Opinion

Nicholas Wapshott

The sequester is just as destructive as we thought

Nicholas Wapshott
Apr 23, 2013 19:40 UTC

Remember the sequester? When seven weeks ago the deadline to find a federal budget compromise came and went, there was much handwringing in Washington. In the event that no agreement was found there were to be cuts to public spending so severe and painful that no one would dare fail to agree. To deter Republicans from holding out, half the immediate spending savings of $85.4 billion was to be found from the defense budget, and, to ensure Democrats would work to find a deal, half from annually funded federal programs. Despite these encouragements to fiscal discipline, the March 1 deadline came and went.

For weeks the word “sequestration” was used so often that commentators and their readers grew sick of it. The headlines moved on. But quietly, without making much news, implementation is well under way and proving just as dire and destructive as advertised. It is hard to fully comprehend the impact of death by a thousand cuts and where they fall. This week the sequester broke surface when it began affecting air travel, causing long delays at airports, which is to be expected when you send 1,500 air traffic controllers home without pay. One in 10 controllers will stay at home on unpaid leave every day until October. With the vacation season looming, crowded airports full of frustrated passengers will become commonplace.

Many cuts have an impact less obvious than gumming up airports. Carnegie Mellon University in Pittsburgh, which relies upon federal sources for 86 percent of its research, is losing $7 million between now and September, while the University of Pittsburgh will lose $26 million, mostly from health research. All other research universities tell a similar story. This fiscal year the National Institutes of Health, the largest federal funding agency for many schools, like the University of Minnesota, is spending $1.5 billion less on research.

Postponing medical research sounds victimless, but it is not if you are among those helped when a new drug comes onstream. It is impossible to list those who will miss new treatments by a year or so but will continue suffering, or even die, as a consequence of the delay. More easy to picture are the thousands of cancer patients being turned away from hospitals because of the cuts. For a cancer center on Long Island, that means not administering the most expensive drugs and telling one-third of its 16,000 patients on Medicare it will no longer treat them.

Air traffic controllers are not the only federal employees being told to take the week off. Staff at the Smithsonian in Washington, which has lost $40 million of its federal grant, and at the National Zoo have followed suit. Managers at the oo stress that the animals will be unaffected, as well as the number of exhibitions, but staff vacancies will not be filled. One rare cut to raise a laugh was that IRS workers are also having to take unpaid leave. Funny, that is, until you realize that one of the reasons for the furlough and the public spending deficit is that not enough Americans paid the taxes they owe.

Gold’s decline shakes the true believers’ faith

Nicholas Wapshott
Apr 17, 2013 18:39 UTC

The dramatic slide in the price of gold in the past week has reversed a rise that for more than a decade has been steady and seemingly inexorable. The sudden fall ‑ in which prices plummeted 9 percent, to $1,347.40 an ounce, on Monday, the biggest two-day loss percentage since 1983 ‑ has put goldbugs, who are by definition pessimistic lovers of certainty, into a state of high anxiety. When the commodity of last resort so conspicuously fails to hold its value, the world becomes scarier place.

There  is room, however, for a small celebration: that the Cassandras have been caught short. Their simple remedy of faith in the abiding value of gold as a hedge against an otherwise treacherous, inflated market has been shown to be flawed.

There have always been those who have advocated cashing out and putting everything into gold against the day the stock market crashed, though the number of investors who genuinely found refuge in gold when the market crumbled in 2008 is probably fewer than goldbugs would like to admit. The flight to gold over the past dozen years has attracted a new form of ardent absolutist who suspects the Federal Reserve and the Treasury do not know what they are doing and who believes quantitative easing to be an evil process that invites inflation. These ideologically driven gold stashers are closely related to, indeed are often the same people, as those who advocate the return of the dollar to the gold standard. Such nervous creatures can only be reassured by the ancient lure of gold as a rock-solid reserve. For the past 12 years the rising gold price has appeared to confirm their lack of confidence in Keynesian manipulations of the economy. Since August, however, when gold started to lose its value, something has gone badly wrong.

The North Korean threat in an age of Pentagon cuts

Nicholas Wapshott
Apr 11, 2013 19:48 UTC

It may not feel like it, but we are closer to nuclear war than at any time since the Cuban missile crisis of 1962. The temptation to dismiss the North Korean dictator Kim Jong-un as a cartoonish figure of fun belies the real and present danger his samurai sword rattling presents. A strange time, then, for Defense Secretary Chuck Hagel to set out on the most thorough reappraisal of our defense spending since the end of Vietnam.

It is no secret that Hagel relishes the chance to slim the armed forces to a more affordable size. It is what commended him to President Barack Obama. He has already commissioned a wholesale “strategic choice and management review” of the Defense Department, which has been told to think the unthinkable in terms of cutting spending. This week, before defending his vision before the House Armed Services Committee, he offered a glimpse into what he has in mind: a slimming of the desk-bound middle management whose pay and perks cost more than the value of their contribution to the nation’s defense; a clearheaded look at the generous health and retirement benefits the nation’s military and veterans enjoy; the abandonment of expensive advanced weapons that may not be necessary; and an unsentimental assessment of the need for all of our domestic military bases.

