A cautionary tale is reposted from The Automatic Earth.

Size Matters, But So Does Courage!

Ilargi

The case of Iceland and its financial shenanigans is, if nothing else, intriguing and amusing. Not for some of the people involved, I know, and I mean no disrespect. But it is in the way the situation is dealt with and in how various parties try to come out on top.

A short background: Iceland had 3 main banks who all, albeit to various degrees, made unrealistic profits for investors and depositors in early 21st century times, and then went bust. One bank, Icesave, which had many clients in England and Holland, owes these clients some $6 billion, a sum the Iceland government is held responsible for and initially seems to have agreed to pay. The people of Iceland, all 320,000 of them as it were, have started questioning why they should pay for foreign investors’ losses with banks with whom they have no connection other than that they happen to be located in their country.

Britain’s decision to put Iceland on some terror alert list because of the banking affair is likely a big factor in this, as well as in the decision by the president to let the people decide in a referendum on February 20 whether they want to pay back the losses of foreign investors who had accounts with Icesave only so they could get a few basis points more interest on their funds. It doesn’t look like they will.

Which may put Iceland on some black list, with the IMF threatening to withdraw emergency funds and Scandinavian loans in peril. The Dutch threat to block Iceland’s entry into the EU is seen in Reykjavik as similar to Britain’s terror list boondoggle. The prevailing sentiment these days among the geysers can best be summarized like this: “We may be small, but we ain’t your bitch”. And that is a sentiment that may provoke a lot of sympathy, provided the Icelanders play their cards right.

In the next 6 weeks they will come under huge international pressure to pay up or else, for there’s nothing the international community fears more than members who don’t play by the rules, no matter how inane and insane they are. Plus, of course, Iceland is not some small African nation full of poor black people, it’s a small European nation full of the kind of people that wealthy US and EU citizens can identify with: white and relatively affluent. They could be your neighbors. They could be your family. They could be you.

So how reasonable is it for Britain and the Netherlands to demand restitution of losses suffered? Interesting question. The answer is not that easy, since it begs the next question. Who is to blame for the losses? There’s the bankers, who went megalomaniacal, and got much bigger than banks based in what is population-wise not more than a mid-size town ought to be. But Iceland is a member of the EEA, the European Economic Area, which gives its banks the right to expand to the rest of the EU.

So alright, let’s see. First to blame: the bankers. Second: The Icelandic government, who should have regulated its banks much closer. Third, the governments of Holland and England, who should have done due diligence and demanded far more strict guarantees from the banks. Fourth, the Dutch and British investors, individuals, local governments and companies, who all should have read the fine print. Fifth, the people of Iceland, who were living it up with the cash floating in freely.

But we all know how blame moves. The investors point to their own governments, who didn’t warn them. These governments point to the government of Iceland, which didn’t warn them. That government points to the bankers, who went nuts, but who they still have to cover for. And last, the people of Iceland point to all of the above and say they should all have been wiser, and the fact that they were not doesn’t mean Icelanders now have to fork over, no matter how certain parties like to interpret laws and regulations. Some things just don’t feel right.

And what do we feel about this, who are not directly affected by any of it? Well, try this one on for size. If you allow me to numb and dumb down the numbers a bit, the US at 308 million citizens is about 1000 times bigger than Iceland (320,000). Which means that the US equivalent of what the British and Dutch are demanding from Icelanders would be, loosely, $6 trillion. Now what would you say the odds are that the American people would agree to pay that kind of money, if it were payment for what their banks have (mis-)done in the past, to a group of foreign investors? Let’s say Chinese and Japanese?

I may be wrong, of course, but I have the feeling that I know what Americans would think of that. They’d be marching in the streets, on their way to embassies and consulates, if not private businesses. They’d say: we have a hard enough time ourselves as it is, and we ain’t paying no foreigners who weren’t making sure they knew what they were doing.

The same reaction would come in London and Amsterdam as well, naturally. Funny thing is that the governments there were very quick to guarantee their citizens’ losses, and only after that claimed them back from Reykjavik. There doesn’t seem to be any legal obligation for them to do so, it looks more like an election-related issue. There are all sorts of depositor protection schemes in place, that’s true enough, but everyone could have known that the established $30,000 guarantee from Iceland for every depositor account wasn’t worth much, given that it’s backed only by the full faith and credit of 320,000 people. Britain is what, 200 times bigger than that?

But in the end, as I’m pondering all this, what is probably the most interesting part of it is that the American people ARE in fact in the same boat as the Icelanders. The main difference between them may well be that the latter stand up for themselves, where the former don’t understand what’s going on. The US government has indeed already pledged $14 trillion in public funds (with a total risk of up to $24 trillion) for US bank losses. It’s just that American banks are covered by the ability of the US to borrow enough money in international markets to cover their losses, something for which Iceland is simply too small. And also, the US gets to bleep around with accounting rules, so bank losses can remain hidden for a long time (though not forever).

So while it may look like the situations are entirely different, they’re not really. On the ground level, it’s the citizens who are being forced to pay for institutional gambling debts, the old adage of keep profits private and make losses public. China doesn’t go to Obama to demand payment guarantees tomorrow morning, but it’s all just a matter of size. That size determines that the Icelandic situation is far more transparent, since smaller make simpler. But down the line, the Iceland banks weren’t the greatest gamblers, it was Wall Street and the City of London. And the $20,000 that Icelanders “owe” per capita (in the eyes of others) isn’t really the issue, it won’t kill them. They just take a stand against what they see as bullies.

The amount Americans “owe”, though, is already more than twice as much per capita at $14 trillion. And there’s no end in sight, since none of that money has been used to actively solve problems, it’s all merely hiding them for a while longer.

In other words, here’s waiting for the moment Americans become more like Icelanders, and stand up against bullies (I’m sure Oprah has advice to provide on the topic). But also, here’s not holding any breath, and here’s expecting that by the time any sizeable group stands up, the amounts owed will be a multiple of $20,000 and enough to generate debt and poverty for years, if not decades, to come.

And you know what the funniest thing about it all is? In America it wouldn’t even take 320,000 people standing up, for real, to change policies and history in a heartbeat.

But they’re not there. They’re in Iceland.

Size matters. But so does courage.

Most of the people that I talk with,  tell me that they are glad 2009 is over. They are guardedly hopeful that 2010 will be better. If you want good news, this morning’s article is not for you. I am not saying that the news is “bad,” rather that it is realistic.

We humans CAN work together more effectively then we currently are. If we begin working together as community, we can make changes that would be good for all of us. …

But now for today’s real truth! … Reposted from the author’s blog for December 28, 2009.

Forecast 2010

James Howard Kunster

There are always disagreements in a society, differences of opinion, and contested ideas, but I don’t remember any period in my own longish life, even the Vietnam uproar, when the collective sense of purpose, intent, and self-confidence was so muddled in this country, so detached from reality. Obviously, in saying this I’m assuming that I have some reliable notion of what’s real.  I admit the possibility that I’m as mistaken as anyone else.  But for the purpose of this exercise I’ll ask you to regard me as a reliable narrator. Forecasting is a nasty job, usually thankless, often disappointing – but somebody’s got to do it. There are so many variables in motion, and so much of that motion is driven by randomness, and the best one can do in forecasting amounts to offering up some guesses for whatever they are worth.

I begin by restating my central theme of recent months: that we’re doing a poor job of constructing a coherent consensus about what is happening to us and what we are going to do about it.

There is a great clamor for “solutions” out there. I’ve noticed that what’s being clamored for is a set of rescue remedies – miracles even – that will allow us to keep living exactly the way we’re accustomed to in the USA, with all the trappings of comfort and convenience now taken as entitlements.  I don’t believe that this will be remotely possible, so I avoid the term “solutions” entirely and suggest that we speak instead of “intelligent responses” to our changing circumstances. This implies that our well-being depends on our own behavior and the choices that we make, not on the lucky arrival of just-in-time miracles.  It is an active stance, not a passive one. What will we do?

The great muddlement out there, this inability to form a coherent consensus about what’s happening, is especially frightening when, as is the case today, even the intelligent elites appear clueless or patently dishonest, in any case unreliable, in their relations with reality. President Obama, for instance – a charming, articulate man, with a winning smile, pectorals like Kansas City strip steaks, and a mandate for “change” – who speaks incessantly and implausibly of “the recovery” when all the economic vital signs tell a different story except for some obviously manipulated stock market indexes. You hear this enough times and you can’t help but regard it as lying, and even if it is lying ostensibly for the good of the nation, it is still lying about what is actually going on and does much harm to the project of building a coherent consensus. I submit that we would benefit more if we acknowledged what is really happening to us because only that will allow us to respond intelligently. What prior state does Mr. Obama suppose we’re recovering to?  A Potemkin housing boom and an endless credit card spending orgy?  The lying spreads downward from the White House and broadly across the fruited plain and the corporate office landscape and through the campuses and the editorial floors and the suites of absolutely everyone in charge of everything until all leadership in every field of endeavor has been given permission to speak untruth and to reinforce each others lies and illusions.

How dysfunctional is our nation? These days, we lie to ourselves perhaps as badly the Soviets did, and in a worse way, because where information is concerned we really are a freer people than they were, so our failure is far less excusable, far more disgraceful. That you are reading this blog is proof that we still enjoy free speech in this country, whatever state of captivity or foolishness the so-called “mainstream media” may be in.  By submitting to lies and illusions, therefore, we are discrediting the idea that freedom of speech and action has any value.  How dangerous is that?

Where We Are Now

2009 was the Year of the Zombie. The system for capital formation and allocation basically died but there was no funeral. A great national voodoo spell has kept the banks and related entities like Fannie Mae and the dead insurance giant AIG lurching around the graveyard with arms outstretched and yellowed eyes bugged out, howling for fresh infusions of blood… er, bailout cash, which is delivered in truckloads by the Federal Reserve, which is itself a zombie in the sense that it is probably insolvent. The government and the banks (including the Fed) have been playing very complicated games with each other, and the public, trying to pretend that they can all still function, shifting and shuffling losses, cooking their books, hiding losses, and doing everything possible to detach the relation of “money” to the reality of productive activity.

But nothing has been fixed, not even a little. Nothing has been enforced.  No one has been held responsible for massive fraud. The underlying reality is that we are a much less affluent society than we pretend to be, or, to put it bluntly, that we are functionally bankrupt at every level: household, corporate enterprise, and government (all levels of that, too).

