Reagan's Epoch Shatters in Egypt

Reagan's Epoch Shatters in Egypt

By Robert Parry
February 4, 2011

The political crisis sweeping the Middle East is another part of Ronald Reagan’s dark legacy that is shattering into chaos even as the United States prepares to lavishly celebrate his 100th birthday.

Upon taking office in 1981, Reagan turned the United States onto a new course, away from Jimmy Carter’s intensive Israeli-Palestinian peace negotiations and toward tolerance of the Likud strategy of expanding settlements on the West Bank and lashing out at Israel's enemies in Lebanon and the Occupied Territories.

This Reagan-Likud cooperation also affected politics and media inside the United States. In the early 1980s, with Reagan's assistance and blessings, a group of articulate operatives known as neoconservatives emerged as a powerful political/media force. Their dual role was to buttress U.S. support for the security interests of Israel and to rebuild a consensus around the U.S. global agenda, which had been shattered by the Vietnam War.

The neocons – through their work inside the Reagan administration and in key parts of the U.S. news media, such as The New Republic and the Washington Post’s opinion section – became, in essence, the arbiters of Washington’s conventional wisdom, setting the parameters of acceptable debate.

Even before the days of Fox News, their voices were prominent on the TV talk shows, the likes of Charles Krauthammer, Fred Barnes and William Kristol, or as publishers of influential opinion journals, such as Martin Peretz, Irving Kristol and Norman Podhoretz.

As the Reagan era advanced in the 1980s, journalists and politicians who showed skepticism about U.S. foreign policy -- the sort of attitude that had been common in the 1970s -- were dismissed as “blame America firsters,” a phrase coined by Reagan’s UN Ambassador Jeane Kirkpatrick.

Skeptics who continued to insist on challenging the Reagan/neocon propaganda saw their careers damaged or destroyed.

More malleable journalists ensured their status in the well-paying world of Washington media by bending to the prevailing winds. Many politicians did the same, recognizing the trouble they could get into by crossing Reagan's team and its ideological heirs.

Reagan's Middle East policy shifts -- and the influence of the neocons -- created space for Israel’s Likudniks to pay lip service to granting Palestinians a homeland while systematically encroaching onto more and more Palestinian land, a process that Likud called “changing the facts on the ground.” The expanding settlements essentially killed chances for a viable Palestinian state.

Reagan's approach, in effect, turned the Middle East into a political pressure cooker with the Arab “street” steaming over the humiliations of the Palestinians and furious over the timidity of bought-off Arab leaders.

As the pressure built – with occasional outbursts of Muslim outrage, including acts of terrorism – Washington’s desire for “stability” required ever more repression. The Reagan administration stepped up security assistance to the region's dictators.

Leading to Invasion

The cumulative effect of Reagan’s tough-guy legacy – and the neocons’ climb to the top of Washington’s opinion hierarchy – paved the way for George W. Bush’s 2003 invasion of Iraq with remarkably little resistance from the U.S. media/political elite.

The Iraq invasion represented the fulfillment of the idea that American force could bring into line Muslim governments that resisted U.S. dictates or that threatened Israel.

In the heady days after Saddam Hussein was knocked from power, the neocons joked about whether to turn next to Syria or Iran. The thinking went that once those nation-state targets were neutralized Lebanon’s Hezbollah and Palestine’s Hamas would have no choice but to beg for peace on whatever terms Israel deigned to offer.

However, events didn’t work out quite the way the neocons had diagrammed. After the initial victory in Iraq, the war went badly. The dreams of imposing pro-U.S./pro-Israeli regimes in Syria and Iran had to be deferred. Indeed, the U.S. ouster of Sunni leader Saddam Hussein in Iraq ended up increasing the relative power of Shiite-ruled Iran.

Closer to Israel, Hezbollah and Hamas – rather than pleading for mercy – grew stronger, while pro-U.S. dictators in places like Egypt, Tunisia, Saudi Arabia and Jordan grew more unpopular. Many Egyptians sharply criticized President Hosni Mubarak for standing aside while Israel’s military pummeled Gaza in a brutal campaign in late 2008 and early 2009.

Meanwhile, the global financial collapse that marked the end of Bush’s Reagan-redux presidency added more steam to the Middle East pressure cooker, which was getting ready to blow. The only question was when.

The explosion started with a popular uprising in Tunisia, where the longtime dictator Ben Ali resigned and fled into exile. The popular revolt soon spread to Egypt, the most populous Arab country.

There, massive street demonstrations forced Mubarak to agree not to seek reelection, though protesters have kept up their demands that he leave immediately. Monarchies in Jordan and Saudi Arabia were shaken, too.

So, even as a lavish celebration is readied for Reagan's 100th birthday -- including a special act of homage to the late president at the Super Bowl -- the Middle East is becoming just the latest part of his legacy to come undone.

The region now appears to be careening toward potentially bloody upheavals and possibly future war, especially if Israel with its high-tech weapons (and nuclear arsenal) fears its survival is threatened.

A Different Narrative

Things could have been very different if Reagan had not succeeded in wresting the White House from Jimmy Carter in 1980.

Carter was pushing a starkly different approach to the region, pressuring Israel to surrender Arab lands conquered in 1967 in exchange for peace agreements with its neighbors.

In 1978, Carter secured the first step in this peace process, the Camp David Accords in which Israel’s Likud Prime Minister Menachem Begin agreed to return the Sinai to Egypt in a peace deal.

However, Begin was furious, feeling that Carter had bullied him into accepting the arrangement. Beyond that resentment, Begin feared that Carter would use his second term to push Israel into accepting a Palestinian state on West Bank lands that Likud considered part of Israel’s divinely granted territory.

Former Mossad and Foreign Ministry official David Kimche described Begin’s fury in the 1991 book, The Last Option.

Kimche wrote that Israeli officials had gotten wind of “collusion” between Carter and Egyptian President Anwar Sadat “to force Israel to abandon her refusal to withdraw from territories occupied in 1967, including Jerusalem, and to agree to the establishment of a Palestinian state.”

Kimche continued, “This plan – prepared behind Israel’s back and without her knowledge – must rank as a unique attempt in United States’s diplomatic history of short-changing a friend and ally by deceit and manipulation.”

However, Begin recognized that the scheme required Carter winning a second term in 1980 when, Kimche wrote, “he would be free to compel Israel to accept a settlement of the Palestinian problem on his and Egyptian terms, without having to fear the backlash of the American Jewish lobby.”

In his 1992 memoir, Profits of War, Ari Ben-Menashe, an Israeli military intelligence officer who worked with Likud, agreed that Begin and other Likud leaders held Carter in contempt.

“Begin loathed Carter for the peace agreement forced upon him at Camp David,” Ben-Menashe wrote. “As Begin saw it, the agreement took away Sinai from Israel, did not create a comprehensive peace, and left the Palestinian issue hanging on Israel’s back.”

So, in order to buy time for Israel to move more Jewish settlers into the West Bank, Begin felt Carter’s reelection had to be prevented. A different president also presumably would give Israel a freer hand to deal with problems on its northern border with Lebanon.

The evidence is now clear that Begin found that new partnership with Ronald Reagan and his foreign policy team. Begin would do what he could to help Reagan defeat Carter in 1980, finally sliencing Carter’s incessant nagging.

Though Carter may not have understood his predicament, his position was even more precarious because he had made other powerful enemies, including the CIA’s “Old Boys” network. His CIA director, Stansfield Turner, had reined in their operations and cashiered some of their leaders, the likes of Ted Shackley who left the operations directorate and went to work for the campaign of former CIA Director George H.W. Bush.

In the Republican primaries, Bush competed with Reagan for the nomination but ultimately accepted the second spot on the GOP ticket, bringing along Shackley and a host of other disgruntled CIA veterans who were itching for payback against Jimmy Carter.

