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To be uncomfortable with Kissinger is, as [Lord] Palmerston might say, only natural. But to condemn him outright verges on sanctimony, if not delusion. Kissinger has, in fact, been quite moral—provided, of course, that you accept the Cold War assumptions of the age in which he operated.

In Defense of Henry Kissinger – Robert D. Kaplan – The Atlantic

In the summer of 2002, during the initial buildup to the invasion of Iraq, which he supported, Henry Kissinger told me he was nevertheless concerned about the lack of critical thinking and planning for the occupation of a Middle Eastern country where, as he put it, “normal politics have not been practiced for decades, and where new power struggles would therefore have to be very violent.” Thus is pessimism morally superior to misplaced optimism.

I have been a close friend of Henry Kissinger’s for some time, but my relationship with him as a historical figure began decades ago. When I was growing up, the received wisdom painted him as the ogre of Vietnam. Later, as I experienced firsthand the stubborn realities of the developing world, and came to understand the task that a liberal polity like the United States faced in protecting its interests, Kissinger took his place among the other political philosophers whose books I consulted to make sense of it all. In the 1980s, when I was traveling through Central Europe and the Balkans, I encountered A World Restored, Kissinger’s first book, published in 1957, about the diplomatic aftermath of the Napoleonic Wars. In that book, he laid out the significance of Austria as a “polyglot Empire [that] could never be part of a structure legitimized by nationalism,” and he offered a telling truth about Greece, where I had been living for most of the decade: whatever attraction the war for Greek independence had held for the literati of the 1820s, it was not born of “a revolution of middle-class origin to achieve political liberty,” he cautioned, “but a national movement with a religious basis.”

When policy makers disparage Kissinger in private, they tend to do so in a manner that reveals how much they measure themselves against him. The former secretary of state turns 90 this month. To mark his legacy, we need to begin in the 19th century.

In August of 1822, Britain’s radical intelligentsia openly rejoiced upon hearing the news of Robert Stewart’s suicide. Lord Byron, the Romantic poet and heroic adventurer, described Stewart, better known as Viscount Castlereagh, as a “cold-blooded, … placid miscreant.” Castlereagh, the British foreign secretary from 1812 to 1822, had helped organize the military coalition that defeated Napoleon and afterward helped negotiate a peace settlement that kept Europe free of large-scale violence for decades. But because the settlement restored the Bourbon dynasty in France, while providing the forces of Liberalism little reward for their efforts, Castlereagh’s accomplishment lacked any idealistic element, without which the radicals could not be mollified. Of course, this very lack of idealism, by safeguarding the aristocratic order, provided various sovereigns with the only point on which they could unite against Napoleon and establish a continent-wide peace—a peace, it should be noted, that helped Britain emerge as the dominant world power before the close of the 19th century.

One person who did not rejoice at Castlereagh’s death was Henry John Temple, the future British foreign secretary, better known as Lord Palmerston. “There could not have been a greater loss to the Government,” Palmerston declared, “and few greater to the country.” Palmerston himself would soon join the battle against the U.K.’s radical intellectuals, who in the early 1820s demanded that Britain go to war to help democracy take root in Spain, even though no vital British interest had been threatened—and even though this same intellectual class had at times shown only limited enthusiasm for the war against Napoleon, during which Britain’s very survival seemed at stake.

In a career spanning more than two decades in the Foreign Office, Palmerston was fated on occasion to be just as hated as Castlereagh. Like Castlereagh, Palmerston had only one immutable principle in foreign policy: British self-interest, synonymous with the preservation of the worldwide balance of power. But Palmerston also had clear liberal instincts. Because Britain’s was a constitutional government, he knew that the country’s self-interest lay in promoting constitutional governments abroad. He showed sympathy for the 1848 revolutions on the Continent, and consequently was beloved by the liberals. Still, Palmerston understood that his liberal internationalism, if one could call it that, was only a general principle—a principle that, given the variety of situations around the world, required constant bending. Thus, Palmerston encouraged liberalism in Germany in the 1830s but thwarted it there in the 1840s. He supported constitutionalism in Portugal, but opposed it in Serbia and Mexico. He supported any tribal chieftain who extended British India’s sphere of influence northwest into Afghanistan, toward Russia, and opposed any who extended Russia’s sphere of influence southeast, toward India—even as he cooperated with Russia in Persia.

Realizing that many people—and radicals in particular—tended to confuse foreign policy with their own private theology, Palmerston may have considered the moral condemnation that greeted him in some quarters as natural. (John Bright, the Liberal statesman, would later describe Palmerston’s tenure as “one long crime.”)

Yet without his flexible approach to the world, Palmerston could never have navigated the shoals of one foreign-policy crisis after another, helping Britain—despite the catastrophe of the Indian Mutiny in 1857—manage the transition from its ad hoc imperialism of the first half of the 19th century to the formal, steam-driven empire built on science and trade of the second half.