The difference between appearance and reality can be easily seen in the everyday facts of American economic life: soaring federal deficits, real unemployment above 15 percent, steeply falling tax revenues, massive state budget crises, continuing high rates of mortgage defaults and foreclosures, business and personal bankruptcies galore, cratering commercial real estate, dying retail, crumbling infrastructure, dwindling trade, runaway medical expense, soaring food stamp applications.  Meanwhile, the major stock indices rallied. What’s not clear is whether money is actually going somewhere or only the idea of “money” is appearing to go somewhere.  After all, if a company like Goldman Sachs can borrow gigantic sums of “money” from the Federal Reserve at zero interest, why would it not shovel that money into the burning furnace of a fake stock market rally?  Of course, none of this behavior has anything to do with productive activity.

The theme for 2009 – well put by Chris Martenson – was “extend and pretend,” to use all the complex trickery that can be marshaled in the finance tool bag to keep up the appearance of a revolving debt economy that produces profits, interest, and dividends, in spite of the fact that debt is not being “serviced,” i.e. repaid.  There is an awful lot in the machinations of Wall Street and Washington that is designed deliberately to be as incomprehensible as possible to even educated people, but this part is really simple: if money is created out of lending, then the failure to pay back loaned money with interest kills the system.  That is the situation we are in.

The inertia displayed by our system – especially its manifest ability to keep stock markets levitating in the absence of value creation – is strictly a function of its size and complexity. It is running on fumes. I thought it would finally crash and burn in 2009. The Dow Jones industrial average certainly fell on its ass last March, bottoming in the mid-6000 range.  But then it picked its sorry ass off the ground and rallied back up again thanks to bail-outs and ZIRPs and really no other place to look for returns on the accumulated wealth of the past two hundred years, especially for large institutions like pension funds that need income to function.  I’d called for a Dow at 4000. A lot of readers ridiculed that call.  Was it really that far off?

A feature of 2009 easily overlooked is what a generally placid year it was around the world. Apart from the election uproar in Iran, there were few events of any size or potency to shove all the various wobbly things – central banks, markets, governments, etc – into failure mode.  So things just kept wobbling.  I don’t think that state of affairs is likely to continue.  With that, on to the particulars.

The Year Ahead

Just about everything which evaded fate via gamed numbers, budgets, and balance sheets in 2009 seems destined to hit a wall in 2010.  To pick an arbitrary starting point, it is hard to see how states like California and New York can keep staving off monumental changes in their scale of operations with further budget trickery.  Those cans they’ve been kicking down the street have fallen through the sewer grate.  What will they do?  They can massively raise taxes or massively lay off employees and default on obligations – or they can do all these things. The net result will be populations with less income, arguably impoverished, suffering, and perhaps very angry about it.  Welcome to reality.  Will Washington bail the states out, too?  I wouldn’t be surprised to see them pretend to do so, but not without immense collateral damage in everybody’s legitimacy and surely an increase in US treasury interest rates.

But backing up a moment, I’m writing between Christmas and New Year’s Eve. The frenzied distractions of the holidays ongoing for much of Q4-2009 are still in force.  In a week or so, when the Christmas trees are hauled out to the curbs (and it turns out that municipal garbage pickup has been curtailed for lack of funds) a picture will start to emerge of exactly how retail sales went leading up to the big climax. My guess is that sales were dismal. Reports of such will start a train of events that sends many retail companies careening into bankruptcy, including some national chains, leading to lost leases in malls and strip malls, leading to a final push off the cliff for commercial real estate, leading to the failure of many local and regional banks, leading to the bankrupt FDIC having to go to congress directly to get more money to bail out the depositors, leading again to rising interest rates for US treasuries, leading to higher mortgage interest rates for whoever out there is crazy enough to venture to buy a house with borrowed money, leading to the probability that there are few of the foregoing, leading to another hard leg down in house values because so few are now crazy enough to buy a house in the face of falling prices – all of this leading to the recognition that we have entered a serious depression, which is only a facet of the greater period of hardship we have also entered, which I call The Long Emergency.

This depression will be a classic deleveraging, or resolution of debt. Debt will either be paid back or defaulted on.  Since a lot can’t be paid back, a lot of it will have to be defaulted on, which will make a lot of money disappear, which will make many people a lot poorer. President Obama will be faced with a basic choice.  He can either make the situation worse by offering more bailouts and similar moves aimed at stopping the deleveraging process – that is, continue what he has been doing, only perhaps twice as much, which may crash the system more rapidly – or he can recognize the larger trends in The Long Emergency and begin marshalling our remaining collective resources to restructure the economy along less complex and more local lines. Don’t count on that.

Of course, this downscaling will happen whether we want it or not. It’s really a matter of whether we go along with it consciously and intelligently – or just let things slide. Paradoxically and unfortunately in this situation, the federal government is apt to become ever more ineffectual in its ability to manage anything, no matter how many times Mr. Obama comes on television. Does this leave him as a kind of national camp counselor trying to offer consolation to the suffering American people, without being able to really affect the way the “workout” works out? Was Franklin Roosevelt really much more than an affable presence on the radio in a dark time that had to take its course and was only resolved by a global convulsion that left the USA standing in a smoldering field of prostrate losers?

One wild card is how angry the American people might get.  Unlike the 1930s, we are no longer a nation who call each other “Mister” and “Ma’am,” where even the down-and-out wear neckties and speak a discernible variant of regular English, where hoboes say “thank you,” and where, in short, there is something like a common culture of shared values.  We’re a nation of thugs and louts with flames tattooed on our necks, who call each other “motherfucker” and are skilled only in playing video games based on mass murder. The masses of Roosevelt’s time were coming off decades of programmed, regimented work, where people showed up in well-run factories and schools and pretty much behaved themselves. In my view, that’s one of the reasons that the US didn’t explode in political violence during the Great Depression of the 1930s – the discipline and fortitude of the citizenry.  The sheer weight of demoralization now is so titanic that it is very hard to imagine the people of the USA pulling together for anything beyond the most superficial ceremonies – placing teddy bears on a crash site.  And forget about discipline and fortitude in a nation of ADD victims and self-esteem seekers.

I believe we will see the outbreak of civil disturbance at many levels in 2010.  One will be plain old crime against property and persons, especially where the sense of community is flimsy-to-nonexistent, and that includes most of suburban America. The automobile is a fabulous aid to crime. People can commit crimes in Skokie and be back home in Racine before supper (if supper is anything besides a pepperoni stick and some Hostess Ho-Hos in the car). Fewer police will be on guard due to budget shortfalls.

I think we’ll see a variety-pack of political disturbance led first by people who are just plain pissed off at government and corporations and seek to damage property belonging to these entities. The ideologically-driven will offer up “revolutionary” action to redefine some lost national sense of purpose. Some of the most dangerous players such as the political racialists, the posse comitatus types, the totalitarian populists, have been out-of-sight for years. They’ll come out of the woodwork and join the contest over dwindling resources. Both the Left and the Right are capable of violence. But since the Left is ostensibly already in power, the Right is in a better position to mount a real challenge to office-holders. Their ideas may be savage and ridiculous, but they could easily sweep the 2010 elections – unless we see the rise of a third party (or perhaps several parties). No sign of that yet. Personally, I’d like to see figures like Christopher Dodd and Barney Frank sent packing, though I’m a registered Democrat. In the year ahead, the sense of contraction will be palpable and huge. Losses will be obvious.  No amount of jive-talking will convince the public that they are experiencing “recovery.”  Everything familiar and comforting will begin receding toward the horizon.

Markets and Money

I’ll take another leap of faith and say that 6600 was not the bottom for the Dow. I’ve said Dow 4000 for three years in a row.  Okay, my timing has been off.  But I still believe this is its destination.  Given the currency situation, and the dilemma of no-growth Ponzi economies, I’ll call it again for this year: Dow 4000. There, I said it. Laugh if you will….

I’m with those who see the dollar strengthening for at least the first half of 2010, and other assets falling in value, especially the stock markets. The dollar could wither later on in the year and maybe take a turn into high inflation as US treasury interest rates shoot up in an environment of a global bond glut.  That doesn’t mean the stock markets will bounce back because the US economy will only sink into greater disorder when interest rates rise.

Right now there are ample signs of trouble with the Euro. It made a stunning downward move the past two weeks.  European banks took the biggest hit in the Dubai default.  Now they face the prospect of sovereign default in Greece, the Baltic nations (Estonia, Latvia, Lithuania), the Balkan nations (Serbia, et al), Spain, Portugal, Italy, Ireland, Iceland and the former soviet bloc of Eastern Europe. England is a train wreck of its own (though not tied into the Euro), and even France may be in trouble.  That leaves very few European nations standing.  Namely Germany and Scandanavia (and I just plain don’t know about Austria). What will Europe do?  Really, what will Germany do? Probably reconstruct something like the German Deutschmark only call it something else… the Alt.Euro?  As one wag said on the Net: sovereign debt is the new sub-prime! The Euro is in a deeper slog right now than the US dollar (even with our fantastic problems), so I see the dollar rising in relation to the Euro, at least for a while. I’d park cash in three month treasury bills – don’t expect any return – for safety in the first half of 2010. I wouldn’t touch long-term US debt paper with a carbon-fiber sixty foot pole.

I’m still not among those who see China rising into a position of supremacy.  In fact, they have many reasons of their own to tank, including the loss of the major market for their manufactured goods, vast ecological problems, de-stabilizing demographic shifts within the nation, and probably a food crisis in 2010 (more about this later).

Though a seemingly more stable nation than the US, with a disciplined population and a strong common culture with shared values, Japan’s financial disarray runs so deep that it could crash its government even before ours.  It has no fossil fuels of its own whatsoever.  And in a de-industrializing world, how can an industrial economy sustain itself? Japan might become a showcase for The Long Emergency.  On the other hand, if it gets there first and makes the necessary adjustments, which is possible given their discipline and common culture, they may become THE society to emulate!

I’m also not convinced that so-called “emerging markets” are places where money will dependably earn interest, profits, or dividends.  Contraction will be everywhere. I even think the price of gold will retrace somewhere between $750 and $1000 for a while, though precious metals will hold substantial value under any conditions short of Hobbesian chaos. People flock to gold out of uncertainty, not just a bet on inflation. My guess is that gold and silver will eventually head back up in value to heights previously never imagined, and it would be wise to own some. I do not believe that the federal government could confiscate personal gold again the way it did in 1933. There are too many pissed off people with too many guns out there – and I’m sure there is a correlation between owners of guns with owners of gold and levels of pissed-offness.  A botched attempt to take gold away from citizens would only emphasize the impotence of the federal government, leading to further erosion of legitimacy.