Carter’s human rights lectures also had riled America’s right-wing and anti-communist allies, especially after the brutal Shah of Iran was driven from power by a popular uprising in late 1978 only to get replaced by the similarly brutal Ayatollah Ruhollah Khomeini.

Carter was viewed as a bumbling do-gooder who needed to be shown the door for the good of the Western world. Reagan, a former B-movie actor, may not have been the optimal replacement, but he was surrounded by Republican national security experts, including Bush, who knew their way around the global chessboard.

‘CIA Within the CIA’

In 1990, looking back on those events, legendary CIA officer Miles Copeland told me that “the CIA within the CIA” – the inner-most circle of powerful intelligence figures who felt they understood best the strategic needs of the United States – believed Carter and his naïve faith in American democratic ideals represented a grave threat to the nation.

“Carter really believed in all the principles that we talk about in the West,” Copeland said, shaking his mane of white hair. “As smart as Carter is, he did believe in Mom, apple pie and the corner drug store. And those things that are good in America are good everywhere else. …

“Carter, I say, was not a stupid man,” Copeland said, adding that Carter had an even worse flaw: “He was a principled man.”

The anti-Carter sentiments of “the CIA within the CIA” and Begin’s Likudniks appeared to stem from their genuine beliefs that they needed to protect what they regarded as vital interests of their respective countries. The CIA Old Boys thought they understood the true strategic needs of the United States – and Likud believed fervently in a “Greater Israel.”

Both groups saw Carter as a dangerous threat.

But the lingering mystery of Campaign 1980 is whether these two groups followed their strongly held feelings into a secret operation in league with Republicans to prevent Carter from gaining the release of 52 U.S. hostages then held in Iran and thus torpedoing his reelection hopes.

Carter’s inability to resolve that hostage crisis did set the stage for Reagan’s landslide victory in November 1980 as American voters reacted to the long-running hostage humiliation by turning to a candidate they believed would be a tougher player vis-à-vis America’s enemies.

Reagan’s macho image was reinforced when the Iranians released the hostages immediately after he was inaugurated on Jan. 20, 1981, ending the 444-day standoff.

The coincidence of timing, which Reagan’s supporters cited as proof that foreign enemies feared the new president, gave momentum to Reagan’s larger agenda, including sweeping tax cuts tilted toward the wealthy, reduced government regulation of corporations, and renewed reliance on fossil fuels. (Carter’s solar panels were removed from the White House roof.)

Reagan’s victory also was great news for CIA cold-warriors who were rewarded with the choice of World War II spymaster (and dedicated cold-warrior) William Casey to be CIA director.

Casey then purged CIA analysts who were detecting a declining Soviet Union that desired détente. He replaced them with people like the young and ambitious Robert Gates, who agreed that the Soviets were on the march and that the United States needed a massive military expansion to counter them.

Casey also embraced old-time CIA swashbuckling in Third World countries and took pleasure in misleading or berating members of Congress when they insisted on the CIA oversight that had been forced on President Gerald Ford and had been accepted by President Carter. To Casey, CIA oversight became a game of hide-and-seek.

Time for Expansion

As for Israel, Begin was pleased to find the Reagan administration far less demanding about peace deals with the Arabs, giving Israel time to expand its West Bank settlements.

Reagan and his team also acquiesced to Israel’s invasion of Lebanon in 1982, a drive north that expelled the Palestine Liberation Organization but also led to the slaughters at the Sabra and Shatila refugee camps. Israel’s Lebanon invasion eventually drew U.S. troops into the Lebanese civil war, with 241 getting killed by a suicide bombing on Oct. 23, 1983.

Behind the scenes, Reagan also gave a green light to Israeli weapons shipments to Iran (which was fighting a war with Israel’s greater enemy, Iraq). The weapons sales helped Israel rebuild its network of contacts inside Iran while creating large profits which helped finance West Bank settlements.

In another significant move, Reagan credentialed a new generation of pro-Israeli American ideologues known as the neocons. That paid big dividends for Israel as these bright operatives fought for Likud’s interests both inside the U.S. government and through their opinion-leading roles in the major American news media.

In other words, if the disgruntled CIA Old Boys and the determined Likudniks did participate in the so-called October Surprise scheme to sabotage Carter’s Iran-hostage negotiations and thus seal his doom, they surely got much of what they wanted.

Yet, while motive is an important element in solving a mystery, it does not constitute proof by itself. What must be examined is whether there is evidence that the motive was acted upon, whether Begin’s government and disaffected CIA officers covertly assisted the Reagan campaign in contacting Iranian officials to thwart Carter’s hostage negotiations.

This evidence is strong though perhaps not ironclad. A well-supported narrative does exist describing how the October Surprise scheme may have occurred with the help of CIA personnel, Begin’s government, some right-wing intelligence figures in Europe, and a handful of other powerbrokers in the United States. [See Consortiumnews.com’s “CIA/Likud Sinking of Jimmy Carter” or Robert Parry’s Secrecy & Privilege.]

It’s also clear that Reagan – after becoming president – did nothing to retaliate against Iran for the hostage-taking and instead rewarded Khomeini’s regime by secretly approving Israeli arms shipments to Iran. That hidden reality became apparent to some U.S. government officials after one of Israel’s supply planes crashed just inside Soviet territory on July 18, 1981.

In a PBS interview nearly a decade later, Nicholas Veliotes, Reagan’s assistant secretary of state for the Middle East, said he looked into the incident by talking to top administration officials who insisted that the State Department issue misleading guidance to the press.

“It was clear to me after my conversations with people on high that indeed we had agreed that the Israelis could transship to Iran some American-origin military equipment,” Veliotes said.

In checking out the Israeli flight, Veliotes came to believe that the Reagan camp’s dealings with Iran dated back to before the 1980 election.

“It seems to have started in earnest in the period probably prior to the election of 1980, as the Israelis had identified who would become the new players in the national security area in the Reagan administration,” Veliotes said. “And I understand some contacts were made at that time.”

If the October Surprise narrative is true, then Reagan’s Iran-Contra arms deals in 1984-86 would have been essentially a sequel, not a stand-alone story, with Iran getting more weapons in exchange for its help in freeing other American hostages then held in Lebanon.

Yet, whatever one thinks of the October Surprise story – whether you believe that the Republicans sabotaged President Carter or not – there can be little doubt that the shattering events of that period propelled the Middle East down a course that changed the region’s history – and has today left the world at another dangerous crossroads.

A three-decade epoch was begun with the neocons and the Reaganites emerging as the dominant forces in Washington; with stepped-up security protecting autocratic Arab leaders from the angry "street"; with Shiite-ruled Iran supplying militant Muslim organizations to undercut the mostly Sunni autocrats and to pressure Israel; and with Likud and its vision of a Greater Israel guaranteeing little sustainable progress toward a Palestinian state.

It was an epoch that Ronald Reagan and his foreign policy team helped launched in 1980-81; it was an epoch that Jimmy Carter's second term might have prevented; and it is an epoch that may be collapsing into violence and disorder now.

[For more on these topics, see Robert Parry’s Lost History and Secrecy & Privilege, which are now available with Neck Deep, in a three-book set for the discount price of only $29. For details, click here.]

Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Neck Deep: The Disastrous Presidency of George W. Bush, was written with two of his sons, Sam and Nat, and can be ordered at neckdeepbook.com. His two previous books, Secrecy & Privilege: The Rise of the Bush Dynasty from Watergate to Iraq and Lost History: Contras, Cocaine, the Press & 'Project Truth' are also available there.

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Revisiting the Reagan Nightmare

Revisiting the Reagan Nightmare

Friday 04 February 2011

by: Terrance Heath | Campaign for America's Future | News Analysis

"Now that he is safely dead, let us praise him." poet Carl Wendell Hines wrote of Martin Luther King Jr, after his assassination. Ronald Reagan has been "safely dead" for just under seven years, but the economic impact of his policies remain with us.