Decades passed before Palmerston’s accomplishments as arguably Britain’s greatest diplomat became fully apparent. In his own day, Palmerston labored hard to preserve the status quo, even as he sincerely desired a better world. “He wanted to prevent any power from becoming so strong that it might threaten Britain,” one of his biographers, Jasper Ridley, wrote. “To prevent the outbreak of major wars in which Britain might be involved and weakened,” Palmerston’s foreign policy “was therefore a series of tactical improvisations, which he carried out with great skill.”

Like Palmerston, Henry Kissinger believes that in difficult, uncertain times—times like the 1960s and ’70s in America, when the nation’s vulnerabilities appeared to outweigh its opportunities—the preservation of the status quo should constitute the highest morality. Other, luckier political leaders might later discover opportunities to encourage liberalism where before there had been none. The trick is to maintain one’s power undiminished until that moment.

Ensuring a nation’s survival sometimes leaves tragically little room for private morality. Discovering the inapplicability of Judeo-Christian morality in certain circumstances involving affairs of state can be searing. The rare individuals who have recognized the necessity of violating such morality, acted accordingly, and taken responsibility for their actions are among the most necessary leaders for their countries, even as they have caused great unease among generations of well-meaning intellectuals who, free of the burden of real-world bureaucratic responsibility, make choices in the abstract and treat morality as an inflexible absolute.

Fernando Pessoa, the early-20th-century Portuguese poet and existentialist writer, observed that if the strategist “thought of the darkness he cast on a thousand homes and the pain he caused in three thousand hearts,” he would be “unable to act,” and then there would be no one to save civilization from its enemies. Because many artists and intellectuals cannot accept this horrible but necessary truth, their work, Pessoa said, “serves as an outlet for the sensitivity [that] action had to leave behind.” That is ultimately why Henry Kissinger is despised in some quarters, much as Castlereagh and Palmerston were.

To be uncomfortable with Kissinger is, as Palmerston might say, only natural. But to condemn him outright verges on sanctimony, if not delusion. Kissinger has, in fact, been quite moral—provided, of course, that you accept the Cold War assumptions of the age in which he operated.

Because of the triumphalist manner in which the Cold War suddenly and unexpectedly ended, many have since viewed the West’s victory as a foregone conclusion, and therefore have tended to see the tough measures that Kissinger and others occasionally took as unwarranted. But for those in the midst of fighting the Cold War—who worked in the national-security apparatus during the long, dreary decades when nuclear confrontation seemed abundantly possible—its end was hardly foreseeable.

People forget what Eastern Europe was like during the Cold War, especially prior to the 1980s: the combination of secret-police terror and regime-induced poverty gave the impression of a vast, dimly lit prison yard. What kept that prison yard from expanding was mainly the projection of American power, in the form of military divisions armed with nuclear weapons. That such weapons were never used did not mean they were unnecessary. Quite the opposite, in fact: the men who planned Armageddon, far from being the Dr. Strangeloves satirized by Hollywood, were precisely the people who kept the peace.Many Baby Boomers, who lived through the Cold War but who have no personal memory of World War II, artificially separate these two conflicts. But for Kissinger, a Holocaust refugee and U.S. Army intelligence officer in occupied Germany; for General Creighton Abrams, a tank commander under George Patton in World War II and the commander of American forces in Vietnam from 1968 onward; and for General Maxwell Taylor, who parachuted into Nazi-occupied France and was later the U.S. ambassador to South Vietnam, the Cold War was a continuation of the Second World War.

Beyond Eastern Europe, revolutionary nihilists were attempting to make more Cubas in Latin America, while a Communist regime in China killed at least 20 million of its own citizens through the collectivization program known as the Great Leap Forward. Meanwhile, the North Vietnamese Communists—as ruthless a group of people as the 20th century produced—murdered perhaps tens of thousands of their own citizens before the first American troops arrived in Vietnam. People forget that it was, in part, an idealistic sense of mission that helped draw us into that conflict—the same well of idealism that helped us fight World War II and that motivated our interventions in the Balkans in the 1990s. Those who fervently supported intervention in Rwanda and the former Yugoslavia yet fail to comprehend the similar logic that led us into Vietnam are bereft of historical memory.