Bottom line for markets and money in 2010: so many things will be out of whack that making money work via the traditional routes of compound interest or dividends will be nearly impossible. There’s money to be made in shorting and arbitrage and speculation, but that requires nerves of steel and lots and lots of luck.  Those dependent on income from regular investment will be hurt badly.  For most of us, capital preservation will be as good as it gets – and there’s always the chance the dollar will enter the hyper-inflationary twilight zone and wipe out everything and everyone connected with it.

Peak Oil

It’s still out there, very much out there, a huge unseen presence in the story, the true ghost-in-the-machine, eating away at economies every day.  It slipped offstage in 2009 after the oil spike of 2008 ($147/barrel) over-corrected in early 2009 to the low $30s/barrel.  Now it’s retraced about halfway back to the mid-$70s.  One way of looking at the situation is as follows.  Oil priced above $75 begins to squeeze the US economy; oil priced over $85 tends to crush the US economy.  You can see where we are now with oil prices closing on Christmas Eve at $78/barrel.

Among the many wishful delusions operating currently is the idea that the Bakken oil play in Dakota / Montana will save Happy Motoring for America, and that the Appalachian shale gas plays will kick in to make us energy independent for a century to come.  Americans are likely to be disappointed by these things.

Both Bakken and the shale gas are based on techniques for using horizontal drilling through “tight” rock strata that is fractured with pressurized water. It works, but it’s not at all cheap, creates plenty of environmental mischief, and may end up being only marginally productive. At best, Bakken is predicted to produce around 400,000 barrels of oil a day.  That’s not much in a nation that uses close to 20 million barrels a day.  Shale gas works too, though the wells deplete shockingly fast and will require the massive deployment of new drilling rigs (do we even have the steel for this?). I doubt it can be produced for under $10 a unit (mm/BTUs) and currently the price of gas is in the $5 range. In any case, we’re not going to run the US motor vehicle fleet on natural gas, despite wishful thinking.

Several other story elements in the oil drama have remained on track to make our lives more difficult.  Oil export rates continue to decline more steeply than oil field depletion rates.  Exporters like Iran, Mexico, Saudi Arabia, Venezuela, are using evermore of the oil they produce (often as state-subsidized cheap gasoline), even as their production rates go down.  So, they have less oil to sell to importers like the USA – and we import more than 60 percent of the oil we use. Mexico’s Pemex is in such a sorry state, with its principal Cantarell field production falling off a cliff, that the USA’s number three source of imported oil may be able to sell us nothing whatsoever in just 24 months.  Is there any public discussion about this in the USA?  No. Do we have a plan?  No.

A new wrinkle in the story developing especially since the financial crisis happened, is the shortage of capital for new oil exploration and production – meaning that we have even poorer prospects of offsetting world-wide oil depletion.  The capital shortage will also affect development in the Bakken play and the Marcellus shale gas range.

Industrial economies are still at the mercy of peak oil.  This basic fact of life means that we can’t expect the regular cyclical growth in productive activity that formed the baseline parameters for modern capital finance – meaning that we can’t run on revolving credit anymore because growth simply isn’t there to create real surplus wealth to pay down debt.  The past 20 years we’ve seen the institutions of capital finance pretend to create growth where there is no growth by expanding financial casino games of chance and extracting profits, commissions, and bonuses from the management of these games – mortgage backed securities, collateralized debt obligations, credit default swaps, and all the rest of the tricks dreamed up as America’s industrial economy was shipped off to the Third World.  But that set of rackets had a limited life span and they ran into a wall in October 2008. Since then it’s all come down to a shell game: hide the giant pea of defaulted debt under a giant walnut shell.

Yet another part of the story is the wish that the failing fossil fuel industrial economy would segue seamlessly into an alt-energy industrial economy.  This just isn’t happening, despite the warm, fuzzy TV commercials about electric cars and “green” technology.  The sad truth of the matter is that we face the need to fundamentally restructure the way we live and what we do in North America, and probably along the lines of much more modest expectations, and with very different practical arrangements in everything from the very nature of work to household configurations, transportation, farming, capital formation, and the shape-and-scale of our settlements.  This is not just a matter of re-tuning what we have now.  It means letting go of much of it, especially our investments in suburbia and motoring – something that the American public still isn’t ready to face.  They may never be ready to face this and that is why we may never make a successful transition to whatever the next economy is.  Rather, we will undertake a campaign to sustain the unsustainable and sink into poverty and disorder as we fight over the table scraps of the old economy… and when the smoke clears nothing new will have been built.

President Obama has spent his first year in office, and billions of dollars, trying to prop up the floundering car-makers and more generally the motoring system with “stimulus” for “shovel-ready” highway projects.  This is exactly the kind of campaign to sustain the unsustainable that I mean.  Motoring is in the process of failing and now for reasons that even we peak oilers didn’t anticipate a year ago. It’s no longer just about the price of gasoline.  The crisis of capital is making car loans much harder to get, and if Americans can’t buy cars on installment loans, they are not going to buy cars, and eventually they will not be driving cars they can’t buy. The same crisis of capital is now depriving the states, counties, and municipalities of the means to maintain the massive paved highway and street system in this country. Just a few years of not attending to that will leave the system unworkable.

Meanwhile President Obama has given next-to-zero money or attention to public transit, to repairing the passenger railroad system in particular.  I maintain that if we don’t repair this system, Americans will not be traveling very far from home in a decade or so. Therefore, Mr. Obama’s actions vis-à-vis transportation are not an intelligent response to our situation.  And for very similar reasons, the proposal for a totally electric motor vehicle fleet, as a so-called “solution” to the liquid fuels problem, is equally unintelligent and tragic. Of course something else that Mr. Obama has barely paid lip-service to is the desperate need to retool our living places as walkable communities. The government now, at all levels, virtually mandates suburban arrangements of the most extremely car-dependent kind. Changing this has to move near the top of a national emergency priority list, if we have one.

Even with somewhat lower oil prices in 2009, the airlines still hemorrhaged losses in the billions, and if the oil price remains in the current zone some of them will fall back into bankruptcy in 2010.  Oil prices may go down again in response to crippled economies, but then so will passengers looking to fly anywhere, especially the business fliers that the airlines have depended on to fill the higher-priced seats. I believe United will be the first one to go down in 2010, a hateful moron of a company that deserves to die.

My forecast for oil prices this year is extreme volatility.  A strengthening dollar might send oil prices down (though that relationship has temporarily broken down this December as both oil prices and the dollar went up in tandem for the first time in memory). So could the cratering of the stock markets, or a general apprehension of a floundering economy.  But the oil export situation also means there is less and less wiggle room every month for supply to keep pace with demand, even in struggling economies if they are dependent on foreign imports. Another part of the story that we don’t pay attention to is the potential for oil scarcities, shortages, and hoarding. We may see the reemergence of those trends in 2010 for the first times since 1979.

Geopolitics

The retracement of oil prices in 2009 took place against a background of relative quiet on the geopolitical scene.  With economies around the world sinking into even deeper extremis in 2010, friction and instability are more likely. The more likely locales for this are the places where most of the world’s remaining oil is: the Middle East and Central Asia. The American army is already there, in Iraq and Afghanistan, with an overt pledge to up-the-ante in Afghanistan. It’s hard to imagine a happy ending in all this. It’s increasingly hard to even imagine a strategic justification for it.  My current (weakly-held) notion is that America wants to make a baloney sandwich out of Iran, with American armies in Iraq and Afghanistan as the Wonder Bread, to “keep the pressure on” Iran. Well, after quite a few years, it doesn’t seem to be moderating or influencing Iran’s behavior in any way. Meanwhile, Pakistan becomes more chaotic every week and our presence in the Islamic world stimulates more Islamic extremist hatred against the USA. Speaking of Pakistan, there is the matter of its neighbor and adversary, India. If there is another terror attack by Pakistan on the order of last year’s against various targets in Mumbai, I believe the response by India is liable to be severe next time, leading to God-knows-what, considering both countries have plenty of atom bombs.

Otherwise, the idea that we can control indigenous tribal populations in some of Asia’s most forbidding terrain seems laughable. I don’t have to rehearse the whole “graveyard of empires” routine here. But what possible geo-strategic advantage is in this for us?  What would it matter if we pacified all the Taliban or al Qaeda in Afghanistan? Most of the hardest core maniacs are next door in Pakistan.  Even if we turned Afghanistan into Idaho-East, with Kabul as the next Sun Valley, complete with Ralph Lauren shops and Mario Batali bistros, Pakistan would remain every bit as chaotic and dangerous in terms of supplying the world with terrorists. And how long would we expect to remain in Afghanistan pacifying the population?  Five years?  Ten Years? Forever? It’s a ridiculous project. Loose talk on the web suggests our hidden agenda there was to protect a Conoco pipeline out of Tajikistan, but that seems equally absurd on several grounds.  I can’t see Afghanistan as anything but a sucking chest wound for dollars, soldiers’ lives, and American prestige.

What’s more, our presence there seems likely to stimulate more terror incidents here in the USA. We’ve been supernaturally lucky since 2001 that there hasn’t been another incident of mass murder, even something as easy and straightforward as a shopping mall massacre or a bomb in a subway.  Our luck is bound to run out.  There are too many “soft” targets and our borders are too squishy. Small arms and explosives are easy to get in the USA.  I predict that 2010 may be the year our luck does run out.  Even before the start of the year we’ve seen the attempted Christmas bombing of Northwest-KLM flight 253 (Amsterdam to Detroit). One consequence of this is that it will only make air travel more unpleasant for everybody in the USA as new rules are instated limiting bathroom trips and blankets in the final hour of flight.

As far as the USA is concerned, I think we have more to worry about from Mexico than Afghanistan. In 2009, the Mexican government slipped ever deeper into impotence against the giant criminal cartels there. As the Cantarell oil field waters out, revenue from Pemex to the national government will wither away and so will the government’s ability to control anything there. The next president of Mexico may be an ambitious gangster straight out of the drug cartels, Pancho Villa on steroids.

Another potential world locale for conflict may be Europe as the European Union begins to implode under the strains of the monetary system. The weaker nations default on their obligations and Germany, especially, looks to insulate itself from the damage.  Except for the fiasco in Yugoslavia’s breakup years ago, Europe has been strikingly peaceful for half a century.  For most of us now living who have visited there, it is almost impossible to imagine how violent and crazy the continent was in the early twentieth century. I wonder what might happen there now, with more than a few nations failing economically and the dogs of extreme politics perhaps loosed again.  History is ironical.  Perhaps this time the Germans will be the good guys, while England goes apeshit with its BNP.  Wouldn’t that be something?