In a sense, it's highly appropriate that the centennial of Reagan's birth falls upon us in the midst of a economic nightmare from which it is uncertain when — or if — the nation will awaken. Though we will be inevitably awash in conservative praise and hagiography of Reagan, his 100th birthday is also an occasion to remember how America's long economic nightmare began.

It's a story told many times, but it bears telling again, and again, as David Johnson did last year as he explained how the "Reagan Revolution" came home to roost. He even told it in charts.

As Dave said in his post. take a look at a chart of almost anything, and you'll notice that right around 1981, things take a sharp turn in the wrong direction — that is, for just about everyone but the wealthiest 1%.

Conservative policies transformed the United States from the largest creditor nation to the largest debtor nation in just a few years.

And it started with Reagan. Anyone who's wringing their hands about America's debt and China's ownership of it has Reagan to thank, as Reagan's former budget director David Stockman recently explained to David Corn.

Here's how Stockman tells the tale. In the '80s, Reagan and his White House crew were eager to cut income taxes across the board. The aim, he asserts, was to fix the slumping economy, not to starve the beast of big government. Republican leaders on the Hill were initially skeptical—they insisted that the White House pass spending cuts before Congress tackled the tax side. "The honest-to-goodness fact," Stockman says, "is that in February 1981, there wasn't close to a Republican majority for tax cuts without any accompanying or coupled spending cuts. The idea of supply-side in its purest form"—that tax cuts fuel economic growth that yields increased tax revenues—"was only embraced by a handful of junior Republicans, plus Jack Kemp."

The Reagan administration hardly minded proposing massive cuts to both taxes and spending. But then things went haywire, Stockman notes. The tax cut ballooned from $500 billion over five years to $1 trillion after lobbyists added special-interest tax breaks for various industries. And on the spending side, the Reagan administration went hog-wild throwing money at the Pentagon. The inevitable happened: The deficit ballooned.

...The new doctrine got a boost when it turned out you didn't have to match tax cuts with spending cuts: The Federal Reserve was able to sell the nation's growing debt to China and others. "It totally anesthetized the political system to the costs of deficit spending," Stockman says. "Therefore the simplistic and reckless idea that the way to stimulate the economy is to cut taxes anytime, anywhere, for any reason, became embedded [in the GOP]. It has become a religion, it has become a catechism. It's become a mindless incantation."

As Paul Krugman wrote in 2009, we weren't always a nation of big debts. He went on to explain how it started with Reagan.

“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. ... All in all, I think we hit the jackpot.” So declared Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act.

He was, as it happened, wrong about solving the problems of the thrifts. On the contrary, the bill turned the modest-sized troubles of savings-and-loan institutions into an utter catastrophe. But he was right about the legislation’s significance. And as for that jackpot — well, it finally came more than 25 years later, in the form of the worst economic crisis since the Great Depression.

...The S.& L. crisis has been written out of the Reagan hagiography, but the fact is that deregulation in effect gave the industry — whose deposits were federally insured — a license to gamble with taxpayers’ money, at best, or simply to loot it, at worst. By the time the government closed the books on the affair, taxpayers had lost $130 billion, back when that was a lot of money.

But there was also a longer-term effect. Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — restrictions that, in particular, limited the ability of families to buy homes without putting a significant amount of money down.

These restrictions were put in place in the 1930s by political leaders who had just experienced a terrible financial crisis, and were trying to prevent another. But by 1980 the memory of the Depression had faded. Government, declared Reagan, is the problem, not the solution; the magic of the marketplace must be set free. And so the precautionary rules were scrapped.

Together with looser lending standards for other kinds of consumer credit, this led to a radical change in American behavior.

Revisiting the Reagan ruins earlier this week, Robert Borosage explained that Reagan's deregulatory fervor essentially gutted consumer protections.

Deregulation gutted consumer protection, environmental protection, workplace safety and the right to organize under Reagan. It led to many scandals that made his administration one of the most corrupt in history, with a record 138 officials investigated, indicted or convicted. But the biggest change was deregulation of banking, which led to successive financial wildings and crashes that have cost taxpayers literally trillions. The first was the Savings and Loan debacle that followed on Reagan's reforms that empowered banksters to gamble with other people's money, with their losses guaranteed by the federal government.

Working people's share of the benefits from increased productivity took a sudden turn down.

In the column quoted above Krugman also wrote that the increase in public debt was dwarfed by the increase in private debt, made possible by Reagan's deregulation. "It's the gift that keeps on taking," Krugman wrote. Taking, that is, from working people.

As Johnson explained in his post

Working people's share of the benefits from increased productivity took a sudden turn down:

This resulted in intense concentration of wealth at the top:

But don't take my word for it, or even Dave's. When Michael Moore contended in Capitalism: A Love Story that productivity went up during the Reagan years, while wages were frozen, Politifact (mostly) backed him up. So did the August 24, 1988 edition of the New York Times.

Not every pocketbook statistic, however, reflects so rosily on the Administration's performance. Real wages have slipped since 1980, and now are about 10 percent below the peak of 1972. Thus Mr. Bush's claim that average incomes are at a record high today only reflects the fact that more families have a second earner in the work force.

Nor is there reason to be optimistic that wage stagnation will soon end. Productivity gains, which largely determine wage increases in the long run, have slowed to a crawl in the last two decades and show little sign of revival. Moreover, America's rapidly accumulating debt to foreigners is sure to become a drag on domestic purchasing power.

Also, per Dave's earlier instruction, notice what happens right around 1981 in this chart from a 2007 Center for Economic Policy Research report, "The Productivity to Paycheck Gap: What the Data Show," (PDF) by Dean Baker.

If workers didn't fare well under Reagan, perhaps it's because Reagan wasn't exactly a friend to working people.

Reagan's war on labor as US president began in the summer of 1961, when he fired 13,000 striking air traffic controllers and destroyed their union.

As Washington Post columnist Harold Meyerson noted in 2004, the firing was "an unambiguous signal that employers need feel little or no obligation to their workers, and employers got that message loud and clear - illegally firing workers who sought to unionize, replacing permanent employees who could collect benefits with temps who could not, shipping factories and jobs abroad."

Reagan gave dedicated union foes direct control of the federal agencies that were originally designed to protect and further the rights of workers and their unions. Most important was Reagan's appointment of three management representatives to the five- member National Labor Relations Board (NLRB).

The appointees included NLRB Chairman Donald Dotson, who declared that "unionized labor relations have been the major contributors to the decline and failure of once healthy industries" and have caused "destruction of individual freedom."

A House committee found that under Dotson, the NLRB abandoned its legal obligation to promote collective bargaining, in what amounted to "a betrayal of American workers."

As Borosage noted, that betrayal of American workers extended to "free trade" and the shipping of jobs abroad rather than goods.

As the New York Times back in 1988, not all pocketbook statistics reflected rosily on the Reagan administration's performance, but some did — and still do. At Open Left, Paul Rosenberg illustrates with a series of charts in his post "The failure of voodoo economics in pictures," what Sam Pizzigati explained in his final report card on the Reagan years.

Americans in the overall top 1 percent, the 2007 CBO data showed, did quite well in the Reagan era's first quarter-century. Their average incomes, after taking inflation into account, essentially tripled, rising 201 percent.

But these top 1 percent stats, the new CBO data help us understand, hardly tell the full story. The truly stunning income increases over recent decades have gone to the tippy-top of the U.S. income distribution, not the top 1 percent, but the top tenth — and top hundredth — of that top 1 percent.

The higher up you go on the income ladder, in other words, the sweeter the Reagan era.

Between 1979 and 2005, the bottom half of the top 1 percent saw their average incomes only double, after inflation. These incomes increased 105 percent. The next highest four-tenths of the top 1 percent somewhat raised the income bar. Their average incomes, after inflation, rose 161 percent.

