefits.  It helped world trade increase from 22% to 33% of global GDP during the years before the housing crash.  New ways of financing homes led to lower borrowing costs and increased home ownership.  Unfortunately, the availability of easy credit also promoted poor lending practices and a rise in private sector debt.

Iran's authoritarian streak has deep roots

By Karl Reiner

Authoritarian rulers are not uncommon to Iran.  As Iran's June presidential election nears, the Guardian Council has yet to announce the list of approved candidates.  Iran's Supreme Leader, Ayatollah Ali Khamenei, wants to see a suitable conservative elected as president.  In a country facing a faltering economy, sanctions and entanglement in Syria, the Supreme Leader may face some difficulty in getting his way.

In the 1960s, the Shah of Iran wanted to turn Iran into a new Persian Empire.  He aspired to make it a major force in the Persian Gulf area.  As the British withdrew their military presence east of Suez, the Shah was ready to step in and put his plan into action.

Oil revenues allowed the Shah to make large arms purchases.  Using the Cold War to his advantage, he knew if he couldn't buy military equipment from the U.S., the Soviet Union would sell him all the arms he wanted.  Within a few short years, Iran's military was turned into one of the most technologically advanced forces in the world.

Border policy myths, realities and faulty assumptions

By Karl Reiner

Gov. Brewer recently asserted that Arizona's controversial SB 1070 served as the catalyst for the creation of the immigration legislation now in Congress.  Although much of SB 1070 was set aside by the courts, the governor believes the law, costly legal fights and publicity helped start the momentum that led to the current bipartisan immigration proposal.

The governor has a point because the SB 1070 effort was not a low cost affair.  The publicity it generated saddled Arizona with a mostly negative reputation.  In far away Washington, Congress would have been aware of the SB 1070 tempest.  It could have encouraged senators to consider moving on immigration legislation.  

Moving the mail across Arizona was a big project in its day

By Karl Reiner

In these times of calls for undefined smaller government and resistance to rescinding tax cuts, many Americans forget the role played by government-private sector partnerships in developing the nation's economy.  In a country plagued by growing income inequality and aging infrastructure, the lessons from the past should not be ignored.

Over 150 years ago, there was a terrific need to improve communications between the eastern states and California.  To remedy the problem, the federal government awarded a $600,000 per year contract to the Butterfield Overland Mail Company in September 1857.  The contract was for six years.

Is America too broke to maintain its infrastructure?

BY Karl Reiner

Due to tax cuts, unfunded wars and a housing bubble that resulted in recession, the U.S. government is mired in debt, unemployment is high and anemic growth dogs the economy. The consequences of the poor policy decisions and the over allocation of resources to the housing sector are being prolonged by a Congress beset by gridlock.  The political uncertainty causes businesses to delay investment decisions, slowing the recovery even more.

The American Society of Civil Engineers (ASCE) issues a report card on America's maintenance and modernization of its infrastructure every four years. This year, the country got an overall grade of D+. It was up slightly from the previous dreary D.  Increased spending on bridges, drinking water systems, railways, roads, solid waste and waste water systems helped push the overall grade up a bit.

Sanctions, resistance and a campaign trip to Iran

By Karl Reiner

Economic sanctions were first imposed on Iran by President Carter in response to the hostage crisis.  They are currently imposed by the UN, U.S. and EU to prod Iran into negotiating the nuclear issue.  The goal is to make life difficult for the population. It is hoped that the economic squeeze will create enough popular pressure to force the Iranian government to agree to a nuclear deal.

Sanctions have delayed Israeli military action. At the UN, they have helped maintain unity between the U.S., Russia, China, Britain, France and Germany.  The combination of Iranian mismanagement and sanctions are slowing the Iranian economy.  In 2011, Iran produced 3.6 million barrels of oil per day. Oil provides the government over 50% of its income.  Its output has been depressed by 25%.  Iran's GDP has slipped by 8%, inflation has climbed to 10%, and unemployment stands at 20%.

Are Arizona's mayors on to something?