One big new subplot in world politics this year may be the global food shortage that is shaping up as a result of spectacular crop failures in most of the major farming regions of the world.  The American grain belt was hit by cold and wet weather and the harvest was a disaster, especially for soybeans, of which the USA produces at least three-quarters of the world’s supply.  Crops have also failed in Northern China’s wheat-growing region, in Australia, Argentina, and India. The result may range from extremely high food prices in the developed world to starvation in other places, leading to grave political instability and desperate fights over resources. We’ll have an idea where this is leading by springtime. It maybe the most potent sub-plot in the story for 2010.

Conclusions

The Long Emergency is officially underway.  Reality is telling us very clearly to prepare for a new way of life in the USA. We’re in desperate need of decomplexifying, re-localizing, downscaling, and re-humanizing American life.  It doesn’t mean that we will be a lesser people or that we will not recognize our own culture.  In some respects, I think it means we must return to some traditional American life-ways that we abandoned for the cheap oil life of convenience, comfort, obesity, and social atomization.

The successful people in America moving forward will be those who attach themselves to cohesive local communities, places with integral local economies and sturdy social networks, especially places that can produce a significant amount of their own food. I don’t think that we’ll be living in a world without money, some medium of exchange above barter, but it may not come in the form of dollars. My guess is that for a while it may be gold and silver, or possibly certificates issued by bank-like institutions representing gold-on-hand. In any case, I doubt we’ll arrive there this year. This is more likely to be the year of grand monetary disorders and continued shocking economic contraction.

Political upheaval can get underway pretty quickly, without a whole lot of warning.  I’m still waiting to hear the announced 2009 bonuses for the employees of the TBTF banks.  All they said before Christmas was that thirty top Goldman Sachs employees would be paid in stock instead of money this year, but no other big banks have made a peep yet.  I suppose they’ll have to in the four days before New Years.  I still think that could be the moment that shoves some disgruntled Americans into the arena of protest and revolt.  Beyond that, though, there is plenty room for emotions to run wild and for behavior to get weird.

President Obama will have to make some pretty drastic moves to salvage his credibility. I see no sign of any intention to seriously investigate or prosecute financial crimes. Yet the evidence of misdeeds piles higher and higher – just this week new comprehensive reports of Goldman Sachs’s irregularities in shorting their own issues of mortgage-backed securities, and a report on the Treasury Department’s issuance of treasuries to “back-door” dumpers of toxic mortgage backed securities. And on Christmas Eve, when nobody was looking, the Treasury lifted the ceiling on Fannie Mae and Freddie Mac’s backstop money to infinity. Even people like me who try to pay close attention to what’s going on have lost track of all the various TARPs, TALFs, bailouts, stimuli, ZIRP loans, and handovers to every bank and its uncle in the land.

Good luck to readers in 2010. To paraphrase Tiny Tim: God help us, every one. …

Visit James Howard Kunstler’s website.

Bill Moyers has worked at the highest levels of our federal government, and he has been an observer of Politics and Political Power all of his adult life. … He is worried about our human future.

The following discussion was recorded in a PBS studio on December 18, 2009. You can view the full video here.

A Really Rotten Health Insurance Bill

Bill Moyers, Robert Kuttner & Matt Taibbi

BILL MOYERS: Welcome to the Journal.

Something’s not right here. One year after the great collapse of our financial system, Wall Street is back on top while our politicians dither. As for health care reform, you’re about to be forced to buy insurance from companies whose stock is soaring, and that’s just dandy with the White House.

Truth is, our capitol’s being looted, republicans are acting like the town rowdies, the sheriff is firing blanks, and powerful Democrats in Congress are in cahoots with the gang that’s pulling the heist. This is not capitalism at work. It’s capital. Raw money, mounds of it, buying politicians and policy as if they were futures on the hog market.

Here to talk about all this are two journalists who don’t pull their punches. Robert Kuttner is an economist who helped create and now co-edits the progressive magazine THE AMERICAN PROSPECT, and the author of the book OBAMA’S CHALLENGE, among others.

Also with me is Matt Taibbi, who covers politics for ROLLING STONE magazine where he is a contributing editor. He’s made a name for himself writing in a no-holds-barred, often profane, but always informative and stimulating style that gets under the skin of the powerful. His most recent article is “Obama’s Big Sellout,” about the President’s team of economic advisers and their Wall Street connections. It’s been burning up the blogosphere. Welcome to both of you.

BILL MOYERS: Let’s start with some news. Some of the big insurance companies, Well Point, Cigna, United Health, all surged to a 52 week high in their share prices this week when it was clear there’d be no public option in the health care bill going through Congress right now. What does that tell you, Matt?

MATT TAIBBI: Well, I think what most people should take away from this is that the massive subsidies for health insurance companies have been preserved while it’s also expanded their customer base because there’s an individual mandate in the bill that’s going to provide all these companies with the, you know, 25 or 30 million new people who are going to be paying for health insurance. So, it’s, obviously, a huge boon to that industry. And I think Wall Street correctly read what the health care effort is all about.

ROBERT KUTTNER: Rahm Emanuel, the President’s Chief of Staff, was Bill Clinton’s Political Director. And Rahm Emanuel’s take away from Bill Clinton’s failure to get health insurance passed was ‘don’t get on the wrong side of the insurance companies.’ So their strategy was cut a deal with the insurance companies, the drug industry going in. And the deal was, we’re not going to attack your customer base, we’re going to subsidize a new customer base. And that script was pre-cooked so it’s not surprising that this is what comes out the other side.

BILL MOYERS: So are you saying that this, what some call a sweetheart deal between the pharmaceutical industry and the White House, done many months ago before this fight really began, was because the drug company money in the Democratic Party?

ROBERT KUTTNER: Well, it’s two things. Part of it was we need to do whatever it takes to get a bill. Never mind whether it’s a really good bill, let’s get a bill passed so we can claim that we solved health insurance. Secondly, let’s get the drug industry and the insurance industry either supporting us or not actively opposing us. So that there was some skirmishing around the details, but the deal going in was that the administration, drug companies, insurance companies are on the same team. Now, that’s one way to get legislation, it’s not a way to transform the health system. Once the White House made this deal with the insurance companies, the public option was never going to be anything more than a fig leaf. And over the summer and the fall, it got whittled down, whittled down, whittled down to almost nothing and now it’s really nothing.

MATT TAIBBI: Yeah, and this was Howard Dean’s point this week was that this individual mandate that’s going to force people to become customers of private health insurance companies, the Democrats are going to end up owning that policy and it’s going to be extremely unpopular and it’s going to be theirs for a generation. It’s going to be an albatross around the neck of this party.

ROBERT KUTTNER: Think about it, the difference between social insurance and an individual mandate is this. Social insurance everybody pays for it through their taxes, so you don’t think of Social Security as a compulsory individual mandate. You think of it as a benefit, as a protection that your government provides. But an individual mandate is an order to you to go out and buy some product from some private profit-making company, that in the case of a lot of moderate income people, you can’t afford to buy. And the shell game here is that the affordable policies are either very high deductibles and co-pays, so you can afford the monthly premiums but then when you get sick, you have to pay a small fortune out of pocket before the coverage kicks in. Or if the coverage is decent, the premiums are unaffordable. And so here’s the government doing the bidding of the private industry coercing people to buy profit-making products that maybe they can’t afford and they call it health reform.

BILL MOYERS: So explain this to the visitor from Mars. I mean, just this week, the Washington Post and ABC News had a poll showing that the American public supports the Medicare buy-in that-

ROBERT KUTTNER: Right.

BILL MOYERS: By a margin of some 30 points-

ROBERT KUTTNER: Right.

BILL MOYERS: And yet, it went down like a lead balloon.

ROBERT KUTTNER: Look, there are two ways, if you’re the President of the United States sizing up a situation like this that you can try and create reform. One is to say, well, the interest groups are so powerful that the only thing I can do is I can work with them and move the ball a few yards, get some incremental reform, hope it turns into something better. The other way you can do it is to try to rally the people against the special interests and play on the fact that the insurance industry, the drug industry, are not going to win any popularity contests with the American people. And you, as the president, be the champion of the people against the special interests. That’s the course that Obama’s chosen not to pursue.

MATT TAIBBI: And I think, you know, a lot of what the Democrats are doing, they don’t make sense if you look at it from an objective point of view, but if you look at it as a business strategy- if you look at the Democratic Party as a business, and their job is basically to raise campaign funds and to stay in power, what they do makes a lot of sense. They have a consistent strategy which involves negotiating a fine line between sentiment on the left and the interests of the industries that they’re out there to protect. And they’ve always, kind of, taken that fork in the road and gone right down the middle of the line. And they’re doing that with this health care bill and that’s- it’s consistent.

BILL MOYERS: If you were Republican, wouldn’t you feel right now that it’s going your way? I mean, the Democrats control the White House, they control Congress and the only thing they’ve been able to make happen this year is escalate the war in Afghanistan.

MATT TAIBBI: The Democrats are in exactly the same position that the Republicans were in once the Iraq War turned bad. All the Republicans have to do now is sit back and watch the Democrats make a disaster out of this health care effort. And they’re going to gain political capital whether they’re in the right or not. And I think it’s a very- it’s a terrible thing for the party.

BILL MOYERS: Some of your progressive readers and colleagues are going to take issue with you, of course, because there are progressive figures like John Podesta, of the Center for American Progress, Kevin Drum, and others who say, look, this bill has its real problems. It’s got some real toxic qualities to it. But it’s not as bad as Kuttner and Taibbi think. This is the Senate bill, it covers 30 million-plus more people, has subsidies for low-income families, spreads the risk, lowers some premium costs, creates some exchanges where people can shop for better coverage and prices. You know, don’t be too hard on it.

ROBERT KUTTNER: Well, my co-editor, Paul Starr in the editorial in the current issue of “The Prospect” takes exactly that position. Don’t be too hard on Obama, he inherited a really difficult situation and we’re making incremental progress. If we could’ve done better we would’ve. Paul and I disagree about that. I mean, I think one of the challenges of a president is to transform the reality rather than just work within its parameters. I think the other problem, frankly, is that those of us who consider ourselves progressives invested so much in this remarkable figure, Barack Obama. And we read our own hopes into him. We saw him as a potentially great president. We saw this as a potentially transformative moment, I certainly did, where he could’ve chosen to be the kind of president Roosevelt was. And it turns out that’s not who is characteralogically and that’s not how he chose to play the moment.