In Vietnam, America’s idealism collided head-on with the military limitations imposed by a difficult geography. This destroyed the political consensus in the United States about how the Cold War should be waged. Reviewing Kissinger’s book Ending the Vietnam War (2003), the historian and journalist Evan Thomas implied that the essence of Kissinger’s tragedy was that he was perennially trying to gain membership in a club that no longer existed. That club was “the Establishment,” a term that began to go out of fashion during the nation’s Vietnam trauma. The Establishment comprised all the great and prestigious personages of business and foreign policy—all male, all Protestant, men like John J. McCloy and Charles Bohlen—whose influence and pragmatism bridged the gap between the Republican and Democratic Parties at a time when Communism was the enemy, just as Fascism had recently been. Kissinger, a Jew who had escaped the Holocaust, was perhaps the club’s most brilliant protégé. His fate was to step into the vortex of foreign policy just as the Establishment was breaking up over how to extricate the country from a war that the Establishment itself had helped lead the country into.

Kissinger became President Richard Nixon’s national-security adviser in January of 1969, and his secretary of state in 1973. As a Harvard professor and “Rockefeller Republican,” Kissinger was distrusted by the anti-intellectual Republican right wing. (Meanwhile, the Democratic Party was slipping into the de facto quasi-isolationism that would soon be associated with George McGovern’s “Come Home, America” slogan.) Nixon and Kissinger inherited from President Lyndon Johnson a situation in which almost 550,000 American troops, as well as their South Vietnamese allies (at least 1 million soldiers all told), were fighting a similar number of North Vietnamese troops and guerrillas. On the home front, demonstrators—drawn in large part from the nation’s economic and educational elite—were demanding that the United States withdraw all its troops virtually immediately.

Some prominent American protesters even visited North Vietnam to publicly express solidarity with the enemy. The Communists, in turn, seduced foreign supporters with soothing assurances of Hanoi’s willingness to compromise. When Charles de Gaulle was negotiating a withdrawal of French troops from Algeria in the late 1950s and early 1960s (as Kissinger records in Ending the Vietnam War), the Algerians knew that if they did not strike a deal with him, his replacement would certainly be more hard-line. But the North Vietnamese probably figured the opposite—that because of the rise of McGovernism in the Democratic Party, Nixon and Kissinger were all that stood in the way of American surrender. Thus, Nixon and Kissinger’s negotiating position was infinitely more difficult than de Gaulle’s had been.

Kissinger found himself caught between liberals who essentially wanted to capitulate rather than negotiate, and conservatives ambivalent about the war who believed that serious negotiations with China and the Soviet Union were tantamount to selling out. Both positions were fantasies that only those out of power could indulge.

Further complicating Kissinger’s problem was the paramount assumption of the age—that the Cold War would have no end, and therefore regimes like those in China and the Soviet Union would have to be dealt with indefinitely. Hitler, a fiery revolutionary, had expended himself after 12 bloody years. But Mao Zedong and Leonid Brezhnev oversaw dull, plodding machines of repression that were in power for decades—a quarter century in Mao’s case, and more than half a century in Brezhnev’s. Neither regime showed any sign of collapse. Treating Communist China and the Soviet Union as legitimate states, even while Kissinger played China off against the Soviet Union and negotiated nuclear-arms agreements with the latter, did not constitute a sellout, as some conservatives alleged. It was, rather, a recognition of America’s “eternal and perpetual interests,” to quote Palmerston, refitted to an age threatened by thermonuclear war.

In the face of liberal capitulation, a conservative flight from reality, and North Vietnam’s relentlessness, Kissinger’s task was to withdraw from the region in a way that did not betray America’s South Vietnamese allies. In doing so, he sought to preserve America’s powerful reputation, which was crucial for dealing with China and the Soviet Union, as well as the nations of the Middle East and Latin America. Sir Michael Howard, the eminent British war historian, notes that the balance-of-power ethos to which Kissinger subscribes represents the middle ground between “optimistic American ecumenicism” (the basis for many global-disarmament movements) and the “war culture” of the American Wild West (in recent times associated with President George W. Bush). This ethos was never cynical or amoral, as the post–Cold War generation has tended to assert. Rather, it evinced a timeless and enlightened principle of statesmanship.

Within two years, Nixon and Kissinger reduced the number of American troops in Vietnam to 156,800; the last ground ­combat forces left three and a half years after Nixon took office. It had taken Charles de Gaulle longer than that to end France’s involvement in Algeria. (Frustration over the failure to withdraw even quicker rests on two difficult assumptions: that the impossibility of preserving South Vietnam in any form was accepted in 1969, and that the North Vietnamese had always been negotiating in good faith. Still, the continuation of the war past 1969 will forever be Nixon’s and Kissinger’s original sin.)

That successful troop withdrawal was facilitated by a bombing incursion into Cambodia—primarily into areas replete with North Vietnamese military redoubts and small civilian populations, over which the Cambodian government had little control. The bombing, called “secret” by the media, was public knowledge during 90 percent of the time it was carried out, wrote Samuel Huntington, the late Harvard professor who served on President Jimmy Carter’s National Security Council. The early secrecy, he noted, was to avoid embarrassing Cambodia’s Prince Norodom Sihanouk and complicating peace talks with the North Vietnamese.