By Karl Reiner

The U.S.-Mexico relationship has its good and bad points.  Over $540 billion in merchandise trade moved between the countries in 2012. Mexico ranks third as an American supplier and second as an export market.  There are security problems involving the massive illegal drug trade, illegal migration (mostly from Mexico and Central America) and the flow of smuggled firearms to Mexico.  With Arizona's state leaders focusing mainly on security, the economic benefit of being a border state tends to be ignored.

SB 1215 is moving unobtrusively through the Arizona Legislature.  The bill extends the life of the Office of Sonora (part of the governor's office since 1992) for eight years.  The office works on exchanging information, promoting business and tourism with the state of Sonora, Mexico.  It assists the Arizona-Mexico Commission and keeps tab on the North American Free Trade Agreement.

Can an American-Iranian optimist become president of Iran?

By Karl Reiner

The Iran-Iraq war has been forgotten.  The Iraqi invasion of Kuwait and the campaign to drive them out is old history.  The 10th anniversary of the U.S. invasion of Iraq is quietly observed as the military effort in Afghanistan slowly winds down.  At the same time, tensions grow between the West and Iran over Iran's nuclear program.  To deter Iran from developing nuclear weapons, UN, U.S. and European Union sanctions have been imposed.

Israel has threatened to take military action unless Iran abandons the program suspected of developing nuclear weapons.  Iran's Supreme Leader, Ayatollah Ali Khamenei, states that the Islamic Republic will retaliate if its nuclear facilities are attacked. Iran will strike Israeli cities. Although negotiations between the West and Iran continue, there is a drift toward war.

A Somewhat Better Economy

By Karl Reiner

The economic recovery continues slowly.  Stock prices have recovered the value lost during the Great Recession.  The nation's unemployment rate has inched down to 7.7%.  Economic analysts know that a recession caused by a financial crisis has a longer recovery time.  They did not, however, expect the ongoing uncertainty created by a gridlocked Congress. The most expensive legislative body in the world can't agree on a budget or a plan for medium-term deficit reduction.

Despite its role in bringing about the economic collapse, Wall Street is doing well.  The industry has regained about 30% of the jobs it lost. The average yearly pay (including bonuses) for a Wall Street manipulator has rebounded to about $362,900. It is ironic that the industry that played a big part in bringing down the economy has gotten back on top of things so quickly.

The Hushed Infrastructure Problem

By Karl Reiner

Good education and infrastructure systems are major components in maintaining and promoting a nation's economic growth.  The role of infrastructure has been particularly ignored in recent years due to the testy Tea Party led standoff in Congress regarding budget priorities and deficit reduction.

The development of infrastructure affects an economy.  After the Theodore Roosevelt dam was constructed on the Salt River northeast of Phoenix during 1905-11, the economy of central Arizona rapidly expanded.  The $10 million dam project managed by the Federal Reclamation Service controlled floods, stored water and generated electricity.  For a time, it was the largest masonry dam structure in the world.  The dam remains in service having been renovated and enlarged in 1989-96.

Sequester Casts a Shadow

By Karl Reiner

The $85 billion across-the-board federal spending cuts for the current fiscal year have gone into effect.  When the White House and the balky Congress agreed to the sequester cuts in 2011, it was supposed to be a prod to negotiating a better approach to deficit reduction.  The consequences of the blunt cut to federal spending were too appalling to consider.  The sequester deal was the incentive driving the working out of a better arrangement.

It failed because a factionalized Congress, presiding over a depressingly slow economic recovery, has lost its moorings. The fear and anger that fuels the tea party and anti-government groups has driven the Republicans to forgo governance and opt for simplistic solutions appealing to the far right.

Tomato Trade War with Mexico Averted

By Karl Reiner

At the behest of Florida growers, the U.S. Department of Commerce was investigating the charges of low price dumping of Mexican fresh tomatoes in the U.S. market. The tomato dispute could have triggered a trade war with Mexico because Mexican authorities threatened to impose retaliatory tariffs on American exports of meat, poultry and grains.