BILL MOYERS: Yes or no. If you were a senator, would you vote for this Senate health care bill?

MATT TAIBBI: No.

BILL MOYERS: Bob?

ROBERT KUTTNER: Yes.

BILL MOYERS: Why? You just said it’s designed to enhance the fortunes of the industry.

ROBERT KUTTNER: Well, it’s so far from what I think is necessary that I don’t think it’s a it’s a good bill. But I think if it goes down, just because of the optics of the situation and the way the Republicans have framed this as a make or break moment for President Obama, it will make it easier for the Republicans to take control of Congress in 2010. It will make Obama even more gun-shy about promoting reform. It will create even more political paralysis. It will embolden the republicans to block what this President is trying to do, some of which is good, at every turn. So I would hold my nose and vote for it.

MATT TAIBBI: My feeling on it is just looking more concretely at the health care problem, this is a bill that to me doesn’t address the two biggest problems with the health care crisis. One is the inefficiency and the bureaucracy and the paperwork which it doesn’t address at all. It doesn’t standardize anything. The other is price, which has now fallen by the wayside because there’s no going to be no public option that’s going to drive down prices. So, if a health care bill that doesn’t address those two problems, to me, is- and additionally is a big give-away to the insurance companies because it provides, you know- it creates this new customer base, it’s something I personally couldn’t vote for.

BILL MOYERS: Aren’t you saying that in order to save the Democratic President and the Democratic Party in 2010 and 2012 you have to have a really rotten health insurance bill?

ROBERT KUTTNER: Well, when you come down to one pivotal moment where a bill is before Congress and the administration has staked the entire presidency on this bill and you’re a progressive Democrat are you going to vote for it or not? Let me put it this way, if I were literally in the position that Joe Lieberman is in and it was up to me to determine whether this bill live or die, I would hold my nose and vote for it even though I have been a fierce critic of the path this administration has taken.

BILL MOYERS: But doesn’t that further the dysfunction and corruption of the system that you write so often about? I mean, you said a few weeks ago that our failed health care system won’t get fixed because it exists entirely within the confines of yet another failed system, the political entity known as the United States of America. You said we have a government that is not equipped to fix actual crisis. So if Bob votes for a bill that in his heart and in his mind he does not believe really helps the situation, isn’t he furthering a government that can’t solve the actual crisis?

MATT TAIBBI: I think so. I understand his point of view. But I my feeling is that if you vote for this bill and it passes, that’s your one shot at fixing a catastrophic and completely dysfunctional health care system for the next generation maybe. And I think it’s much better for the Democrats to lose on this issue and then have to regroup maybe eight years later, or six years later, and try again and do a better job the next time than to have it go through.

ROBERT KUTTNER: We’re going to have to do that anyway. In other words, these fights never end. We’re going to have to go back and make a fight another day. And hopefully, that won’t be 20 years from now. Hopefully, it will be six years from now. I think if this bill goes down it’s going to be even harder to get the kind of legislation we want because the Republicans are really going to be on the march. So, the Democrats are really between a rock and a hard place here, because if it loses, there’s one set of ways the Republicans gain. If it wins, there could be another set of ways that the Republicans gain. And this is all because of the deal that our friend, Rahm Emanuel struck back in the spring of passing a bill that’s a pro-industry bill that doesn’t really get at the structural problems.

MATT TAIBBI: But that’s the whole point. If the Democrats had used as a political strategy, we’re just going to do what the vast majority of our constituents want and pass a bill that was real, that had real teeth to it, that provided real benefits and actually fixed the problems then, you know, the political benefits that the Republicans could’ve had after the passage of the bill would’ve been very limited it seems to me. They could’ve only gone that one direction and criticized that you know, as a, you know, a socialist give-away. They couldn’t have criticized it as an industry give-away and ineffective.

ROBERT KUTTNER: Look, this is not Monday morning quarterbacking.

MATT TAIBBI: Right.

ROBERT KUTTNER: I mean, I was making the same criticisms that you were at the time. But now we’re down to a moment of final passage. And maybe my views are very ambivalent. But I would still vote for it because I think the defeat would be absolutely crushing in terms of the way the press played it, in terms of the way it would give encouragement to the far right in this country that we can block this guy if we just fight hard enough, if we just demagogue it.

MATT TAIBBI: But couldn’t that defeat turn into- that crushing defeat, couldn’t that be good for the Democrats? Couldn’t it teach them a lesson that, you know, maybe they have to pursue a different course in the future?

ROBERT KUTTNER: Well, you’re younger than I am.

BILL MOYERS: Matt, Senator Russ Feingold of Wisconsin, a very progressive member of Congress who’s been at this table wanted a public option. He says this health care bill appears to be the legislation that the president wanted in the first place.

MATT TAIBBI: Yeah, I mean, I think that makes sense. Yeah, it’s quite obvious that at the outset of this process, the White House didn’t want, for instance, single payer even on the table, you know, when Max Baucus had his initial discussions in committee on this bill, he invited something like 43 people to give their ideas about, you know, how the bill might look in the future. And he didn’t invite a single person from- who was an advocate of single payer health care. So that was never on the table. And it’s quite clear that the public option was looked at more as a political obstacle for the White House as opposed to something that they really wanted. They kind of used it as something to scare the Republicans and the moderates with. And that’s really all it ended up turning out to be.

BILL MOYERS: Yeah, if he had wanted a public option, if he’d wanted a Medicare buy-in, he could have tried to persuade the public and the Congress.

ROBERT KUTTNER: That’s what’s so galling. Yeah.

BILL MOYERS: Galling?

ROBERT KUTTNER: I mean, if you if you roll back the tape he could’ve played it so differently and he could’ve gotten a better bill. But we are where we are.

MATT TAIBBI: I mean, that’s what George Bush did when he wanted to get something unpopular passed or something that was iffy. I mean, he just took, you know, if there were any recalcitrant members, he just took him in the back room and beat him with a rubber hose until they changed their minds. I mean, he could’ve taken Joe Lieberman back there and said, look, if Connecticut ever wants a dime of highway money again, you’re going to have to play ball on this thing. That’s what the president does. I mean, the president has an enormous amount of power. The leaders, the majority leaders have an enormous amount of power. And if they want to pass something, they can do it. And especially when there’s a tremendous public mandate to get something like this passed. I just- the idea that they couldn’t do this was- is a fallacy.

BILL MOYERS: But members of Congress, they take the same contributions from the same insurance and real estate and drug industry. You look at the list of contributions to members of Congress- they are as saddled by obligations as the President, right?

ROBERT KUTTNER: Well, some are and some aren’t. I mean, the House, at least, just passed a bill that’s over $100 billion to extend unemployment, extend insurance benefits in the interim prevent lay-offs at the level of state and local government. Now, you have a group of Democrats, and this is the real pity of it. The Democrats are supposed to be the party of the average person. You have the so-called New Democrats who are really the party of Wall Street. And then you have the Blue Dogs who are fiscal conservatives. And if you look at what happened in Barney Frank’s committee to the financial reform bill, he’s a pretty good liberal, he ended up looking like a complete stooge for industry because in order to get a bill out of his own committee, he had to appease the 15 New Democrats, so-called, who were put on that committee mostly by Rahm Emanuel when he was the-

MATT TAIBBI: Sort of as a means to raise money.

ROBERT KUTTNER: As a means to raise money. So Melissa Bean, who’s a two-term Democratic Congressman ends up being the power broker because she controls 15 votes on Barney Frank’s committee of what she’s going to allow out of committee and what she isn’t.

BILL MOYERS: Why does she control 15 votes?

ROBERT KUTTNER: Because there are 15 New Dems, and this is the centrist caucus that particularly specializes in taking money from the financial industry.

BILL MOYERS: You call them centrist, don’t you mean corporate Democrats? I mean-

ROBERT KUTTNER: Corporate, yes, sorry. That’s too kind. They’re corporate Democrats who were put on that committee because Rahm Emanuel felt that there’s no better place than the House Financial Services Committee if you want to shake down Wall Street, to put it bluntly.

MATT TAIBBI: There’s a great example of Melissa Bean’s power was when the banks wanted to pass an amendment into the bill that would have prevented the states from making their own tougher financial regulatory rules. And Bean put through this amendment that basically said that the federal government would have purview over all these laws. And it passed. And this was the kind of thing that the banks wanted. They just go to Melissa Bean, she puts that amendment in there and it and it gets through.

BILL MOYERS: If you were Barack Obama in a city that’s overrun by money, how would you try to fix it?

ROBERT KUTTNER: I would go over the heads of the special interests to the people. I think there’s a lot of sullen apprehension, frustration out in the country. And I think the people are hungry for leadership. He’s not doing that sufficiently.

MATT TAIBBI: It’s absolutely a political winner for the president to hit Wall Street very hard and do all the things that he’s supposed to be doing right now. You know, that all the things that FDR did. If he did those things, if he remade Wall Street in the way that it needs to be remade, he would do nothing but gain popularity. And I think that’s the strategy he should have pursued.

BILL MOYERS: But what if by nature, that’s not what he wants to do? What if, by nature, he prefers to head the establishment, than to change it?

ROBERT KUTTNER: Then he runs the risk of being a failed president. And I do have the audacity to hope that he’s a smart enough, principled enough guy, that some time in his second year in office, he’s going to realize that he’s at a crossroads.

MATT TAIBBI: This isn’t a purely political problem. This isn’t just a question of how does Barack Obama get reelected. This is a serious problem. He has to put aside maybe his inclinations to think about what he can do to actually fix the country. And it’s, you know, desperately in need of fixing. And so, if he’s not that guy, he has to become that guy.

BILL MOYERS: You say it’s a serious problem. But isn’t from your own experiences, your long experience, your recent experience, isn’t this the fundamental question issue of why it’s not working, that there’s too much money canceling out other imperatives, other needs, other possibilities?

MATT TAIBBI: This is the fundamental question. Is there a way that we can have a politician get elected without the sponsorship of special interests? Can we get somebody in the White House who’s independent of the special interests that are in the way of real reform? And that’s the problem. We haven’t been able to have that happen. And we need to find a way to have that happen.