Hagel invited “change that involves not just tweaking or chipping away at existing structures and practices but, where necessary, fashioning new ones” because “left unchecked, spiraling costs to sustain existing structures and institutions, provide benefits to personnel and develop replacements for aging weapons platforms will eventually crowd out spending on procurement, operations and readiness.” The American military is too large, Hagel argued. “How many people do we have,” he asked, “both military and civilian? How many do we need? What do these people do? And how do we compensate them for their work, service and loyalty with pay, benefits and healthcare?”

When Thatcher met Reagan

Nicholas Wapshott
Apr 8, 2013 18:14 UTC

 When Margaret Thatcher met Ronald Reagan in April 1975, neither was in their first flush of youth. She was 50 and he 65. She was the leader of Britain’s opposition; he a former governor of California. It was by no means obvious that either would win power. They bonded instantly.

Although born almost a generation and an ocean and continent apart, they found they were completing each other’s sentences. Both instinctive politicians rather than taught ideologues, they discovered they had both found validation for their convictions in the works of Friedrich Hayek, at that time a long-forgotten theorist even among conservatives.

From that sure beginning began a working partnership, or political marriage, that solidified the alliance between the United States and Britain at a crucial time when the Soviet Union was facing collapse and the democratic forces in Eastern Europe were pressing to be freed. There have been other Anglo-American alliances. Franklin D. Roosevelt and Winston Churchill eventually became friends, though FDR never let the English bulldog forget that America had overtaken Britain as the world’s most powerful nation and that Churchill was a supplicant.

David Stockman’s economic Neverland

Nicholas Wapshott
Apr 5, 2013 20:55 UTC

David Stockman makes a good Cassandra. His The Great Deformation: The Corruption of Capitalism in America is a popular account of why all economic policy since Calvin Coolidge and Herbert Hoover has been wrongheaded. It is a contrarian’s delight. The New Deal “did not end the Great Depression or save capitalism from the alleged shortcomings which led to the [1929] crash.” Richard Nixon’s decision to unharness the dollar from the gold standard was “a sin graver than Watergate.” Milton Friedman, once a conservative saint but recast by Stockman as “a supposed hero,” is dismissed as “foolish.” He assaults Paul Ryan’s budget as “another front in the GOP’s war against the 99 percent.” He even accuses his old boss Ronald Reagan, a conservative paragon, of being fatally mistaken about slashing personal taxes and about encouraging “the highest peacetime spending share of GDP.”

In brief, Stockman believes Keynesian economics is pernicious and has seduced America away from the true path of capitalism. His tract is long on abuse (he scathingly assaults Republicans as well as Democrats, and gives a pass only to Dwight Eisenhower and John F. Kennedy) and short on economic analysis. The theoretical roots of his thinking are missing. The laissez-faire absolutist Ayn Rand is mentioned only in passing to goad those, like Paul Volcker and Alan Greenspan, who brushed up against her. Ludwig von Mises gets a single name-check for his work on the credit boom cycle in 1911. Friedrich Hayek, the inspiration for most of today’s anti-Keynesians, does not even warrant a footnote. Stockman’s failure to anchor his instinctive aversion to deficits, public spending and government borrowing in a cogent intellectual framework undermines his case. His faith-based economics reflects, perhaps, the fact that he became Reagan’s director of the Office of Management and Budget armed only with what he had learned at Harvard Divinity School.

Stockman has, however, found a ready audience for his take on the past 80 years of economic policy because he is a rare bird: a conservative purist prepared to argue that when the financial markets froze in 2008 we should have let the market rip and lived with the consequences. When the stock market began to wobble five years ago, then crashed, tripping a wholesale financial disaster that slowed economic activity, caused businesses to fail and threw millions out of work, it was hard to find an economist of standing to defend the alternative to federal intervention: letting the banks and AIG go bust and allowing the market to find its own level.

Gay marriage and the triumph of ’60s

Nicholas Wapshott
Apr 3, 2013 00:23 UTC

Whatever the Supreme Court decides, it seems same sex marriage is here to stay. As the cover of Time put it, “Gay Marriage Already Won. The Supreme Court Hasn’t Made Up Its Mind – But America Has.”

Even some social conservative rabble-rousers have conceded defeat. Fox News’s Bill O’Reilly, who in the past has compared gay unions to marrying a goat or a dolphin, has flipped, saying his views have “evolved.” “The compelling argument is on the side of homosexuals,” O’Reilly said last week. “The other side hasn’t been able to do anything but thump the Bible.” Rush Limbaugh, too, is reluctantly resigned to the change. “I don’t care what the Supreme Court does, this is now inevitable,” he said.

Few social liberals thought marriage equality would be as easy as this, but public support has been so swift that politicians of both stripes have rushed to endorse the legitimacy of same sex marriage. Even President Barack Obama and Bill and Hillary Clinton were left playing catch-up.

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