A few days ago, the Commerce Department announced that it had negotiated a solution with the Mexican government and growers.  A draft agreement had been initialed.  The proposed agreement covers imports of all fresh or chilled tomatoes of Mexican origin, except tomatoes for processing.  Mexican fresh tomato exports to the U.S. are valued at approximately $1.9 billion per year.

Past and Present Political Polarization

By Karl Reiner

Last month, President Obama began his second term in office under conditions somewhat improved from four years ago. Back then, the economy was contracting at 5% per year and 600,000 to 800,000 people per month were being dumped into the ranks of the unemployed.

The effects of the Great Recession show how imperfect the tools available to policymakers are.  After complex Wall Street products helped feed the sub-prime housing mess, the resulting crisis had to be met by costly Federal Reserve and Treasury actions that stemmed the slide into depression.  The remedies are unpopular because in saving the  economy, the government had to help a banking sector that contributed mightily to the collapse.

Geography, Roads and Consequences

By Karl Reiner

Geography and road systems influence economic and military events.  In the summer of 1863, Confederate Gen. Robert E. Lee made the decision to consolidate his army in a small southern Pennsylvania town where roads intersected.  His decision had major consequences.  It resulted in a battle that changed the course of the Civil War and made Gettysburg into a national landmark. 

Infrastructure development played an important role as China became the world's second largest economy.  Its massive road building program is on track to complete over 52,000 miles of expressways by 2020.  Another 167,000 miles of rural roads will have been newly constructed or rebuilt.  The road building program is government managed and financed.  The program is years ahead of schedule, stressing domestic supplies.  China produces about 16 million tons of asphalt a year while it uses 20 million tons.  Imports have to make up the shortfall.

The lack of roads can serve sinister purposes.  The rolling desert country southwest of Tucson is sparsely populated.  Down Rt. 286, about 70 miles from Tucson, is the border port of entry at Sasabe.  The small town of El Sasabe, Sonora sits across the border.  Approximately 60 miles farther south is Altar with a population of about 8,000.

The Economic Ramifications of SB 1070

By Karl Reiner

Unhappy with federal efforts and unfazed by the recession, the Arizona legislature decided to get the state involved in immigration policing.  It ignored the fact that state and local enforcement of immigration laws might hinder the federal government's ability to set priorities and burden local police forces.

The state legislature crafted a broad and anti-illegal immigration measure. It was based on a model drafted by the Federation for American Immigration Reform.  Despite warnings from various groups regarding a host of unwelcome consequences, SB 1070 was signed into law in April 2010.

The Dilemma of Afghanistan

By Karl Reiner

The Afghan government is engaged in a tough balancing act, trying to foster national identity while at the same time dodging ethnic and religious pitfalls.  It faces an intimidating task in trying to unite the Afghan people while avoiding a repeat of past mistakes.  Many observers have concluded that the Afghan government is not up to the task.

It is hard to foster literacy and civic education in a traditional multiethnic society hostile to outside influence.  Attempts to change the old ways can meet with resistance.  The people promoting rights for women and education for girls are being shot dead.

The Revitalization of Mexico

By Karl Reiner

Through September 2012, Arizona's exports to Mexico were running $415 million ahead of last year's level.  Almost unnoticed by Arizona's politicians, Mexico is changing in ways that will benefit the state's economy.  It may be time for political leaders to rethink their view of the country across the border.

The U.S.-Mexican border is the world's busiest.  Border crossings have slowed because of security considerations and port of entry bottlenecks.  Some of Arizona's politicians seem to like it that way.  The undervaluing of trade and the fear of migrants has led the  legislature to pass such controversial legislation as SB 1070.

The Haunting Legacy of Iran's Ayatollah Khomeini

By Karl Reiner

Iran, formerly known as Persia, has been a regional power since the time of the Greeks and the Roman Empire.  Slightly smaller than Alaska, the proud (some say arrogant) country plainly states that it is Persian not Arab.  An oil producer, with a population of 75 million, Iran has been under the sway of a theocratic system of government since 1979. 