ROBERT KUTTNER: Right. And I think it’s not accidental that the last three Democratic presidents have been at best, corporate Democrats. And one hoped because of the depth of the crisis and the disgrace of deregulation and ideology, and the practical failure of the Bush presidency, this was a moment for a clean break. The fact that even at such a moment, even with an outsider president campaigning on change we can believe in, that Barack Obama turned out to be who he has been so far, is just so revealing in terms of the structural undertow that big money represents in this country. The question is: Is he capable of making a change — he’s only been in office less than a year — in time to redeem the moment, redeem his own promise?

BILL MOYERS: When you talk about corporate Democrats, exactly what do you mean?

ROBERT KUTTNER: I mean Democrats who are reluctant to cross swords with the corporate elite that has so much power in this country, whether it’s the Wall Street elite or whether it’s the health-industrial complex.

MATT TAIBBI: And I think, you know, back in the in the mid-’80s, after Walter Mondale lost, I think the Democrats made a conscious decision that they were no longer going to rely entirely on interest groups and unions to fund their campaigns, that they were going to try to close that funding gap with the Republicans. And they made a lot of concessions to the financial services industry to big corporations. And that’s who they are now. I mean–

ROBERT KUTTNER: That’s a little too harsh. Just the pity of it is there are probably 40 Democrats in the Senate who are not corporate Democrats. And there are probably 200 Democrats in the House who are not corporate Democrats. If we could push a little harder, we can take back our political system and have a democratically elected set of officials who are the kind of counterweight to big money that we need in order to get reform.

BILL MOYERS: So Democrats have their own obstructionists?

ROBERT KUTTNER: Yeah. You have Republican wall-to-wall obstructionism, which is partisan. And with a few exceptions, Republicans are totally in bed with big business. And you have just enough Democrats who are in bed with big business that it makes it much harder for progressive Democrats to follow the agenda that the country needs.

ROBERT KUTTNER: It just takes a lot of guts. It takes a lot of nerve. It takes a willingness to be somewhat radical.

BILL MOYERS: What you mean, radical?

ROBERT KUTTNER: I mean, confronting the elite that really has a hammerlock on politics in this country and articulating the needs of ordinary people. Now, in Washington, that’s considered radical.

BILL MOYERS: I was thinking about both of you Sunday night when President Obama was on 60 MINUTES and he said…

PRESIDENT OBAMA: I did not run for office to be helping out a bunch of fat cat bankers on Wall Street.

BILL MOYERS: Then on Monday afternoon, he had this photo opportunity in which he scolded the bankers and then they took it politely and graciously, which they could’ve done because the Hill at that very moment was swarming with banking lobbyists making sure that what the President wants doesn’t happen. I mean, what did you think as you watched him on 60 MINUTES or watched that press conference?

MATT TAIBBI: It seemed to me that it was a response to a lot of negative criticism that he’s been getting in the media lately, that they are probably looking at the President’s poll numbers from the last couple of weeks that have been remarkably low. And a lot of that has to do with some perceptions about his ties to Wall Street. And I think they felt a need to come out and make a strong statement against Wall Street, whether they’re actually do anything is, sort of, a different question. But I think that was my impression.

ROBERT KUTTNER: I was appalled. I was just appalled because think of the timing. On Thursday and Friday of last week, the same week when the president finally gives this tough talk on “60 Minutes,” a very feeble bill is working its way through the House of Representatives and crucial decisions are being made. And where is the President? I mean, there was an amendment to put some teeth back in the provision on credit default swaps and other kinds of derivatives. And that went down by a handful of votes. And to the extent that the Treasury and the White House was working that bill, at all, they were working the wrong side. There was a there was a provision to exempt foreign exchange derivatives from the teeth in the bill. That–

MATT TAIBBI: Foreign exchange derivatives are what caused the Long Term Capital Management crisis–

ROBERT KUTTNER: Sure.

MATT TAIBBI: A tremendous problem.

BILL MOYERS: Ten or 12 years ago, right?

MATT TAIBBI: Right.

ROBERT KUTTNER: Yeah. And, Treasury was lobbying in favor of that. There was a provision in the bill to exempt small corporations, not so small, I believe at $75 million and under, from a lot of the provisions of the Sarbanes-Oxley Act requiring honest accounting. Rahm Emanuel personally was lobbying in favor of that.

BILL MOYERS: So you had the Treasury and the White House chief of staff arguing on behalf of the banking industry?

ROBERT KUTTNER: Right. Right. And so here’s the president two days later giving a tough speech. Why wasn’t he working the phones to toughen up that bill and, you know, walk the talk?

BILL MOYERS: Get on the phone with the Chairman of the Committee and say, if you want that dam in your district, I want your vote on this.

ROBERT KUTTNER: Right.

MATT TAIBBI: Right.

BILL MOYERS: And that’s what you mean?

ROBERT KUTTNER: Yeah.

BILL MOYERS: You might praise them in public, but you threaten them in private, right?

MATT TAIBBI: Exactly, yeah. They have–

BILL MOYERS: Nobody’s afraid of Obama, you know. You go to Washington as you do, report from Washington. Nobody’s afraid of him.

MATT TAIBBI: Right.

ROBERT KUTTNER: This style is rather diffident. His style is rather hands-off. He’s very principled. But, if you’re going to be a politician, you have to get in there and mix it up. And to the extent that his surrogates are mixing it up, when it comes to reforming Wall Street, they’re mixing it up on the wrong side.

BILL MOYERS: Well, explain this to me. What is your own take on why he chose Geithner and Summers and people from Goldman Sachs and Wall Street to come and be his financial advisors, instead of choosing Stiglitz–

MATT TAIBBI: Volker–

BILL MOYERS: Some of his advisors from the progressive wing of the Democratic system?

MATT TAIBBI: Most people that I’ve talked to have taken one of two positions on this. One is that Obama was naïve, that he doesn’t know a whole about the financial services industry, and he felt the need to rely upon people who’d been there before, people who’ve had these jobs before, and you know, who have this expertise. And there’s another school of thought that look, he took more money from Wall Street than any other presidential candidate in history. Goldman Sachs was his number one private campaign contributor. And if you just look at the evidence, it’s just really business as usual. This is what the Democratic Party has done since the mid-’80s. They’ve relied heavily on the financial services industry to fund their campaigns. And it’s the quid pro quo. They gave a lot of money to help these guys run, and in return, they get the big jobs, you know, in the White House.

BILL MOYERS: But here’s how they repay him. This is on “The Huffington Post:” “Bank lobbyists launch call to action to crush financial reform. The American Bankers Association issued a call to action on Wednesday urging its lobbyist and member banks to make an all-out effort to crush regulatory reform in the Senate.” This is how they reward his own tolerance towards them, right?

ROBERT KUTTNER: Right. And you’ve got to play hardball against these guys now. I do not want to leave this show with your viewers thinking this has been just a council of despair. So will you allow me to play Pollyanna for 30 seconds? Because I think this guy is nothing if not a work in progress. He’s nothing if not a learner. And I think there is a chance. I don’t think I would bet my life on it but I think there’s a possibility that by the fall of 2010, looking down the barrel of a real election blowout, you could see him change course, if only for reasons of expediency, but hopefully for reasons of principle as well, if he feels that the public doesn’t have confidence that he is delivering the kind of recovery that the public needs. This is a guy who is a very smart, complicated man. And I think don’t speak too soon, for the wheel’s still in spin. I don’t want to totally give up.

MATT TAIBBI: Yeah. I mean, obviously, it’s too early to completely abandon hope that he’s going to turn things around. But I think that’s a belief that’s not really based on evidence. If you look at the evidence of how he’s behaved so far, and who he’s got, you know, working in the White House, and who he’s getting his money from, and how the party has behaved over the last couple of decades. You’re really basically relying upon the impression that he gives as a kind, decent, warm-hearted intellectual guy. That’s what the basis of that faith that there’s going to be this turnaround. It’s really not anything that’s actually concretely happened that would give you reason to think that.

ROBERT KUTTNER: The other thing that’s missing, if you compare him with Roosevelt or LBJ or Lincoln, the other thing that’s missing is a social movement. In all of these great periods of transformation, you had social movements doing a complicated dance with the president, where sometimes they were working with him, sometimes they were beating up on him. That certainly describes the civil rights movement and Lyndon Johnson. It describes the abolitionists and Lincoln. It describes the labor movement and Roosevelt. Where’s the movement?

BILL MOYERS: Coming down to the office this morning, the cab driver turned and said, “You see the newspaper this morning?” And he turns and hands me the NEW YORK POST. “It’s Wall Good: Wall Street Earnings Soar to $49 Billion in the First Three Quarters of the Year … Profitability has soared because revenues rose … Wall Street bonuses for employees in the city may be as much as 40 percent higher than in 2008.” What would you say to the President about this? Does he know?

ROBERT KUTTNER: I think, to some extent, the White House lives in an echo chamber. They do these public events that are intended to demonstrate that the president’s listening, that he’s feeling our pain. Congress gets a very bad rap. But I was invited to speak to the House Democrat caucus a couple a weeks ago. And they are furious. They can’t publicly embarrass their president, but they go home on weekends and they talk to their folks and they hear the individual stories of suffering. And they feel that certainly the Treasury, to some extent the White House, just doesn’t get it and the Republicans are going to end up with a narrative and the Tea Party folks, it’s the far right that is on the march when ordinary people need a champion.

BILL MOYERS: So, what are people to do?

ROBERT KUTTNER: I think there are there are things that are not too complex for people to understand. If the value of your home is going down the drain because the government’s not doing anything about an epidemic of foreclosures, that’s the kind of thing that people can talk about across a kitchen table. They do talk about it across the kitchen table. And you need more leadership like a Marcy Kaptur or a Maria Cantwell, elected officials who get it, who have not been bought and paid for by Wall Street stirring up people and turning this into a movement.

MATT TAIBBI: And that’s really where Barack Obama’s failings are the biggest. This is exactly where we need a president with the communication skills that he has. I mean, he’s probably the one person who could help all of America make sense of all this stuff. And he’s not doing it. I mean, he’s doing these photo ops, you know, earlier in the week, with a couple of bankers. It’s a kabuki dance to show that he’s against Wall Street. But he’s not explaining to people how all this stuff works. And that’s the problem.

BILL MOYERS: Are you a cynic after all your reporting this year?

MATT TAIBBI: No, not at all. I mean, I think on the contrary. I think cynicism is accepting all this as, you know, politics, as the way it is. I think we have to not accept what’s going on. And that’s not being cynical. That’s being helpful.

BILL MOYERS: But is it naïve to think that in a country of so many clashing interests, we might get better results from the political system than we’re getting right now?