The troop withdrawals were also facilitated by aerial bombardments of North Vietnam. Victor Davis Hanson, the neoconservative historian, writes that, “far from being ineffective and indiscriminate,” as many critics of the Nixon­-Kissinger war effort later claimed, the Christmas bombings of December 1972 in particular “brought the communists back to the peace table through its destruction of just a few key installations.” Hanson may be a neoconservative, but his view is hardly a radical reinterpretation of history; in fact, he is simply reading the news accounts of the era. Soon after the Christmas bombings, Malcolm W. Browne of The New York Times found the damage to have been “grossly overstated by North Vietnamese propaganda.” Peter Ward, a reporter for The Baltimore Sun, wrote, “Evidence on the ground disproves charges of indiscriminate bombing. Several bomb loads obviously went astray into civilian residential areas, but damage there is minor, compared to the total destruction of selected targets.”

The ritualistic vehemence with which many have condemned the bombings of North Vietnam, the incursion into Cambodia, and other events betrays, in certain cases, an ignorance of the facts and of the context that informed America’s difficult decisions during Vietnam.

The troop withdrawals that Nixon and Kissinger engineered, while faster than de Gaulle’s had been from Algeria, were gradual enough to prevent complete American humiliation. This preservation of America’s global standing enabled the president and the secretary of state to manage a historic reconciliation with China, which helped provide the requisite leverage for a landmark strategic arms pact with the Soviet Union—even as, in 1970, Nixon and Kissinger’s threats to Moscow helped stop Syrian tanks from crossing farther into Jordan and toppling King Hussein. At a time when defeatism reigned, Kissinger improvised in a way that would have impressed Palmerston.

Yes, Kissinger’s record is marked by nasty tactical miscalculations—mistakes that have spawned whole libraries of books. But the notion that the Nixon administration might have withdrawn more than 500,000 American troops from Vietnam within a few months in 1969 is problematic, especially when one considers the complexities that smaller and more gradual withdrawals in Bosnia, Iraq, and Afghanistan later imposed on military planners. (And that’s leaving aside the diplomatic and strategic fallout beyond Southeast Asia that America’s sudden and complete betrayal of a longtime ally would have generated.)

Despite the North Vietnamese invasion of eastern Cambodia in 1970, the U.S. Congress substantially cut aid between 1971 and 1974 to the Lon Nol regime, which had replaced Prince Sihanouk’s, and also barred the U.S. Air Force from helping Lon Nol fight against the Khmer Rouge. Future historians will consider those actions more instrumental in the 1975 Khmer Rouge takeover of Cambodia than Nixon’s bombing of sparsely populated regions of Cambodia six years earlier.

When Saigon fell to the Communists, in April of 1975, it was after a heavily Democratic Congress drastically cut aid to the South Vietnamese. The regime might not have survived even if Congress had not cut aid so severely. But that cutoff, one should recall, was not merely a statement about South Vietnam’s hopelessness; it was a consequence of Watergate, in which Nixon eviscerated his own influence in the capital, and seriously undermined Gerald Ford’s incoming administration. Kissinger’s own words in Ending the Vietnam War deserve to echo through the ages:

None of us could imagine that a collapse of presidential authority would follow the expected sweeping electoral victory [of Nixon in 1972]. We were convinced that we were working on an agreement that could be sustained by our South Vietnamese allies with American help against an all-­out invasion. Protesters could speak of Vietnam in terms of the excesses of an aberrant society, but when my colleagues and I thought of Vietnam, it was in terms of dedicated men and women—soldiers and Foreign Service officers—who had struggled and suffered there and of our Vietnamese associates now condemned to face an uncertain but surely painful fate. These Americans had honestly believed that they were defending the cause of freedom against a brutal enemy in treacherous jungles and distant rice paddies. Vilified by the media, assailed in Congress, and ridiculed by the protest movement, they had sustained America’s idealistic tradition, risking their lives and expending their youth on a struggle that American leadership groups had initiated, then abandoned, and finally disdained.

Kissinger’s diplomatic achievements reached far beyond Southeast Asia. Between 1973 and 1975, Kissinger, serving Nixon and then Gerald Ford, steered the Yom Kippur War toward a stalemate that was convenient for American interests, and then brokered agreements between Israel and its Arab adversaries for a separation of forces. Those deals allowed Washington to reestablish diplomatic relations with Egypt and Syria for the first time since their rupture following the Six ­Day War in 1967. The agreements also established the context for the Egyptian-­Israeli peace treaty of 1979, and helped stabilize a modus vivendi between Israel and Syria that has lasted well past the turn of the 21st century.