The relationship between the U.S. and the Islamic Republic of Iran began badly. When Islamic revolutionaries seized power in February 1979, the leader of the revolution, Ayatollah Ruhollah Khomeini,appointed the moderate Bazargan provisional government to oversee the country until a new constitution was drafted and national elections held.

Although the provisional government attempted to restore order and reestablish government services, it had little support. The country was awash in heavily armed groups determined to implement their own radical ideological agendas.

Arizona Sides with Mexico in Tomato Dispute

By Karl Reiner

On November 8, the Tucson City Council voted 6-0 to ask the U.S. Department of Commerce to reverse its decision to terminate the Mexican tomato suspension agreement. The council fears damage to the region's economic relationship with Mexico and wants to avert the possibility of a trade war.  Senators Kyl and McCain, Representatives Grijalva, Barber, and others have expressed similar positions.

 

When the North American Free Trade Agreement (NAFTA) took effect in 1994, it eliminated U.S. tariffs on imported Mexican tomatoes.  The American producers of fresh winter tomatoes then charged the Mexican producers with low price dumping that injured the industry.  In November 1996, the resulting U.S. anti-dumping investigation was suspended when agreement was reached between the U.S. Department of Commerce and Mexican growers.  In 2008, a review established a revised floor price for Mexican tomatoes at $.0172 per pound in summer and $0.216 in winter.

The Border, Drone Technology and Fences

By Karl Reiner

New technology always brings change.  Unmanned aircraft systems (UAS) also commonly known as drones have become one of the standard weapons used in fighting terrorists in places such as Afghanistan.  The drone's main advantage is its hushed ability to remain over a target area for hours, something helicopters and other aircraft cannot do.

Unmanned aircraft are manufactured in a number of sizes and UAS technology has numerous civilian applications.  It can monitor transmission lines, count cows, perform crop surveys, collect flood control data, do mapping and support firefighting efforts.  The use of unmanned aircraft is growing, it is expected that 30,000 will be in service throughout the world by 2018. 

The large Department of Homeland Security (DHS) has over 18,000 of its 230,000 personnel working on the Mexican border.  The department also has undertaken a program to build and operate a fleet of unmanned aircraft.  The program, which is in the testing phase, carries a price tag of $240-$250 million.

On the border, properly managed drones can provide the agents on the ground with timely intelligence information.  DHS wants to have 24 drones in the air by 2016.  Including the cameras, antennas, sensors, radar, and spare parts, the price of a single drone runs about $18.5 million.

Drones have been deployed along the Arizona-Mexico border.  The remotely piloted aircraft operated by Homeland Security's  Customs and Border Protection (CBP) are the Predator B type.  Weighing over 10,000 pounds, they are 39 feet long and have a 66 foot wingspan.  They can stay in the air for approximately 20 hours.

They fly out of Ft. Huachuca, carrying their sophisticated cameras and sensing equipment.  Often flying at 20,000 feet, they do reconnaissance and surveillance, searching for drug smugglers and migrants. The camera systems can provide identification data from 10 miles away.  

The Predators are not cheap to operate. They cost approximately $3,000 per hour to fly. Critics say they are not worth the expense.  The drones can't fly in bad weather.  They pose a danger to other aircraft.  They have done little so far to stem the flow of illegal migrants or drug smugglers.

The critics may have a point. The Department of Homeland Security's Office of Inspector General issued a report last May outlining a host of problems in the CBP program.  The aircraft were purchased before the agency figured out how to achieve a steady level of operation.  The drones have been underused as a result. 

CBP also failed to anticipate operations and maintenance expenses.  Money ($25 million) had to be taken from other programs to cover the shortfall.  The report concluded by saying that no more unmanned aircraft should be purchased until after the operations and maintenance problems are sorted out.

In July 2011, the Arizona legislature passed SB 1406.  The law contains a provision allowing the state to build its own fence on the Mexican border.  A website: www.buildtheborderfence.com was established to solicit donations.  Through early November of this year, slightly over 4,000 people had donated a total of $193,602 online.  Because the website total does not include donations mailed in, there is probably more money in the fund.