That brings us to the top 0.1 percent of Americans. Their incomes, from 1979 to 2005, rose a staggering 294 percent after taking inflation into account. Not bad at all. But the top 0.01 percent did even better. The 11,000 households in this rarified air took home an average $35.5 million in 2005, a 384 percent increase over average top 0.01 percent incomes in 1979.

A lot happened after Reagan saddled up and rode off into the sunset, but nothing has yet been sufficient to rouse America or it's economy from the nightmare that ensued. Even now we live not only with the economic consequences of his "cut and spend" conservatism, but we are haunted by the narrative he established in his 1981 inaugural address: "government is not the solution to our problem; government is the problem."

This is the narrative that haunts us to this day; haunts us and hampers us from taking bold action to solve the problems facing America. It hampers us because it frames us as separate from government.

Government in Reagan's narrative became "the government," not "our government." The success of Reagan's narrative, all the way up to the reforms of the Obama administration and the previous Congress, have effectively scaled down our ability to address problems to large in scope to be effectively addressed by state or local governments, let alone by non-government organizations or on an individual basis.

Reagan's genius was to step into a period of uncertainty and focus the fear and anxiety of America on the government as the enemy. What he was really saying was "Whatever happens, you're on your own."

His self-appointed heirs are as haunted as the rest of us.

These days, no Republican with national ambitions will miss an opportunity to remind us of his or her Reaganesque bona fides. Reagan's precepts of a smaller government, a bigger military, lower taxes and conservative social policies demand absolute fealty.

The irony is that Reagan would not have become such a transformational figure if he had not challenged the political orthodoxy of his own time. His self-declared legatees invoke his name as a pledge to do the opposite, a reassurance that they will not venture beyond what has become conventional thinking in the GOP. What starts as a touchstone, however, can over time become a millstone, if history is any indication.

As a child of the 80s, who grew up during the Reagan era, I'm reminded now of Nightmare on Elm Street, a horror movie release in 1984, about a group of children who grew up haunted by a murderous ghost who menaced them into adulthood, until (sometime later in the series) his memory was finally banished.

As an adult, now, living amid the ruins of the Reagan era, I can only hope we will soon wake from our shared nightmare and — if not banish his memory — at least final strip it of its destructive power, reclaim our own, and allow the nightmare to fade into memory.

All republished content that appears on Truthout has been obtained by permission or license.

AlterNet.org

ECONOMY

Boston Review / By Eileen Appelbaum

Why Full Employment Is Required to Sustain a Society That We're Proud to Live in

It will take mighty resolve on the part of the people to take political power away from the interests of big business and Wall Street.

February 5, 2011 |

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This article is part of Back To Full Employment, a forum on the possibilities for full employment in today’s economy.

Robert Pollin makes a compelling case for the centrality of full employment to the creation of a decent society, to the ability of individuals and families to live with dignity rather than despair, and to the overall health of an economy in which consumer spending is key to sustained growth. His capsule history of economic thinking on the causes of unemployment and the tradeoff between employment and inflation -- from Marx to Milton Friedman to Gösta Rehn -- is informative, and his main policy recommendations are difficult to argue with: increase employment in the United States by shifting $330 billion in annual spending from the military and fossil-fuel sectors to public and private investments in education and clean energy for a net gain of 4.8 million jobs.

I do have one quarrel with the analysis. Pollin observes the low unemployment achieved by the U.S. economy in the late 1990s despite globalization and accepts this as evidence that the United States doesn’t have to address its trade deficit to achieve full employment. But this was possible only in a bubble scenario. With a high trade deficit, either the public or private sector (the latter, in the 1990s example) must incur debt in order to maintain high employment. Reducing the trade deficit is essential to sustaining full employment without a repeat of bubble boom and bust.

Pollin’s central argument, however, is sound, though it might benefit from further elaboration. I take as my starting point his definition of full employment -- with which I am in full agreement -- as not simply workers scratching out a living somehow but as an abundance of jobs with decent wages and working conditions. This definition of full employment raises two issues that need to be confronted: first, the implications of employers’ increased power over workers vis-à-vis wage setting, and second, the implicit willingness of policymakers to count as employment care-work jobs that pay poverty wages. Without this fiction, achieving full employment is a far more difficult proposition. If full employment means jobs for all at decent wages, then we need to be concerned about both re-employing the millions of men who lost jobs in manufacturing and construction and about wages and job quality in the rapidly expanding care-work sectors in which millions of women labor.

On the wage front, the decline in unionization means that older ideas of wages as the result of a grand bargain (or great struggle) over the division of productivity gains are no longer relevant. Unions are not the countervailing force they were in the quarter century from 1948 to 1973, able to compel employers -- through direct negotiations and the “union threat effect” at non-union companies -- to agree to a reasonable division of a growing economic pie.

From the point of view of today’s employers, the notion of wages as a means of securing a decent standard of living for Americans is so last century. At a meeting of the Philadelphia chapter of the National Association of Business Economists, I asked the owner of a medium-sized business whether his employees’ wages were rising along with increases in productivity. “I make it. I take it,” he answered. Like most employers -- and any manager who has taken a course in human-resource management -- he believed that the wage functions to provide workers with an incentive to show up for work and do what managers expect. His workers show up for work -- proof that he is paying them fairly.

This represents a corruption of what economists call “efficiency wage” theory. The theory holds that when companies pay employees more than they can earn elsewhere, workers respond with extra effort and greater productivity. Whether they realize it or not, employers use this concept as a cudgel. A manager at Motorola explained that his company pays workers at the 70th percentile of wages for their occupation. That way, workers know that if they don’t perform and lose their jobs, there is a 70 percent chance their next job will pay less. In other words, wages are de-linked from productivity and only increase if wages rise generally. But with innovative companies playing a lagging rather than a leading role in wage setting, prospects for a general rise in wages are dim.

In the large and growing care-work sector, the increased ability of employers to dictate wages intersects with traditional views of the day-to-day care of the most vulnerable members of society. Aid to the young, the old, the disabled, the frail, and the sick is seen as work that requires only the intrinsic abilities of the women who do it. Workers typically receive minimal on-the-job training, and median pay is in the bottom quartile of the income distribution: just over $21,000 a year in 2008 for workers with full-time hours. More than 4 percent of Americans employed in 2008 were home-health workers, personal- and home-care aides, nursing aides and orderlies, medical assistants, child-care workers, and teaching assistants. That is slightly more than the share of all mathematical-, computer-, biological-, physical-, and social-science, and legal jobs. The Bureau of Labor Statistics projects that 10 percent of total U.S. job growth by 2018 will come from the care sector. Wage increases such as those experienced in the late 1990s -- due not only to full employment but to increases in the minimum wage in 1996 and 1997 -- would raise median wages in these care-work jobs to just above the poverty line.

As Pollin remarks, the changes required to get to full employment at decent wages “will require nothing less than an epoch-defining reallocation of political power away from the interests of big business and Wall Street.” What constellation of social forces can accomplish this transformation is unclear. That it is essential for creating a decent society, however, could not be more certain.

February 1, 2011 at 21:46:06

Accelerating to Third World America: One Third of Home Occupants Rent and Eighteen Percent of US Homes Vacant

By Rob Kall (about the author)

opednews.com

The economic and housing crises have wreaked massive changes in how Americans live, as we accelerate our slide into third world status

A quarterly Census report on homeowner vacancy and homeownership states that of the 131 million homes in the US, 112.5 million are occupied and of those, 74.8 are owned. That means that about one third of the occupied homes in the US are being rented.

A smart discussion of the report at CNBC explained that the number of unoccupied homes dropped, but that was because of a big uptick in rentals. The article observes,

Younger Americans have seen what home ownership has done to their friends and families, and many want no part of it. Credit has become very nearly elitist. Home prices, whatever your particular data provider preference might be, are still falling.

Banks, Fannie [ FNM 0.488 0.001 ( +0.21% ) ] and Freddie [ FRE 3.28 0.01 ( +0.31% ) ] are holding on to hundreds of thousands of properties, and we don't know exactly when or how they'll sell them.