In the fall of 1973, with Chile dissolving into chaos and open to the Soviet bloc’s infiltration as a result of Salvador Allende’s anarchic and incompetent rule, Nixon and Kissinger encouraged a military coup led by General Augusto Pinochet, during which thousands of innocent people were killed. Their cold moral logic was that a right-wing regime of any kind would ultimately be better for Chile and for Latin America than a leftist regime of any kind—and would also be in the best interests of the United States. They were right—though at a perhaps intolerable cost.

While much of the rest of Latin America dithered with socialist experiments, in the first seven years of Pinochet’s regime, the number of state companies in Chile went from 500 to 25—a shift that helped lead to the creation of more than 1 million jobs and the reduction of the poverty rate from roughly one-­third of the population to as low as one-tenth. The infant mortality rate also shrank, from 78 deaths per 1,000 births to 18. The Chilean social and economic miracle has become a paradigm throughout the developing world, and in the ex­-Communist world in particular. Still, no amount of economic and social gain justifies almost two decades of systematic torture perpetrated against tens of thousands of victims in more than 1,000 detention centers.

But real history is not the trumpeting of ugly facts untempered by historical and philosophical context—the stuff of much investigative journalism. Real history is built on constant comparison with other epochs and other parts of the world. It is particularly useful, therefore, to compare the records of the Ford and Carter administrations in the Horn of Africa, and especially in Ethiopia—a country that in the 1970s was more than three times as populous as Pinochet’s Chile.

In his later years, Kissinger has not been able to travel to a number of countries where legal threats regarding his actions in the 1970s in Latin America hang over his head. Yet in those same countries, Jimmy Carter is regarded almost as a saint. Let’s consider how Carter’s morality stacks up against Kissinger’s in the case of Ethiopia, which, like Angola, Nicaragua, and Afghanistan, was among the dominoes that became increasingly unstable and then fell in the months and years following Saigon’s collapse, partly disproving another myth of the Vietnam antiwar protest movement—that the domino theory was wrong.

As I’ve written elsewhere, including in my 1988 book, Surrender or Starve, the left-leaning Ethiopian Dergue and its ascetic, pitiless new leader, Mengistu Haile Mariam, had risen to power while the U.S. was preoccupied with Watergate and the fall of South Vietnam. Kissinger, now President Ford’s secretary of state, tried to retain influence in Ethiopia by continuing to provide some military assistance to Addis Ababa. Had the United States given up all its leverage in Ethiopia, the country might have moved to the next stage and become a Soviet satellite, with disastrous human-­rights consequences for its entire population.

Ford and Kissinger were replaced in January of 1977 by Jimmy Carter and his secretary of state, Cyrus Vance, who wanted a policy that was both more attuned to and less heavy-handed toward sub-Saharan Africa. In the Horn of Africa, this translated immediately into a Cold War disadvantage for America, because the Soviets—spurred on by the fall of South Vietnam—were becoming more belligerent, and more willing to expend resources, than ever.

With Ethiopia torn apart by revolutionary turmoil, the Soviets used their Somali clients as a lever against Addis Ababa. Somalia then was a country of only 3 million nomads, but Ethiopia had an urbanized population 10 times that size: excellent provender for the mechanized African satellite that became Leonid Brezhnev’s supreme objective. The Soviets, while threatening Ethiopia by supplying its rival with weapons, were also offering it military aid—the classic carrot-­and-­stick strategy. Yet partly because of the M-­60 tanks and F­-5 warplanes that Mengistu was still—largely thanks to Kissinger—receiving from the United States, the Ethiopian leader was hesitant about undertaking the disruptive task of switching munitions suppliers for an entire army.

In the spring of 1977, Carter cut off arms deliveries to Ethiopia because of its human-rights record. The Soviets dispatched East German security police to Addis Ababa to help Mengistu consolidate his regime, and invited the Ethiopian ruler to Moscow for a week-long state visit. Then Cuban advisers visited Ethiopia, even while tanks and other equipment arrived from pro-Soviet South Yemen. In the following months, with the help of the East Germans, the Dergue gunned down hundreds of Ethiopian teenagers in the streets in what came to be known as the “Red Terror.”

Still, all was not lost—at least not yet. The Ethiopian Revolution, leftist as it was, showed relatively few overt signs of anti-­Americanism. Israel’s new prime minister, Menachem Begin, in an attempt to save Ethiopian Jews, beseeched Carter not to close the door completely on Ethiopia and to give Mengistu some military assistance against the Somali advance.

But Begin’s plea went unheeded. The partial result of Carter’s in­ action was that Ethiopia went from being yet another left-leaning regime to a full-­fledged Marxist state, in which hundreds of thousands of people died in collectivization and “villagization” schemes—to say nothing of the hundreds of thousands who died in famines that were as much a consequence of made-­in-­Moscow agricultural policies as they were of drought.