Gov. Brewer has said that drones are ideal for border security and counter-drug missions.  Now that the federal program in Arizona has hit some rough spots, the state ought to consider contributing the fence project dollars to the federal drone program.  The state can get by without its own fence project.  Supporting drone technology development would be a better security investment and a good use for the fence donations.  Perhaps the legislature will consider the idea.                     

Out of Sight, Not out of Mind

By Karl Reiner

President Obama is said to be somewhat distracted, not fully engaged in the tumble of everyday domestic politicking.  He may have his reasons.  One of his daily briefings includes a litany of the problems and threats festering and lurking outside the nation’s borders.  The ongoing problems in Afghanistan, Iraq, Iran, global terrorism and the uncertainty of the Arab Spring movements need his consideration.  

Every time his helicopter lifts off from the White House lawn, the president can see the white markers on the graves in Arlington Cemetery. It is a constant reminder of the human cost of his decisions.  Looking out the opposite window, he sees the U.S Capitol, the home of a dysfunctional Congress. Here, federal debt reduction and budget programs are ensnared in gridlock. 

 The full impact of the Great Recession has yet to be determined. Its lingering effects continue to grind on America and rest of the world.  The U.S. suffers from a slow economic recovery. Europe struggles with a currency crisis and attempts to resuscitate faltering and indebted economies.

Economic crises often have calamitous consequences.  The Great Depression of the 1930’s overwhelmed economies and political systems. It helped bring about the demise of the Weimar Republic in Germany and fostered the rise of militarism in Japan. It assisted in setting the stage for World War II.     

Although the U.S. has been the world’s leading economy since around 1900, the world’s economic ranking is changing.  At some point during the next 10-15 years, China, with its population of 1.3 billion, is expected to displace the U.S. in the top spot.  The shift will affect much of the economic and military orientation in the Pacific region.

The factors that led to the recession have raised doubts about the effectiveness of liberal capitalism in much of the developing world.  America and the debt-ridden countries of Europe are seen as having not practiced what they preach.

The West’s brand of democratic welfare capitalism has resulted in turmoil.  Having permitted the misallocation of resources and the amassing of debt, it may no longer be the model developing nations desire to follow.  The authoritarian style of China’s capitalism offers a stark developmental alternative.    

The illegal drug trade and its associated violence continue to afflict Mexico, spreading fear in the border region. Due to the recession, better security and an improving economy in Mexico, the number of illegal migrants attempting to cross the border to find work in the U.S. has substantially declined. 

In the aftermath of the recession, Mexico’s economy has made a respectable recovery. It is expanding at an annual 4% rate.  Mexico’s debt stands at about 43% of GDP, less than half of the U.S. level. Its banks missed the subprime fiasco, they are among the best capitalized in Latin America.  Mexico’s consumers have low levels of personal debt.

Mexico now has some of the best economic fundamentals in Latin America.  As the situation in Mexico continues to improve, Arizona may find that its singular rush to become involved in immigration enforcement (SB 1070) was not the brightest of ideas. 

This Slow Recovery is Not Abnormal

By Karl Reiner

The Great Recession that grew worse in the wake of the financial collapse of 2008 blew a large hole in the current theories of finance. Wall Street was supposed to be capable of calibrating its risks and markets were supposedly able to self-regulate. Unfortunately for the U.S. population, events proved they could not.  

Many sectors of American society had accepted the seductive idea that easy debt and speculative mortgages were good policies. The giddy mix was a product of shifting political philosophy, deregulation and a lack of oversight, dicey mortgages and the unusual belief that housing prices would only continue to go up.

The ridiculously rapid climb in housing prices, which doubled in a decade, should have been a warning to regulators.  The amount of American mortgage debt doubled between 2000 and 2007, increasing to $10.5 trillion. It was the biggest housing debt load in the nation’s history.      