Where do you think those 18.5 million homes mortgages are being held. I figure Fannie and Freddie are holding MILLIONS of empty home mortgages. They're going to have to either rent them or sell them-- probably to investors who will turn them into rentals.

Homes have always been one way the middle class has tethered its claim to financial comfort and security. That mooring is eroding quickly, down about five percent in recent years.

As the wealthy take over homeownership, the middle class is being weakened, made more vulnerable-- another signal that we're sliding further into third world status.

flickr Photo by sgroi

Rob Kall is executive editor, publisher and site architect of OpEdNews.com, Host of the Rob Kall Bottom Up Radio Show (WNJC 1360 AM), President of Futurehealth, Inc, more...)

The views expressed in this article are the sole responsibility of the author
and do not necessarily reflect those of this website or its editors.

Obamanomics is Clearly the Escalation of Reaganomics

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Obamanomics: Escalation of Reaganomics

By ISMAEL HOSSEIN-ZADEH

President Reagan did not make any bones about his intention to reverse the New Deal economics when he set out to promote the Neoliberal economics. Likewise, President George W. Bush did not conceal his agenda of aggressive, unilateral militarism abroad and curtailment of civil liberties at home.

There is a major similarity and a key difference between these two presidents, on the one hand, and President Obama, on the other. The similarity lies in the fact that, like his predecessor, President Obama faithfully, and indeed vigorously, carries out both the Neoliberal and militaristic policies he inherited. The difference is that while Reagan and Bush were, more or less, truthful to their constituents, President Obama is not: while catering to the powerful interests vested in finance and military capitals, he pretends to be an agent of “change” and a source of “hope” for the masses.

There has been a wide-ranging consensus that the excessive financial/economic deregulations that started in the late 1970s and early 1980s played a critical role in both the financial bubble that imploded in 2007-2008 and the continuing persistence of the chronic recession, especially in the labor and housing markets.

Prior to his recent U-turn on the regulation-deregulation issue, President Obama shared this near unanimous view of the destructive role of the excessive deregulation of the past several decades and, indeed, strongly supported the need to bolster regulation: "It's time to get serious about regulatory oversight," Mr. Obama argued as the Democratic nominee for President; and again, “…this crisis has reminded us that without a watchful eye, the market can spin out of control,” as he stated in his inaugural speech.

Expressions of such pro-regulation sentiments were part of his earlier promises of “hope” and “change” in a new direction. Back then, that is, before showing his Neoliberal hand, the majority of the American people believed him—the middle, lower-middle, poor and working people who were tired of three decades of steady losses of economic security were desperately willing to believe a charismatic leader who peddled hope and change in their favor.

Recently, however, the president seems to have had a change of heart, or perhaps an epiphany, regarding the regulation-deregulation debate: he now argues that protracted recession and persistent high levels of unemployment are not due to excessive deregulation but to overregulation! Accordingly, he issued an executive order on 18 January 2011 that requires a comprehensive review of all existing government regulations. On the same day, the president wrote an op-ed piece for the Wall Street Journal in which he argued that the executive order was necessary in order “to remove outdated regulations that stifle job creation and make our economy less competitive.” The president further argued that “Sometimes, those [regulatory] rules have gotten out of balance, placing unreasonable burdens on business—burdens that have stifled innovation and have had a chilling effect on growth and jobs. . . . As the executive order I am signing makes clear, we are seeking more affordable, less intrusive means to achieve the same ends—giving careful consideration to benefits and costs.”

Stripped from its Orwellian language, this “cost-benefit” approach to health, safety and environmental standards is clearly the familiar Neoliberal rhetoric that is designed to help big business and their lobbies that have been working feverishly to stifle the widespread pro-regulation voices that have grown louder since the 2007-08 financial melt-down.

Indeed, the president’s recent agenda of further deregulation has already born fruits for big business. The Wall Street Journal reported on 20 January 2011:

“A day after President Barack Obama ordered the government to get rid of burdensome rules, two federal agencies backed down from proposals that had drawn jeers from businesses. . . . The Labor Department said it was withdrawing a proposal on noise in the workplace that could have forced manufacturers to install noise-reducing equipment. And the Food and Drug Administration retreated from plans to tighten rules on medical-device approvals, postponing a proposal that would have given the FDA power to order additional post-market studies of devices. . . . Industry leaders praised the moves, while consumer advocates expressed disappointment. . . . ‘This is a very positive step forward,’ said Bill Hawkins, chief executive of medical-devices heavyweight Medtronic Inc.”

How is the president’s sharp turnaround on the regulation-deregulation debate to be explained? What “outdated deregulation” is he talking about? How could deregulation, which is widely believed to have been the problem, also be the solution? Why this sudden U-turn?

The change in the president’s view from the need for regulation to that of further deregulation can be explained on a number of planes.

On a narrow, personal and (perhaps) simplistic level, it can be argued that the president’s about-face on the issue of deregulation should not really be surprising; the turnaround represents quintessential Obama: spineless and/or unscrupulous, if you are a critic of the president; pragmatic and/or complex, if you are an apologist or defender of him.

There are also, of course, re-election considerations here. And here it seems that the president’s team is pinning his chances for re-election on big business and big media; confident that once he is able to win their hearts and minds, they will, in turn, be able to manipulate the public to vote for him—just as they did in the 2008 election.

On a deeper (but still personal) level, that is, on a philosophical or ideological level, it can be argued that the president has always been a Neoliberal thinker, albeit a stealth Neoliberal, who is coming out of the closet, so to speak, carefully and gradually. Evidence of his being ideologically more a partisan of Neoliberal than New Deal economics is overwhelming (see, for example, Pam Martin and Alan Nasser).

It is necessary to point out that although the stealth Neoliberal president has been taking baby steps out of the closet, he would always stay by the entrance: as long as there is no popular anger or pressure against his Neoliberal policies, he would stay on the outside; at the first signs of a threatening pressure from the grassroots, however, he would crawl back inside the closet, and begin preaching populism or uttering ineffectual, benign corporate-bashing rhetoric. This is his mission and his political forte – a master demagogue. And this is why the politico-economic establishment promoted him to presidency as they found him the most serviceable presidential candidate. None of his presidential rivals could have served the tycoons of the finance world and the kings of Wall Street as well as he has.

On a more fundamental level, President Obama’s reversal of his view from the need for rigorous regulation to the need for further deregulation, and his economic policies in general, show that while the politics and personalities of a president ought not be ignored, presidential economic policies cannot be explained by purely personality issues such as a failure of nerve, conviction, or ideas. The more crucial determinants of national economic policies are often submerged: the balance of social forces and the dominant economic interests that shape such policies from behind the scene. Stabilization, restructuring or regulatory policies are often subtle products of the outcome of the class struggle.

Thus, when the balance of social forces is tilted in favor of the rich and powerful, crisis-management economic policies would be crafted at the expense of the working people and other grassroots. In other words, as long as the costly consequences of the brutal Neoliberal restructuring policies (in terms of job losses, economic insecurity, and environmental degradation) are tolerated, business and government leaders, Republican or Democrat, would not hesitate to put into effect draconian measures to restore conditions of capitalist profitability at the expense of the impoverishment of the public.

On the other hand, when crisis periods give rise to severe resistance from the people to cuts in social spending, such crisis-management policy measures could also benefit the public. A comparison/contrast of policy responses to major economic crises in the United States clearly supports this point. Economic historians have identified four major economic crises in the past 150 years or so: The First Great Depression (1873-97), The Second Great Depression (1929-37), the long recession of 1973-83 (also known as the stagflation of the 1970s), and the current long recession that started in 2007-08.