Ethiopians should have been so lucky as to have had a Pinochet.

The link between Carter’s decision not to play Kissingerian power politics in the Horn of Africa and the mass deaths that followed in Ethiopia is more direct than the link between Nixon’s incursion into a rural area of Cambodia and the Khmer Rouge takeover six years later.

In the late 19th century, Lord Palmerston was still a controversial figure. By the 20th, he was considered by many to have been one of Britain’s greatest foreign ministers. Kissinger’s reputation will follow a similar path. Of all the memoirs written by former American secretaries of state and national­-security advisers during the past few decades, his are certainly the most vast and the most intellectually stimulating, revealing the elaborate historical and philosophical milieu that surround difficult foreign-­policy decisions. Kissinger will have the final say precisely because he writes so much better for a general audience than do most of his critics. Mere exposé often has a shorter shelf life than the work of a statesman aware of his own tragic circumstances and able to connect them to a larger pattern of events. A colleague of mine with experience in government once noted that, as a European-­style realist, Kissinger has thought more about morality and ethics than most self­-styled moralists. Realism is about the ultimate moral ambition in foreign policy: the avoidance of war through a favorable balance of power.

Aside from the successful interventions in the Balkans, the greatest humanitarian gesture in my own lifetime was President Richard Nixon’s trip to the People’s Republic of China in 1972, engineered by Kissinger. By dropping the notion that Taiwan was the real China, by giving China protection against the Soviet Union, and by providing assurances against an economically resurgent Japan, the two men helped place China in a position to devote itself to peaceful economic development; China’s economic rise, facilitated by Deng Xiaoping, would lift much of Asia out of poverty. And as more than 1 billion people in the Far East saw a dramatic improvement in living standards, personal freedom effloresced.

Pundits chastised Kissinger for saying, in 1973, that Jewish emi­ gration from the Soviet Union was “not an American concern.” But as J. J. Goldberg of The Jewish Daily Forward was careful to note (even while being very critical of Kissinger’s cynicism on the subject), “Emigration rose dramatically under Kissinger’s detente policy”— but “plummeted” after the 1974 passage of the Jackson­-Vanik amendment, which made an open emigration policy a precondition for normal U.S.­Soviet trade relations; aggrieved that the Americans would presume to dictate their emigration policies, the Soviets began authorizing fewer exit visas. In other words, Kissinger’s realism was more effective than the humanitarianism of Jewish groups in addressing a human­-rights concern.

Kissinger is a Jewish intellectual who recognizes a singular unappealing truth: that the Republican Party, its strains of anti-Semitism in certain periods notwithstanding, was better able to protect America than the Democratic Party of his era, because the Republicans better understood and, in fact, relished the projection of American power at a juncture in the Cold War when the Democrats were undermined by defeatism and quasi-­isolationism. (That Kissinger-­style realism is now more popular in Barack Obama’s White House than among the GOP indicates how far today’s Republicans have drifted from their core values.)

But unlike his fellow Republicans of the Cold War era—dull and practical men of business, blissfully unaware of what the prestigious intellectual journals of opinion had to say about them—Kissinger has always been painfully conscious of the de­ gree to which he is loathed. He made life-­and-death decisions that affected millions, entailing many messy moral compromises. Had it not been for the tough decisions Nixon, Ford, and Kissinger made, the United States might not have withstood the damage caused by Carter’s bouts of moralistic ineptitude; nor would Ronald Reagan have had the luxury of his successfully executed Wilsonianism. Henry Kissinger’s classical realism—as expressed in both his books and his statecraft—is emotionally unsatisfying but analytically timeless. The degree to which Republicans can recover his sensibility in foreign policy will help determine their own prospects for regaining power.

Read the article online here: In Defense of Henry Kissinger – Robert D. Kaplan – The Atlantic