ROBERT KUTTNER: I think there are periods of American history when the political system rises to the occasion. It certainly did with the civil rights movement. It certainly did in the 1930s. But there’s no guarantee that it’s going to come out the way it needs their come out. So I wouldn’t give up on the political system. I mean, you have to keep fighting and working to rebuild democracy. Democracy is the only possible counterweight to concentrated financial power. And ideally, that takes a great president rendezvousing with a social movement. One way or another, there is going to be a social movement. Because so many people are hurting, and so many people are feeling correctly that Wall Street is getting too much and Main Street is getting too little. And if it’s not a progressive social movement that articulates the frustration and the reform program, you know that the right wing is going to do it. And that, I think, is what ought to be scaring us silly.

MATT TAIBBI: We are starting to see signs of a little bit of a grassroots movement. I mean, the stuff, you know, people who are refusing to leave their homes after they’ve been foreclosed upon. There are little pockets of movements you know, groups that are organizing against foreclosures all across the country. And this is one small slice of the economic picture that where it’s quite clear what’s going on, and people can really understand the relationship that they have with the financial services industry. And I think if, you know, there it’s possible to imagine a movement coalescing around something like that.

BILL MOYERS: Matt Taibbi, Robert Kuttner, thank you for being with me on the Journal.

MATT TAIBBI: Thank you.

ROBERT KUTTNER: Thanks, Bill.

Barack H. Obama delivered his Nobel Lecture on 10 December 2009 at the Oslo City Hall, Norway. He was introduced by Thorbjørn Jagland, Chairman of the Norwegian Nobel Committee. The video can be viewed here. The transcript follows.

Reaching for the World that “Ought to Be”

Barack Obama

Your Majesties, Your Royal Highnesses, distinguished members of the Norwegian Nobel Committee, citizens of America, and citizens of the world:

I receive this honor with deep gratitude and great humility.  It is an award that speaks to our highest aspirations — that for all the cruelty and hardship of our world, we are not mere prisoners of fate.  Our actions matter, and can bend history in the direction of justice.

And yet I would be remiss if I did not acknowledge the considerable controversy that your generous decision has generated.  (Laughter.)  In part, this is because I am at the beginning, and not the end, of my labors on the world stage.  Compared to some of the giants of history who’ve received this prize — Schweitzer and King; Marshall and Mandela — my accomplishments are slight.  And then there are the men and women around the world who have been jailed and beaten in the pursuit of justice; those who toil in humanitarian organizations to relieve suffering; the unrecognized millions whose quiet acts of courage and compassion inspire even the most hardened cynics.  I cannot argue with those who find these men and women — some known, some obscure to all but those they help — to be far more deserving of this honor than I.

But perhaps the most profound issue surrounding my receipt of this prize is the fact that I am the Commander-in-Chief of the military of a nation in the midst of two wars.  One of these wars is winding down.  The other is a conflict that America did not seek; one in which we are joined by 42 other countries — including Norway — in an effort to defend ourselves and all nations from further attacks.

Still, we are at war, and I’m responsible for the deployment of thousands of young Americans to battle in a distant land.  Some will kill, and some will be killed.  And so I come here with an acute sense of the costs of armed conflict — filled with difficult questions about the relationship between war and peace, and our effort to replace one with the other.

Now these questions are not new.  War, in one form or another, appeared with the first man.  At the dawn of history, its morality was not questioned; it was simply a fact, like drought or disease — the manner in which tribes and then civilizations sought power and settled their differences.

And over time, as codes of law sought to control violence within groups, so did philosophers and clerics and statesmen seek to regulate the destructive power of war.  The concept of a “just war” emerged, suggesting that war is justified only when certain conditions were met:  if it is waged as a last resort or in self-defense; if the force used is proportional; and if, whenever possible, civilians are spared from violence.

Of course, we know that for most of history, this concept of “just war” was rarely observed.  The capacity of human beings to think up new ways to kill one another proved inexhaustible, as did our capacity to exempt from mercy those who look different or pray to a different God.  Wars between armies gave way to wars between nations — total wars in which the distinction between combatant and civilian became blurred.  In the span of 30 years, such carnage would twice engulf this continent.  And while it’s hard to conceive of a cause more just than the defeat of the Third Reich and the Axis powers, World War II was a conflict in which the total number of civilians who died exceeded the number of soldiers who perished.

In the wake of such destruction, and with the advent of the nuclear age, it became clear to victor and vanquished alike that the world needed institutions to prevent another world war.  And so, a quarter century after the United States Senate rejected the League of Nations — an idea for which Woodrow Wilson received this prize — America led the world in constructing an architecture to keep the peace:  a Marshall Plan and a United Nations, mechanisms to govern the waging of war, treaties to protect human rights, prevent genocide, restrict the most dangerous weapons.

In many ways, these efforts succeeded.  Yes, terrible wars have been fought, and atrocities committed.  But there has been no Third World War.  The Cold War ended with jubilant crowds dismantling a wall.  Commerce has stitched much of the world together.  Billions have been lifted from poverty.  The ideals of liberty and self-determination, equality and the rule of law have haltingly advanced.  We are the heirs of the fortitude and foresight of generations past, and it is a legacy for which my own country is rightfully proud.

And yet, a decade into a new century, this old architecture is buckling under the weight of new threats.  The world may no longer shudder at the prospect of war between two nuclear superpowers, but proliferation may increase the risk of catastrophe.  Terrorism has long been a tactic, but modern technology allows a few small men with outsized rage to murder innocents on a horrific scale.

Moreover, wars between nations have increasingly given way to wars within nations.  The resurgence of ethnic or sectarian conflicts; the growth of secessionist movements, insurgencies, and failed states — all these things have increasingly trapped civilians in unending chaos.  In today’s wars, many more civilians are killed than soldiers; the seeds of future conflict are sown, economies are wrecked, civil societies torn asunder, refugees amassed, children scarred.

I do not bring with me today a definitive solution to the problems of war.  What I do know is that meeting these challenges will require the same vision, hard work, and persistence of those men and women who acted so boldly decades ago.  And it will require us to think in new ways about the notions of just war and the imperatives of a just peace.

We must begin by acknowledging the hard truth:  We will not eradicate violent conflict in our lifetimes.  There will be times when nations — acting individually or in concert — will find the use of force not only necessary but morally justified.

I make this statement mindful of what Martin Luther King Jr. said in this same ceremony years ago:  “Violence never brings permanent peace.  It solves no social problem:  it merely creates new and more complicated ones.”  As someone who stands here as a direct consequence of Dr. King’s life work, I am living testimony to the moral force of non-violence.  I know there’s nothing weak — nothing passive — nothing naïve — in the creed and lives of Gandhi and King.

But as a head of state sworn to protect and defend my nation, I cannot be guided by their examples alone.  I face the world as it is, and cannot stand idle in the face of threats to the American people.  For make no mistake:  Evil does exist in the world.  A non-violent movement could not have halted Hitler’s armies.  Negotiations cannot convince al Qaeda’s leaders to lay down their arms.  To say that force may sometimes be necessary is not a call to cynicism — it is a recognition of history; the imperfections of man and the limits of reason.

I raise this point, I begin with this point because in many countries there is a deep ambivalence about military action today, no matter what the cause.  And at times, this is joined by a reflexive suspicion of America, the world’s sole military superpower.

But the world must remember that it was not simply international institutions — not just treaties and declarations — that brought stability to a post-World War II world.  Whatever mistakes we have made, the plain fact is this:  The United States of America has helped underwrite global security for more than six decades with the blood of our citizens and the strength of our arms.  The service and sacrifice of our men and women in uniform has promoted peace and prosperity from Germany to Korea, and enabled democracy to take hold in places like the Balkans.  We have borne this burden not because we seek to impose our will.  We have done so out of enlightened self-interest — because we seek a better future for our children and grandchildren, and we believe that their lives will be better if others’ children and grandchildren can live in freedom and prosperity.

So yes, the instruments of war do have a role to play in preserving the peace.  And yet this truth must coexist with another — that no matter how justified, war promises human tragedy.  The soldier’s courage and sacrifice is full of glory, expressing devotion to country, to cause, to comrades in arms.  But war itself is never glorious, and we must never trumpet it as such.

So part of our challenge is reconciling these two seemingly inreconcilable truths — that war is sometimes necessary, and war at some level is an expression of human folly.  Concretely, we must direct our effort to the task that President Kennedy called for long ago.  “Let us focus,” he said, “on a more practical, more attainable peace, based not on a sudden revolution in human nature but on a gradual evolution in human institutions.”  A gradual evolution of human institutions.

What might this evolution look like?  What might these practical steps be?

To begin with, I believe that all nations — strong and weak alike — must adhere to standards that govern the use of force.  I — like any head of state — reserve the right to act unilaterally if necessary to defend my nation.  Nevertheless, I am convinced that adhering to standards, international standards, strengthens those who do, and isolates and weakens those who don’t.

The world rallied around America after the 9/11 attacks, and continues to support our efforts in Afghanistan, because of the horror of those senseless attacks and the recognized principle of self-defense.  Likewise, the world recognized the need to confront Saddam Hussein when he invaded Kuwait — a consensus that sent a clear message to all about the cost of aggression.

Furthermore, America — in fact, no nation — can insist that others follow the rules of the road if we refuse to follow them ourselves.  For when we don’t, our actions appear arbitrary and undercut the legitimacy of future interventions, no matter how justified.

And this becomes particularly important when the purpose of military action extends beyond self-defense or the defense of one nation against an aggressor.  More and more, we all confront difficult questions about how to prevent the slaughter of civilians by their own government, or to stop a civil war whose violence and suffering can engulf an entire region.

I believe that force can be justified on humanitarian grounds, as it was in the Balkans, or in other places that have been scarred by war.  Inaction tears at our conscience and can lead to more costly intervention later.  That’s why all responsible nations must embrace the role that militaries with a clear mandate can play to keep the peace.

America’s commitment to global security will never waver.  But in a world in which threats are more diffuse, and missions more complex, America cannot act alone.  America alone cannot secure the peace.  This is true in Afghanistan.  This is true in failed states like Somalia, where terrorism and piracy is joined by famine and human suffering.  And sadly, it will continue to be true in unstable regions for years to come.