Since there was no compelling grassroots pressure in response to either the First Great Depression of 1873-97 or the long recession of the 1970s, crisis management policies in both instances were decisively of the Neoliberal, supply-side type: suppression of trade unions and curtailment of wages and benefits; promotion of mergers, concentrated industries and big business; extensive deregulations and generous corporate welfare plans; in short, huge transfers of income from labor to capital. Likewise, a glaring lack of grassroots resistance in the face of the current long recession has allowed the ruling kleptocracy (both in the US and beyond) to adopt similarly brutal austerity policies that are gradually reviving financial/corporate profitability at the expense of the poor and working people.

By contrast, in response to the Great Depression of the 1930s workers and other popular forces achieved employment and income security as a result of a sustained pressure from "below."

The contrast between these two entirely different types of restructuring strategies shows that, as Mark Vorpahl, a union steward, recently put it, “Working people and the unemployed cannot rely on the politicians to get the change we need. We can only rely on our own collective strength. That is, we need to organize and mobilize as a united, massive, powerful force that cannot be ignored by those more intent to do Wall Street's bidding.” Only the threat of revolution can force people-friendly reform on the ruling kleptocracy.

Ismael Hossein-zadeh, author of The Political Economy of U.S. Militarism (Palgrave-Macmillan 2007), teaches economics at Drake University, Des Moines, Iowa.

Ismael Hossein-Zadeh is a frequent contributor to Global Research. Global Research Articles by Ismael Hossein-Zadeh

There's No Such Thing as a Free Market

AlterNet.org


BOOKS

Bloomsbury Press / By Ha-Joon Chang

23 Things They Don't Tell You About Capitalism: Item #1 -- There's No Such Thing as a Free Market

Author Ha-Joon Chang dismisses the idea that any capitalist market is free and questions whether it can ever really be fair.

January 31, 2011

Editor's Note: Many books have tackled the great recession of 2008, the second worst economic crisis in history, after the depression. But I doubt there is one book, written in response to the current economic crisis, that is as fun or easy to read as Ha-Joon Chang's 23 Things They Don't Tell you About Capitalism. I'd never heard of this Korean economist, probably because he lives in England and teaches at Cambridge, but he is well known in economic circles, and well respected.

It is no secret that the American society is dominated by the super rich, held for hostage by the banks, dominated in the Nation's Capital by the tens of thousands of lobbyists and their big bucks, as the Republican party and their corporate Tea Partyists provide cover for giant theft of many billions of wealth for the very rich, with of course the cooperation of the Democrats who supported the extension of the Bush tax cuts for the very wealthy (Check out Rachel Maddow's op-ed, which explains why Dwight Eisenhower, who taxed the rich to balance the budget, which be a radical in today's political reality). In this very discouraging environment it is hard to imagine scenarios where normal folks, every day voters, the non-rich, who are not represented by lobbyists, can have much influence.

On top of that, making change even harder, is an enormously effective propaganda system that perpetuates inaccurate and often destructive myths about virtually every element of capitalism and the US and global economy. And top economic officials in the Obama administration and leading mainstream economists often perpetuate these myths, and the corporate media marches along side repeating them like the gospel.

So, as far as I am concerned there never can be too much truth-telling to attempt to pull away the curtain of propaganda and disinformation that shrouds our economic thinking and actions. I am not under the illusion that the facts will set us free. As research has shown, when people connect their opinions to a set of values or leaders, they will not be open to changing their mind, and presentation of contrary "facts," may make them dig in more clinging their their misinformation. But when it comes to the economy, the propaganda system has been so pervasive, and supported by conventional wisdom that people who need to know better, buy into it, and yes that includes liberals and progressives who have a kind of inertia of the mind of their own. It is hard to change one's sense of things.

AlterNet's Economics editor Joshua Holland made a nice contribution to this public education effort this Fall with his book: The Fifteen Biggest Lies about the Economy Now we have the funny, and sharp Chang. What follows is chapter one of his book: "There is No Such Thing as a Free Market." Other chapters are quite revealing such as: " The Washing Machine Has Changed the World More than the Internet;" "More Education, in Itself, Is Not Going to Make a Country Richer;" "The U.S. Does Not Have the Highest Living Standard in the World;" "Companies Should Not Be Run in the Interest of their Owners."

Chan's main point is the recent economic disaster wasn't by accident, that active government can promote economic dynamism, that tax cuts for the rich simply redistribute wealth upward, and that we will continue on the path to economic disaster,with no end in sight, unless the collective wisdom, goes in a different direction. -- AlterNet Executive Editor Don Hazen

The following is an excerpt from 23 Things They Don’t Tell You About Capitalism (Copyright © 2011) by Ha-Joon Chang. Reprinted with the permission of Bloomsbury Press.

Thing 1: There is no such thing as a free market

What they tell you

Markets need to be free. When the government interferes to dictate what market participants can or cannot do, resources cannot flow to their most efficient use. If people cannot do the things that they find most profitable, they lose the incentive to invest and innovate. Thus, if the government puts a cap on house rents, landlords lose the incentive to maintain their properties or build new ones. Or, if the government restricts the kinds of financial products that can be sold, two contracting parties that may both have benefited from innovative transactions that fulfill their idiosyncratic needs cannot reap the potential gains of free contract. People must be left "free to choose," as the title of free-market visionary Milton Friedman’s famous book goes.

What they don’t tell you

The free market doesn’t exist. Every market has some rules and boundaries that restrict freedom of choice. A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them. How "free" a market is cannot be objectively defined. It is a political definition. The usual claim by free-market economists that they are trying to defend the market from politically motivated interference by the government is false. Government is always involved and those free-marketeers are as politically motivated as anyone. Overcoming the myth that there is such a thing as an objectively defined "free market" is the first step towards understanding capitalism.

Labor ought to be free

In 1819 new legislation to regulate child labor, the Cotton Factories Regulation Act, was tabled in the British Parliament. The proposed regulation was incredibly "light touch" by modern standards. It would ban the employment of young children – that is, those under the age of nine. Older children (aged between ten and sixteen) would still be allowed to work, but with their working hours restricted to twelve per day (yes, they were really going soft on those kids). The new rules applied only to cotton factories, which were recognized to be exceptionally hazardous to workers’ health.

The proposal caused huge controversy. Opponents saw it as undermining the sanctity of freedom of contract and thus destroying the very foundation of the free market. In debating this legislation, some members of the House of Lords objected to it on the grounds that "labor ought to be free." Their argument said: the children want (and need) to work, and the factory owners want to employ them; what is the problem?

Today, even the most ardent free-market proponents in Britain or other rich countries would not think of bringing child labor back as part of the market liberalization package that they so want. However, until the late 19th or the early 20th century, when the first serious child labor regulations were introduced in Europe and North America, many respectable people judged child labour regulation to be against the principles of the free market.

Thus seen, the "freedom" of a market is, like beauty, in the eyes of the beholder. If you believe that the right of children not to have to work is more important than the right of factory owners to be able to hire whoever they find most profitable, you will not see a ban on child labor as an infringement on the freedom of the labor market. If you believe the opposite, you will see an "unfree" market, shackled by a misguided government regulation.

We don’t have to go back two centuries to see regulations we take for granted (and accept as the "ambient noise" within the free market) that were seriously challenged as undermining the free market, when first introduced. When environmental regulations (e.g., regulations on car and factory emissions) appeared a few decades ago, they were opposed by many as serious infringements on our freedom to choose. Their opponents asked: if people want to drive in more polluting cars or if factories find more polluting production methods more profitable, why should the government prevent them from making such choices? Today, most people accept these regulations as "natural." They believe that actions that harm others, however unintentionally (such as pollution), need to be restricted. They also understand that it is sensible to make careful use of our energy resources, when many of them are non-renewable. They may believe that reducing human impact on climate change makes sense too.

If the same market can be perceived to have varying degrees of freedom by different people, there is really no objective way to define how free that market is. In other words, the free market is an illusion. If some markets look free, it is only because we so totally accept the regulations that are propping them up that they become invisible.