We’re All State Capitalists Now

If there is one issue on which the rival candidates for the U.S. presidency agree, it’s that America’s global leadership will endure. Mitt Romney insists it is not a “post-American century,” while Barack Obama declared in his State of the Union address that “anyone who tells you otherwise, anyone who tells you that America is in decline or that our influence has waned, doesn’t know what they’re talking about.”
They must enjoy this kind of chest-beating in Beijing.
That a resurgent China poses a challenge to American power — especially in the Asia-Pacific region — has been clear for some time to those who know what they’re talking about. The real question is whether the United States has a credible response. Should it apply some version of the “containment theory” that the late George Kennan recommended for dealing with the Soviet challenge after 1945? Or something more subtle, like the “co-evolution” suggested by former Secretary of State Henry Kissinger?
Leave aside the military and diplomatic calculus and consider only the economic challenge China poses to the United States. This is not just a matter of scale, though it is no small matter that, according to the IMF, China’s GDP will overtake that of the United States within four years on the basis of purchasing power parity. Nor is it only about the pace of China’s growth, though any Asian exporter forced to choose between China and America would be inclined to choose the former; their trade with China is growing far more rapidly than trade with the United States.
No, according to some commentators, the contest between the two Asian superpowers is also fundamentally a contest between economic models: market capitalism vs. state capitalism. Speaking at the World Economic Forum in Davos this January, David Rubenstein of the Carlyle Group expressed a widely held view that the Chinese model of state capitalism is pulling ahead of the U.S. market model. “We’ve got to work through these problems,” Rubenstein said. “If we don’t do [so], in three or four years … the game will be over for the type of capitalism that many of us have lived through and thought was the best type.” I think this view is dead wrong. But it’s interesting to see why so many influential people now subscribe to it.
Market capitalism has certainly had a rough five years. Remember the Washington Consensus? That was the to-do list of 10 economic policies designed to Americanize emerging markets back in the 1990s. The U.S. government and international financial institutions urged countries to impose fiscal discipline and reduce or eliminate budget deficits, broaden the tax base and lower tax rates, allow the market to set interest and exchange rates, and liberalize trade and capital flows. When Asian economies were hit by the 1997-1998 financial crisis, American critics were quick to bemoan the defects of “crony capitalism” in the region, and they appeared to have economic history on their side.
Yet today, in the aftermath of the biggest U.S. financial crisis since the Great Depression, the world looks very different. Not only did the 2008-2009 meltdown of financial markets seem to expose the fundamental fragility of the capitalist system, but China’s apparent ability to withstand the reverberations of Wall Street’s implosion also suggested the possibility of a new “Beijing Consensus” based on central planning and state control of volatile market forces.
In his book The End of the Free Market, the Eurasia Group’s Ian Bremmer argues that authoritarian governments all over the world have “invented something new: state capitalism”:

In this system, governments use various kinds of state-owned companies to manage the exploitation of resources that they consider the state’s crown jewels and to create and maintain large numbers of jobs. They use select privately owned companies to dominate certain economic sectors. They use so-called sovereign wealth funds to invest their extra cash in ways that maximize the state’s profits. In all three cases, the state is using markets to create wealth that can be directed as political officials see fit. And in all three cases, the ultimate motive is not economic (maximizing growth) but political (maximizing the state’s power and the leadership’s chances of survival). This is a form of capitalism but one in which the state acts as the dominant economic player and uses markets primarily for political gain.