History does repeat itself. The steadily rising income inequality index was an indicator that things were getting out of hand in the economy.  The richest 1% of the population took home about 10% of the national income each year in the 1952- 1980 period.  Starting in the mid-1980s their share began to rise. It reached 18.3% in 2007.  The last time it was that high was in 1929 when it reached 18.4% just before the onset of the Great Depression. 

As the financial sector unraveled, desperate and massive government intervention managed to keep the recession from turning into a depression. During the last months of the Bush administration, a beleaguered Treasury Secretary Paulson moved across the ideological spectrum, from free-market supporter to massive interventionist.  According to his critics, he metamorphosed from being a “dupe for Wall Street” into a “socialist intent on nationalizing big parts of the economy.”

In January 2009, when President Obama took over, the situation remained dire.  Two car manufacturers were heading for bankruptcy; the banking system was almost completely dysfunctional. National output, employment and housing prices and were continuing to slide downward at a rapid pace. 

The consequences of the recession have been horrific. Banks have written off over $600 billion in loans.  Over 100 depository intuitions had to be taken over by the government.

About a quarter of the nation’s homeowners (approximately 10 million) owe more on their homes than they are worth. At its high point, the unemployment rate reached 10.2% as over 8 million jobs evaporated.

Participation in the food stamp program has soared. It now serves approximately 45 million people, nearly one in seven Americans.  The wealth of Americans dropped from $64 trillion to $51 trillion.  Everyone got poorer due to job loss, falling home values and the drop in the value of retirement accounts.  The federal deficit has jumped dramatically due to the rescue costs.  It now stands at over $16 trillion. 

With the help of the Federal Reserve, the situation has been stabilized and a recovery has gotten underway. Thus far in the slog out of the deep ditch of recession, economists give President Obama’s team grades ranging from A- to Incomplete for their handling of the economic calamity and federal debt policy 

Economists acknowledge that a recession caused by a financial crisis has a much longer recovery time. This one has also has complicating factor.  The Tea Party inspired gridlock in Congress has created massive uncertainty in federal deficit reduction and budget policies.  That discourages consumers from spending and businesses to invest.

As voters mull their ballot choices, they need to remember that repairing the extensive damage caused by the financial crisis will take time.  They also ought to take into consideration all the factors behind the conversion of Secretary Paulson.

The Mexican Border is Relationship, Not a Barrier

By Karl Reiner

With the possible exception of many of those in Arizona, U.S. political leaders tend to agree that it is in the national interest to have a prosperous and democratic Mexico on the other side of the southern border. Although Mexico’s development issues have been a low foreign policy priority, the relationship between the countries works well in some areas. Unfortunately, there are also a host of problems and little agreement as to what to do about them.

Mexico is the second-largest market for U.S. exports after Canada. In 2011, our exports to Mexico were valued at $198.3 billion, up substantially as the Mexican economy recovers from recession. The upward trend continued in the first half of 2012 with exports running over $10 billion ahead of the previous year’s first half level. In 2011, Texas led the states in exports to Mexico with $87.3 billion. It was followed by California and Michigan. Arizona was 4th at $5.9 billion.

Although the North American Free Trade Agreement (NAFTA) brought benefits to Mexico, they were not equally distributed across the country. Perhaps too much was expected of it by Mexican officials. NAFTA was not by itself going to solve the nation’s poverty and employment problems. Without improvement in many other areas, Mexico’s economy could not expand as rapidly as the country’s economic optimists expected.

Mexico is the second most-populated country in Latin America after Brazil. Mexico’s stodgy economy was hit hard by Chinese competition and the U.S. recession. As it recovers, Mexico could use some assistance in improving its standards in the areas of intellectual property, transparency, labor and environment. It has to prepare its labor force to compete in a global economy. Mexico has to find ways to achieve a more equal distribution of income and generate employment.

Mexico’s population of 101 million is a little less than a third the size of the U.S. population. Its growing GDP of $1.1 trillion now equates to about 7% of the U.S. GDP of $15 trillion. This means that Mexico’s per capita GDP of $17,064 is 64% lower than the U.S. per capita GDP of $47,190. The large differences in the economies, along with Mexico’s high poverty rate are the main factors behind the prickly illegal immigration issue.