Piano wires and kungfu masters

Like many people, as a child I was fascinated by all those gravity-defying kung fu masters in Hong Kong movies. Like many kids, I suspect, I was bitterly disappointed when I learned that those masters were actually hanging on piano wires.

The free market is a bit like that. We accept the legitimacy of certain regulations so totally that we don’t see them. More carefully examined, markets are revealed to be propped up by rules – and many of them.

To begin with, there is a huge range of restrictions on what can be traded; and not just bans on "obvious" things such as narcotic drugs or human organs. Electoral votes, government jobs and legal decisions are not for sale, at least openly, in modern economies, although they were in most countries in the past.

University places may not usually be sold, although in some nations money can buy them – either through (illegally) paying the selectors or (legally) donating money to the university. Many countries ban trading in firearms or alcohol. Usually medicines have to be explicitly licensed by the government, upon the proof of their safety, before they can be marketed. All these regulations are potentially controversial – just as the ban on selling human beings (the slave trade) was one and a half centuries ago.

There are also restrictions on who can participate in markets. Child labor regulation now bans the entry of children into the labor market. Licenses are required for professions that have significant impacts on human life, such as medical doctors or lawyers (which may sometimes be issued by professional associations rather than by the government). Many countries allow only companies with more than a certain amount of capital to set up banks. Even the stock market, whose underregulation has been a cause of the 2008 global recession, has regulations on who can trade. You can’t just turn up in the New York Stock Exchange (NYSE) with a bag of shares and sell them. Companies must fulfill listing requirements, meeting stringent auditing standards over a certain number of years, before they can offer their shares for trading. Trading of shares is only conducted by licensed brokers and traders.

Conditions of trade are specified too. One of the things that surprised me when I first moved to Britain in the mid-1980s was that one could demand a full refund for a product one didn’t like, even if it wasn’t faulty. At the time, you just couldn’t do that in Korea, except in the most exclusive department stores. In Britain, the consumer’s right to change her mind was considered more important than the right of the seller to avoid the cost involved in returning unwanted (yet functional) products to the manufacturer. There are many other rules regulating various aspects of the exchange process: product liability, failure in delivery, loan default, and so on. In many countries, there are also necessary permissions for the location of sales outlets – such as restrictions on street-vending or zoning laws that ban commercial activities in residential areas.

Then there are price regulations. I am not talking here just about those highly visible phenomena such as rent controls or minimum wages that free-market economists love to hate.

Wages in rich countries are determined more by immigration control than anything else, including any minimum wage legislation. How is the immigration maximum determined? Not by the "free" labor market, which, if left alone, will end up replacing 80–90 per cent of native workers with cheaper, and often more productive, immigrants. Immigration is largely settled by politics. So, if you have any residual doubt about the massive role that the government plays in the economy’s free market, then pause to reflect that all our wages are, at root, politically determined.

Following the 2008 financial crisis, the prices of loans (if you can get one or if you already have a variable rate loan) have become a lot lower in many countries thanks to the continuous slashing of interest rates. Was that because suddenly people didn’t want loans and the banks needed to lower their prices to shift them? No, it was the result of political decisions to boost demand by cutting interest rates. Even in normal times, interest rates are set in most countries by the central bank, which means that political considerations creep in. In other words, interest rates are also determined by politics.

If wages and interest rates are (to a significant extent) politically determined, then all the other prices are politically determined, as they affect all other prices.

Is free trade fair?

We see a regulation when we don’t endorse the moral values behind it. The 19th-century high-tariff restriction on free trade by the U.S. federal government outraged slave-owners, who at the same time saw nothing wrong with trading people in a free market. To those who believed that people can be owned, banning trade in slaves was objectionable in the same way as restricting trade in manufactured goods. Korean shopkeepers of the 1980s would probably have thought the requirement for "unconditional return" to be an unfairly burdensome government regulation restricting market freedom.

This clash of values also lies behind the contemporary debate on free trade vs. fair trade. Many Americans believe that China is engaged in international trade that may be free but is not fair. In their view, by paying workers unacceptably low wages and making them work in inhumane conditions, China competes unfairly. The Chinese, in turn, can riposte that it is unacceptable that rich countries, while advocating free trade, try to impose artificial barriers to China’s exports by attempting to restrict the import of "sweatshop" products. They find it unjust to be prevented from exploiting the only resource they have in greatest abundance – cheap labor.

Of course, the difficulty here is that there is no objective way to define "unacceptably low wages" or "inhumane working conditions." With the huge international gaps that exist in the level of economic development and living standards, it is natural that what is a starvation wage in the U.S. is a handsome wage in China (the average being 10 per cent that of the U.S.) and a fortune in India (the average being 2 per cent that of the U.S.) Indeed, most fair-trade-minded Americans would not have bought things made by their own grandfathers, who worked extremely long hours under inhumane conditions. Until the beginning of the twentieth century, the average work week in the U.S. was around 60 hours. At the time (in 1905, to be more precise), it was a country in which the Supreme Court declared unconstitutional a New York state law limiting the working days of bakers to 10 hours, on the grounds that it "deprived the baker of the liberty of working as long as he wished."

Thus seen, the debate about fair trade is essentially about moral values and political decisions, and not economics in the usual sense. Even though it is about an economic issue, it is not something economists with their technical tool kits are particularly well equipped to rule on.

All this does not mean that we need to take a relativist position and fail to criticize anyone because anything goes. We can (and I do) have a view on the acceptability of prevailing labour standards in China (or any other country, for that matter) and try to do something about it, without believing that those who have a different view are wrong in some absolute sense. Even though China cannot afford American wages or Swedish working conditions, it certainly can improve the wages and the working conditions of its workers. Indeed, many Chinese don’t accept the prevailing conditions and demand tougher regulations. But economic theory (at least free-market economics) cannot tell us what the ‘right’ wages and working conditions should be in China.

I don’t think we are in France any more

In July 2008, with the country’s financial system in meltdown, the US government poured $200 billion into Fannie Mae and Freddie Mac, the mortgage lenders, and nationalized them. On witnessing this, the Republican Senator Jim Bunning of Kentucky famously denounced the action as something that could only happen in a "socialist" country like France.

France was bad enough, but on 19 September 2008, Senator Bunning’s beloved country was turned into the Evil Empire itself by his own party leader. According to the plan announced that day by President George W. Bush and subsequently named TARP (Troubled Asset Relief Program), the U.S. government was to use at least $700 billion of taxpayers’ money to buy up the "toxic assets" choking up the financial system.

President Bush, however, did not see things quite that way. He argued that, rather than being "socialist" the plan was simply a continuation of the American system of free enterprise, which "rests on the conviction that the federal government should interfere in the market place only when necessary." Only that, in his view, nationalizing a huge chunk of the financial sector was just one of those necessary things.

Mr. Bush’s statement is, of course, an ultimate example of political double-speak – one of the biggest state interventions in human history is dressed up as another workaday market process. However, through these words Mr. Bush exposed the flimsy foundation on which the myth of the free market stands. As the statement so clearly reveals, what is a necessary state intervention consistent with free-market capitalism is really a matter of opinion. There is no scientifically defined boundary for free market.

If there is nothing sacred about any particular market boundaries that happen to exist, an attempt to change them is as legitimate as the attempt to defend them. Indeed, the history of capitalism has been a constant struggle over the boundaries of the market.

A lot of the things that are outside the market today have been removed by political decision, rather than the market process itself – human beings, government jobs, electoral votes, legal decisions, university places or uncertified medicines. There are still attempts to buy at least some of these things illegally (bribing government officials, judges or voters) or legally (using expensive lawyers to win a lawsuit, donations to political parties, etc.), but, even though there have been movements in both directions, the trend has been towards less marketization.

For goods that are still traded, more regulations have been introduced over time. Compared even to a few decades ago, now we have much more stringent regulations on who can produce what (e.g., certificates for organic or fair-trade producers), how they can be produced (e.g., restrictions on pollution or carbon emissions), and how they can be sold (e.g., rules on product labelling and on refunds).