The leaders and soldiers of NATO countries, and other friends and allies, demonstrate this truth through the capacity and courage they’ve shown in Afghanistan.  But in many countries, there is a disconnect between the efforts of those who serve and the ambivalence of the broader public.  I understand why war is not popular, but I also know this:  The belief that peace is desirable is rarely enough to achieve it.  Peace requires responsibility.  Peace entails sacrifice.  That’s why NATO continues to be indispensable.  That’s why we must strengthen U.N. and regional peacekeeping, and not leave the task to a few countries.  That’s why we honor those who return home from peacekeeping and training abroad to Oslo and Rome; to Ottawa and Sydney; to Dhaka and Kigali — we honor them not as makers of war, but of wagers — but as wagers of peace.

Let me make one final point about the use of force.  Even as we make difficult decisions about going to war, we must also think clearly about how we fight it.  The Nobel Committee recognized this truth in awarding its first prize for peace to Henry Dunant — the founder of the Red Cross, and a driving force behind the Geneva Conventions.

Where force is necessary, we have a moral and strategic interest in binding ourselves to certain rules of conduct.  And even as we confront a vicious adversary that abides by no rules, I believe the United States of America must remain a standard bearer in the conduct of war.  That is what makes us different from those whom we fight.  That is a source of our strength.  That is why I prohibited torture.  That is why I ordered the prison at Guantanamo Bay closed.  And that is why I have reaffirmed America’s commitment to abide by the Geneva Conventions.  We lose ourselves when we compromise the very ideals that we fight to defend.  (Applause.)  And we honor — we honor those ideals by upholding them not when it’s easy, but when it is hard.

I have spoken at some length to the question that must weigh on our minds and our hearts as we choose to wage war.  But let me now turn to our effort to avoid such tragic choices, and speak of three ways that we can build a just and lasting peace.

First, in dealing with those nations that break rules and laws, I believe that we must develop alternatives to violence that are tough enough to actually change behavior — for if we want a lasting peace, then the words of the international community must mean something.  Those regimes that break the rules must be held accountable.  Sanctions must exact a real price.  Intransigence must be met with increased pressure — and such pressure exists only when the world stands together as one.

One urgent example is the effort to prevent the spread of nuclear weapons, and to seek a world without them.  In the middle of the last century, nations agreed to be bound by a treaty whose bargain is clear:  All will have access to peaceful nuclear power; those without nuclear weapons will forsake them; and those with nuclear weapons will work towards disarmament.  I am committed to upholding this treaty.  It is a centerpiece of my foreign policy.  And I’m working with President Medvedev to reduce America and Russia’s nuclear stockpiles.

But it is also incumbent upon all of us to insist that nations like Iran and North Korea do not game the system.  Those who claim to respect international law cannot avert their eyes when those laws are flouted.  Those who care for their own security cannot ignore the danger of an arms race in the Middle East or East Asia.  Those who seek peace cannot stand idly by as nations arm themselves for nuclear war.

The same principle applies to those who violate international laws by brutalizing their own people.  When there is genocide in Darfur, systematic rape in Congo, repression in Burma — there must be consequences.  Yes, there will be engagement; yes, there will be diplomacy — but there must be consequences when those things fail.  And the closer we stand together, the less likely we will be faced with the choice between armed intervention and complicity in oppression.

This brings me to a second point — the nature of the peace that we seek.  For peace is not merely the absence of visible conflict.  Only a just peace based on the inherent rights and dignity of every individual can truly be lasting.

It was this insight that drove drafters of the Universal Declaration of Human Rights after the Second World War.  In the wake of devastation, they recognized that if human rights are not protected, peace is a hollow promise.

And yet too often, these words are ignored.  For some countries, the failure to uphold human rights is excused by the false suggestion that these are somehow Western principles, foreign to local cultures or stages of a nation’s development.  And within America, there has long been a tension between those who describe themselves as realists or idealists — a tension that suggests a stark choice between the narrow pursuit of interests or an endless campaign to impose our values around the world.

I reject these choices.  I believe that peace is unstable where citizens are denied the right to speak freely or worship as they please; choose their own leaders or assemble without fear.  Pent-up grievances fester, and the suppression of tribal and religious identity can lead to violence.  We also know that the opposite is true.  Only when Europe became free did it finally find peace.  America has never fought a war against a democracy, and our closest friends are governments that protect the rights of their citizens.  No matter how callously defined, neither America’s interests — nor the world’s — are served by the denial of human aspirations.

So even as we respect the unique culture and traditions of different countries, America will always be a voice for those aspirations that are universal.  We will bear witness to the quiet dignity of reformers like Aung Sang Suu Kyi; to the bravery of Zimbabweans who cast their ballots in the face of beatings; to the hundreds of thousands who have marched silently through the streets of Iran.  It is telling that the leaders of these governments fear the aspirations of their own people more than the power of any other nation.  And it is the responsibility of all free people and free nations to make clear that these movements — these movements of hope and history — they have us on their side.

Let me also say this:  The promotion of human rights cannot be about exhortation alone.  At times, it must be coupled with painstaking diplomacy.  I know that engagement with repressive regimes lacks the satisfying purity of indignation.  But I also know that sanctions without outreach — condemnation without discussion — can carry forward only a crippling status quo.  No repressive regime can move down a new path unless it has the choice of an open door.

In light of the Cultural Revolution’s horrors, Nixon’s meeting with Mao appeared inexcusable — and yet it surely helped set China on a path where millions of its citizens have been lifted from poverty and connected to open societies.  Pope John Paul’s engagement with Poland created space not just for the Catholic Church, but for labor leaders like Lech Walesa.  Ronald Reagan’s efforts on arms control and embrace of perestroika not only improved relations with the Soviet Union, but empowered dissidents throughout Eastern Europe.  There’s no simple formula here.  But we must try as best we can to balance isolation and engagement, pressure and incentives, so that human rights and dignity are advanced over time.

Third, a just peace includes not only civil and political rights — it must encompass economic security and opportunity.  For true peace is not just freedom from fear, but freedom from want.

It is undoubtedly true that development rarely takes root without security; it is also true that security does not exist where human beings do not have access to enough food, or clean water, or the medicine and shelter they need to survive.  It does not exist where children can’t aspire to a decent education or a job that supports a family.  The absence of hope can rot a society from within.

And that’s why helping farmers feed their own people — or nations educate their children and care for the sick — is not mere charity.  It’s also why the world must come together to confront climate change.  There is little scientific dispute that if we do nothing, we will face more drought, more famine, more mass displacement — all of which will fuel more conflict for decades.  For this reason, it is not merely scientists and environmental activists who call for swift and forceful action — it’s military leaders in my own country and others who understand our common security hangs in the balance.

Agreements among nations.  Strong institutions.  Support for human rights.  Investments in development.  All these are vital ingredients in bringing about the evolution that President Kennedy spoke about.  And yet, I do not believe that we will have the will, the determination, the staying power, to complete this work without something more — and that’s the continued expansion of our moral imagination; an insistence that there’s something irreducible that we all share.

As the world grows smaller, you might think it would be easier for human beings to recognize how similar we are; to understand that we’re all basically seeking the same things; that we all hope for the chance to live out our lives with some measure of happiness and fulfillment for ourselves and our families.

And yet somehow, given the dizzying pace of globalization, the cultural leveling of modernity, it perhaps comes as no surprise that people fear the loss of what they cherish in their particular identities — their race, their tribe, and perhaps most powerfully their religion.  In some places, this fear has led to conflict.  At times, it even feels like we’re moving backwards.  We see it in the Middle East, as the conflict between Arabs and Jews seems to harden.  We see it in nations that are torn asunder by tribal lines.

And most dangerously, we see it in the way that religion is used to justify the murder of innocents by those who have distorted and defiled the great religion of Islam, and who attacked my country from Afghanistan.  These extremists are not the first to kill in the name of God; the cruelties of the Crusades are amply recorded.  But they remind us that no Holy War can ever be a just war.  For if you truly believe that you are carrying out divine will, then there is no need for restraint — no need to spare the pregnant mother, or the medic, or the Red Cross worker, or even a person of one’s own faith.  Such a warped view of religion is not just incompatible with the concept of peace, but I believe it’s incompatible with the very purpose of faith — for the one rule that lies at the heart of every major religion is that we do unto others as we would have them do unto us.

Adhering to this law of love has always been the core struggle of human nature.  For we are fallible.  We make mistakes, and fall victim to the temptations of pride, and power, and sometimes evil.  Even those of us with the best of intentions will at times fail to right the wrongs before us.

But we do not have to think that human nature is perfect for us to still believe that the human condition can be perfected.  We do not have to live in an idealized world to still reach for those ideals that will make it a better place.  The non-violence practiced by men like Gandhi and King may not have been practical or possible in every circumstance, but the love that they preached — their fundamental faith in human progress — that must always be the North Star that guides us on our journey.

For if we lose that faith — if we dismiss it as silly or naïve; if we divorce it from the decisions that we make on issues of war and peace — then we lose what’s best about humanity.  We lose our sense of possibility.  We lose our moral compass.

Like generations have before us, we must reject that future.  As Dr. King said at this occasion so many years ago, “I refuse to accept despair as the final response to the ambiguities of history.  I refuse to accept the idea that the ‘isness’ of man’s present condition makes him morally incapable of reaching up for the eternal ‘oughtness’ that forever confronts him.”

Let us reach for the world that ought to be — that spark of the divine that still stirs within each of our souls.  (Applause.)

Somewhere today, in the here and now, in the world as it is, a soldier sees he’s outgunned, but stands firm to keep the peace.  Somewhere today, in this world, a young protestor awaits the brutality of her government, but has the courage to march on.  Somewhere today, a mother facing punishing poverty still takes the time to teach her child, scrapes together what few coins she has to send that child to school — because she believes that a cruel world still has a place for that child’s dreams.

Let us live by their example.  We can acknowledge that oppression will always be with us, and still strive for justice.  We can admit the intractability of depravation, and still strive for dignity.  Clear-eyed, we can understand that there will be war, and still strive for peace.  We can do that — for that is the story of human progress; that’s the hope of all the world; and at this moment of challenge, that must be our work here on Earth. … Thank you very much. (Applause.)

This morning’s author considers why we Americans are having such a difficult time with accepting and adapting to our new reality.

Dreams Die Hard

James Howard Kunstler

In The Long Emergency (2005, Atlantic Monthly Press), I said that we ought to expect the federal government to become increasingly impotent and ineffectual – that this would be a hallmark of the times.  In fact, I said that any enterprise organized at the colossal scale would function poorly in years ahead, whether it was a government, a state university, a national chain retail company, or a giant midwestern farm.  It is characteristic of the compressive contraction our society faces that giant hypercomplex systems will wobble and fail. We should expect this.