Nogales, Arizona is major U.S. inland port of entry, ranking 5th in the nation. It handles more than half of the fresh fruits and vegetables entering the United States. On the Mexican side of the border, the Kino Border Initiative (a charitable organization) deals with the human aspect of border problems. It operates an assistance program for those recently deported from the United States.

The Kino staff and volunteers have set up a shelter for deported women and children. They operate a first aid station. Kino’s largest undertaking is a center that provides basic humanitarian assistance to deportees. The center provides two meals a day, distributes clothes and personal care items. It also refers people to Mexican government services.

During the March-May 2012 period, the center aided over 2,800 deportees. Of that number, 2,623 were Mexican nationals. Of the 227 identified as hailing from Central America, 170 came from Honduras. The Mexican deportees originated in many of Mexico’s states. The largest contingents, however, came from the poorer areas. Chiapas was claimed as place of residence by 315. Oaxaca was the starting point for 241 and 173 came from Veracruz.

In the large and lucrative American marketplace, American consumers spend an estimated $65 billion per year on illegal drug products. The drug consumption in the U.S. has created havoc in Mexico. Approximately 50,000 people have been killed in the ongoing drug wars as the cartels fight each other and government forces. The objective of the warring cartels is controlling access to the U.S. As the drugs move into the U.S., a flow of money and weapons slides back into Mexico.

Given the complex nature of the border issues, it would behoove Arizona’s leaders to move beyond stoking peoples’ fears and offering simplistic solutions. Resolving the problems with Mexico is an arduous task and a federal responsibility. Arizona’s leaders often say they support growth in the business sector. They could learn a thing or two from Texas where it is known that trade with Mexico supports jobs. And they are smart enough not to gum up the works with discordant state legislation.

 

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The Great Recession, Tea Party Obstructionism and Recovery

By Karl Reiner

The Tea Party’s agenda developed during the tumultuous housing sector collapse that sent the economy into a tailspin.  Its adherents in Congress want to solve the federal deficit problem and other national economic ills by reducing government, cutting taxes and chopping spending.  The solution is flawed because it ignores the problems caused by the recession and the fact that the deficit cannot be tamed without some revenue increases.  

The damage inflicted by the Great Recession has been enormous.  Analysts’ think the U.S. poverty rate could go as high as 15.7%, the highest since 1965. Millions of people now depend on unemployment insurance, Medicaid, welfare, food stamps and private charity. Food stamp usage has jumped; around 45 million Americans are in the program. Due to expiring unemployment benefits, the high jobless rate and fragile economic recovery, economists do not see much improvement until 2014.

Although the Republican presidential candidate vows to repeal the Patient Protection and Affordable Care Act (Obamacare) if he wins the November election, a recent Congressional Budget Office (CBO) report indicates that the program is not the financial disaster its critics claim.  When the effect of the recent Supreme Court ruling is taken into consideration, the number of people covered will be less than anticipated. Obamacare will still reduce the federal budget deficit over a period of years.  According to the CBO, its repeal would result in a deficit increase.  

The world’s economic growth rate is slipping.  World GDP is expected to increase by 3.5% this year.  China and the other emerging economies are slowing down.  The Euro area is sliding into negative territory.  The U.S. GDP growth rate will hover around the 2% mark.  The tax increases and spending cuts automatically kicking in at the end of 2012 will make things worse unless the drift to the Tea Party inspired “fiscal cliff’ can be reversed. 

The dollars pumped into subprime mortgages and overvalued houses are a thing of the past. America’s biggest banks have written off nearly $500 billion in losses.  The national foreclosure rate stands at 3.4%.  Many owners find themselves living in houses greatly reduced in value. Others are struggling to make mortgage payments.  Across the nation, 6.9% of homeowners are 90 days or more behind in payments. The good news is that housing prices may have finally bottomed; they are currently estimated to be about 19% below fair value.    