Furthermore, reflecting its political nature, the process of re-drawing the boundaries of the market has sometimes been marked by violent conflicts. The Americans fought a civil war over free trade in slaves (although free trade in goods – or the tariffs issue – was also an important issue). The British government fought the Opium War against China to realize a free trade in opium. Regulations on free market in child labour were implemented only because of the struggles by social reformers, as I discussed earlier. Making free markets in government jobs or votes illegal has been met with stiff resistance by political parties who bought votes and dished out government jobs to reward loyalists. These practices came to an end only through a combination of political activism, electoral reforms and changes in the rules regarding government hiring.

Recognizing that the boundaries of the market are ambiguous and cannot be determined in an objective way lets us realize that economics is not a science like physics or chemistry, but a political exercise. Free-market economists may want you to believe that the correct boundaries of the market can be scientifically determined, but this is incorrect. If the boundaries of what you are studying cannot be scientifically determined, what you are doing is not a science.

Thus seen, opposing a new regulation is saying that the status quo, however unjust from some people’s point of view, should not be changed. Saying that an existing regulation should be abolished is saying that the domain of the market should be expanded, which means that those who have money should be given more power in that area, as the market is run on one-dollar-one-vote principle.

So, when free-market economists say that a certain regulation should not be introduced because it would restrict the "freedom" of a certain market, they are merely expressing a political opinion that they reject the rights that are to be defended by the proposed law. Their ideological cloak is to pretend that their politics is not really political, but rather is an objective economic truth, while other people’s politics is political. However, they are as politically motivated as their opponents.

Breaking away from the illusion of market objectivity is the first step toward understanding capitalism.

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Ha-Joon Chang teaches in the faculty of economics at the University of Cambridge. His books include "Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism" and "Kicking Away the Ladder."

The Egyptian Revolution Threatens an American-imposed Order of Arabophobia and False Choices

Saturday, Jan 29, 2011 17:30 ET

Why is America so afraid?

The Egyptian revolution threatens an American-imposed order of Arabophobia and false choices

By Philip Weiss

YouTube/liuqahs15

This originally appeared at MondoWeiss

I'm as thrilled as anyone by what I see in the Cairo streets, but when I turn on American television I see only grim faces. Robert Gibbs looked frightened during his delayed press briefing yesterday afternoon; he didn't know what to say. Obama's comments last night were equivocal and opaque: I'm with Mubarak, for now. This is his 9/11 -- the day Arabs blindsided a president.

I thought this is what he wanted for the Arab world: democracy! But the market dropped, and the cable shows are filled with mistrust of the Arab street. Our talking heads can't stop talking about the Islamists. Chris Matthews cried out against the Muslim Brotherhood and shouted, Who is our guy here? -- as if the U.S. can play a hand on the streets. While his guest Marc Ginsberg, a former ambassador to Morocco whose work seems to be dedicated to finding the few good Arabs out there, said that forces outside Egypt are funding the revolt -- a grotesque statement, given the homegrown flavor of everything we have seen in the streets; and when Matthews pressed him, Ginsberg said, Hamas... Iran.

Matthews's other interpreter was Howard Fineman. Why aren't there more Arab-Americans on U.S. television? I give PBS credit for gathering Mary-Jane Deeb and Samer Shehata (along with the inevitable Steven Cook of CFR) to speak of the real political demands of the protesters (and not galloping Islamism!)-- but when CNN aired Mona Eltahawy saying that the protesters are not violent, the moderator stomped on her and said, what about those burning vehicles?

As if eastern Europe changed without similar destruction.

So racism against Arabs is shutting down the American mind once again. And all my friends must turn to Al Jazeera English to get the soul of the story: that these events are electrifying to Arabs everywhere, a heroic mobilization. And not only to Arabs. When ElBaradei says, I salute the youth for overturning a pharaonic power, lovers of human freedom everywhere must be thrilled. We are seeing a dictator dissolve before our eyes. These are the events we cherished in history books; let us embrace the Egyptian movement.

Why is America so afraid?

Because we are seeing a giant leap in Arab power, in which the people of the largest Arab nation demand that they be allowed to fulfill their potential. This change portends a huge shift in the balance of power in the region. For the U.S. has played only a negative role in the Egyptian advance, supplying the teargas, and it seems inevitable that Egypt will cease to be a client state to the U.S. And thereby threaten the order of the last 30 years.

Whatever government replaces the current one in Egypt, it will not serve American interests, which have been largely defined by Israel, the American-Israeli "imperium," as Helena Cobban put it. Since the 1970s (as Joel Beinin shows here), Egypt has been the lynchpin of a US strategy of supporting Israel. The special relationship with Israel has steered our foreign policy, encouraged the destruction and occupation of Iraq, and even fed American Islamophobia. Key to preserving this order has been our ironclad support for the Arab dictatorships in Jordan, Egypt, Tunisia and elsewhere-- by providing the policy with a "moderate Arab" seal. Hey Egypt was a bulwark against the Islamists, and Egypt was crucial to the peace process, as all the correspondents tell us on American TV.

The danger to America and Israel is that the Egyptian revolution will destroy this false choice of secular dictator-or-crazy Islamists by showing that Arabs are smart articulate people who can handle real democracy if they get to make it themselves. And when they get it, they are likely to strip the mask off the peace process. On Al Jazeera English, there is much talk about the Palestinians. One commentator said that the "humiliation" of the Palestinians is feeding the Egyptian revolt. (I will never forget how Egyptian construction workers put down their tools to stand and applaud the Code Pink buses as we left El Arish for Gaza in June 2009.) And in his beautiful statement calling on Mubarak to serve his country by leaving, ElBaradei said that a government that heeds the people's will would turn soon to the Palestinian issue.

This is the great fear, in Israel and in Washington, too: that revolution in Egypt will reveal the despotism of the existing order for the Palestinian people, who have seen their rights and properties and security and water taken from them during the peace process that Egypt has helped sustain.

The grimness on the faces of American Establishment figures reflects the greatest threat to authority, the crumbling of an existing order. Support for Israel has defined order in this region for decades and steered our support for dictators. Ever since Truman defied the State Department in 1947-48, we have been committed to maintaining a Jewish state in the Middle East despite local opposition. This has required great American expenditure, and probably cost Bobby Kennedy his life, but it has been an order. That order has required lip service to Arab democracy, but hey, Mubarak is better than those Islamists.

Now that true Arab democracy is finally coming on stage, that moral structure falls apart. I say morals, because support for Israel has always had a moral rationale. The American establishment felt good about our support for Israel because it seemed like the right thing: We had helped to solve the age-old Jewish Question of Europe. We had ended Jewish persecution. Israel was the answer to Never again! If you doubt that this is the moral calculus of our policy, step into the Center for Jewish History in New York this month. There must be four or five exhibits that touch on Jewish persecution in the Middle East and Europe. The destruction of Italian Jews. The destruction of Berlin businesses that provided the finest linens, photography, interiors... The persecution of Moroccan Jews. It never ends, along with an exhibit dedicated to the "miracle" of Israel's creation with American Jewish support.

Thus the Jewish community has hunkered down in an anachronistic identity-- secure in the completely-contradictory knowledge that the American power structure will support Israel.

All this is changing in Egypt. An Arab liberation story is forcing itself into world consciousness. "The vast, vast majority of protesters are peaceful people, mostly middle class, and they are showing great solidarity. People are still defending the Egyptian Museum," Issandr El-Amrani reports, inspiringly. There is bound to be great suffering in Egypt, we pray for a smooth transition, but if the Egyptians are only left to handle their own affairs, who doubts that the polity that will emerge from this chaos will be more responsive to human rights, and will strike a blow against the fetters of anti-Arab racism that have chained the American mind.

Philip Weiss is the co-editor of " The Goldstone Report: The Legacy of the Landmark Investigation of the Gaza Conflict ."