The drought afflicting the U.S. may be the worst in 50 years. Virtually the entire country is suffering from some form of dryness. The corn and soybean crops are expected to be reduced by 30% or more.  With America supplying about 52% of the world’s corn supply and 43% of soybeans, the price of beef, pork, poultry and dairy products will increase.

There are signs of revitalization. Exports of U.S. services are increasing. Scientific, engineering and consulting service exports have doubled since 2006, mostly going to China, Brazil and India.  Although it seems counterintuitive, manufacturing employment in the U.S. has risen at a steady pace for the past two years.

New cars are selling well. Small companies (those with fewer than 500 employees) accounted for 34% of U.S. exports in 2010, up from 29% in 2006. The U.S. is enjoying an increase in domestic natural gas production. This is a boon for petrochemical, steel, glass, fertilizer and related manufacturers because they gain a competitive edge in international markets from cheap gas. 

Mending the damage inflicted by the recession and bringing the federal deficit under control are not going to be instantaneous events.  It is going to take years to clear away the economic rubble remaining in the wake of the Great Recession.  By continually fostering political gridlock, the Tea Party conservatives have made the task problematical.  

A Melancholy State of Affairs

By Karl Reiner

The U.S. House of Representatives voted for the 33^rd time to repeal the complex and little understood Patient Protection and Affordable Care Act also known as Obamacare.  The House measure will go to the Senate and die.  The conservatives demand repeal of the law; they are counting on winning the White House and Congress in November so they can get the tawdry deed done.    

Some analysts in the healthcare sector see this as a distorted compulsion. Governments worldwide are involved in healthcare simply because they know that healthy populations are more useful. Healthy citizens produce, they keep economies functioning.  Given the U.S. role in the world economy, the conservatives’ strident resistance to America’s slow creep toward universal coverage is perplexing. 

The Organization for Economic Cooperation and Development (OECD) reported its 34 member governments spent an average of 9.5% of GDP on health care in 2010, up from 6.9% in 1990.  France, Germany and Switzerland (countries with high standards of living, good health services and higher life expectancy than the U.S.) spent slightly less than 12% of their GDP on health care in 2010.

The U.S. spent 17.6% of GDP on healthcare in 2010, up from 12.4% in 1990. Half of the money expended came from public funds.  The U.S. spends more than any other country on healthcare, yet its programs cover less of the population. 

When the U.S. Supreme Court upheld the individual mandate in Obamacare in June, it also ruled that the Medicaid expansion requirement in the law had to be made optional. Obamacare was supposed to extend insurance to 32 million more people by 2019.  The expansion of the Medicaid program accounted for about half of the number.

Certain states (26 of them) argued that the program expansion was coercive. The court agreed, saying the states must be allowed to make their own decision regarding participating in the Medicaid expansion without fear of losing existing federal aid.  Under the expansion, Medicaid enrollment was estimated to increase between 16 and 23 million by 2019.  With the states now able to opt out, as many as 11 million poor adults could find themselves unable to get insurance coverage.       

The OECD employment outlook reflects the severe impact of the recession. In its member countries, 48 million people are out of work. The unemployment rate in the Euro area is over 11%. In Spain, it is over 24%. Unemployment has reached the double digits in Estonia, France, Greece, Hungary, Ireland, Italy, Portugal and the Slovak Republic.  Things are a bit better in the U.S.  The unemployment rate of 8.2 % is down from a peak of 10%. Due to the slow pace of the recovery, the OECD forecasts that the U.S. unemployment rate will decline to 7.4% by 2013.  

The conservatives have actively fostered political gridlock in Washington. The tussle over healthcare and the repeated failure to come up with a medium-term federal deficit reduction plan has created a climate of economic ambiguity. With government immobilized, consumers and businesses grow more apprehensive about the future.

With the crisis in the Euro area adding to the worry, it is not surprising that people are hunkering down. The political stalemate is bringing with it an increasingly high human and economic cost. The conservative agenda of blocking the administration at every turn is not resolving problems. It is setting a course for economic chaos.  It will wreck the recovery if it continues unchecked.