For Bremmer, state capitalism poses a grave “threat” not only to the free market model, but also to democracy in the developing world.
Although applicable to states all over the globe, at root this is an argument about China. Bremmer himself writes that “China holds the key.” But is it in fact correct to ascribe China’s success to the state rather than the market? The answer depends on where you go in China. In Shanghai or Chongqing, for example, the central government does indeed loom very large. In Wenzhou, by comparison, the economy is as vigorously entrepreneurial and market-driven as anywhere I have ever been.
True, China’s economy continues to be managed on the basis of a five-year plan, an authoritarian tradition that goes all the way back to Josef Stalin. As I write, however, the Chinese authorities are grappling with a problem that owes more to market forces than to the plan: the aftermath of an urban real estate bubble caused by the massive 2009-2010 credit expansion. Among China experts, the hot topic of the moment is the new shadow banking system in cities such as Wenzhou, which last year enabled developers and investors to carry on building and selling apartment blocks even as the People’s Bank of China sought to restrict lending by raising rates and bank reserve requirements.
Talk to some eminent Chinese economists, and you could be forgiven for concluding that the ultimate aim of policy is to get rid of state capitalism altogether. “We need to privatize all the state-owned enterprises,” one leading economist told me over dinner in Beijing a year ago. “We even need to privatize the Great Hall of the People.” He also claimed to have said this to President Hu Jintao. “Hu couldn’t tell if I was serious or if I was joking,” he told me proudly.
Ultimately, it is an unhelpful oversimplification to divide the world into “market capitalist” and “state capitalist” camps. The reality is that most countries are arranged along a spectrum where both the intent and the extent of state intervention in the economy vary. Only extreme libertarians argue that the state has no role whatsoever to play in the economy. As a devotee of Adam Smith, I accept without qualification his argument in The Wealth of Nations that the benefits of free trade and the division of labor will be enjoyed only in countries with rational laws and institutions. I also agree with Silicon Valley visionary Peter Thiel that, under the right circumstances (e.g., in time of war), governments are capable of forcing the direction and pace of technological change: Think the Manhattan Project.
But the question today is not whether the state or the market should be in charge. The real question is which countries’ laws and institutions are best, not only at achieving rapid economic growth but also, equally importantly, at distributing the fruits of growth in a way that citizens deem to be just.
Let us begin by asking a simple question that can be answered with empirical data: Where in the world is the role of the state greatest in economic life, and where is it smallest? The answer lies in data the IMF publishes on “general government total expenditure” as a percentage of GDP. At one extreme are countries like East Timor and Iraq, where government expenditure exceeds GDP; at the other end are countries like Bangladesh, Guatemala, and Myanmar, where it is an absurdly low share of total output.
Beyond these outliers we have China, whose spending represents 23 percent of GDP, down from around 28 percent three decades ago. By this measure, China ranks 147th out of 183 countries for which data are available. Germany ranks 24th, with government spending accounting for 48 percent of GDP. The United States, meanwhile, is 44th with 44 percent of GDP. By this measure, state capitalism is a European, not an Asian, phenomenon: Austria, Belgium, Denmark, Finland, France, Greece, Hungary, Italy, the Netherlands, Portugal, and Sweden all have higher government spending relative to GDP than Germany. The Danish figure is 58 percent, more than twice that of the Chinese.
The results are similar if one focuses on government consumption — the share of GDP accounted for by government purchases of goods and services, as opposed to transfers or investment. Again, ignoring the outliers, it is Europe whose states play the biggest role in the economy as buyers: Denmark (27 percent) is far ahead of Germany (18 percent), while the United States is at 17 percent. China? 13 percent. For Hong Kong, the figure is 8 percent. For Macao, 7 percent.
Where China does lead the West is in the enormous share of gross fixed capital formation (jargon for investment in hard assets) accounted for by the public sector. According to World Bank data, this amounted to 21 percent of China’s GDP in 2008, among the highest figures in the world, reflecting the still-leading role that government plays in infrastructure investment. The equivalent figures for developed Western countries are vanishingly small; in the West the state is a spendthrift, not an investor, borrowing money to pay for goods and services. On the other hand, the public sector’s share of Chinese investment has been falling steeply during the past 10 years. Here too the Chinese trend is away from state capitalism.
Of course, none of these quantitative measures of the state’s role tells us how well government is actually working. For that we must turn to very different kinds of data. Every year the World Economic Forum (WEF) publishes a Global Competitiveness Index, which assesses countries from all kinds of different angles, including the economic efficiency of their public-sector institutions. Since the current methodology was adopted in 2004, the United States’ average competitiveness score has fallen from 5.82 to 5.43, one of the steepest declines among developed economies. China’s score, meanwhile, has leapt from 4.29 to 4.90.
Even more fascinating is the WEF’s Executive Opinion Survey, which produces a significant amount of the data that goes into the Global Competitiveness Index. The table below selects 15 measures of government efficacy, focusing on aspects of the rule of law ranging from the protection of private property rights to the policing of corruption and the control of organized crime. These are appropriate things to measure because, regardless of whether a state is nominally a market economy or a state-led economy, the quality of its legal institutions will, in practice, have an impact on the ease with which business can be done.
Table: Measures of the rule of law from the WEF Executive Opinion Survey, 2011-2012

(Note: Most indicators derived from the Executive Opinion Survey are expressed as scores on a 1-7 scale, with 7 being the most desirable outcome.)
It is an astonishing yet scarcely acknowledged fact that on no fewer than 14 out of 15 issues relating to property rights and governance, the United States now fares markedly worse than Hong Kong. Even mainland China does better in two areas. Indeed, the United States makes the global top 20 in only one: investor protection, where it is tied for fifth. On every other count, its reputation is shockingly bad.
The implications are clear. If we are to understand the changing relationship between the state and the market in the world today, we must eschew crude generalizations about “state capitalism,” a term that is really not much more valuable today than the Marxist-Leninist term “state monopoly capitalism” was back when Rudolf Hilferding coined it a century ago.
No one seriously denies that the state has a role to play in economic life. The question is what that role should be and how it can be performed in ways that simultaneously enhance economic efficiency and minimize the kind of rent-seeking behavior — “corruption” in all its shapes and forms — that tends to arise wherever the public and private sectors meet.
We are all state capitalists now — and we have been for over a century, ever since the modern state began its steady growth in the late 19th century, when Adolph Wagner first formulated his law of rising state expenditures. But there are myriad forms of state capitalism, from the enlightened autocracy of Singapore to the dysfunctional tyranny of Zimbabwe, from the egalitarian nanny state of Denmark to the individualist’s paradise that is Ron Paul’s Texas.
The real contest of our time is not between a state-capitalist China and a market-capitalist America, with Europe somewhere in the middle. It is a contest that goes on within all three regions as we all struggle to strike the right balance between the economic institutions that generate wealth and the political institutions that regulate and redistribute it.
The character of this century — whether it is “post-American,” Chinese, or something none of us yet expects — will be determined by which political system gets that balance right.

Read the article online here:

We’re All State Capitalists Now — By Niall Ferguson | Foreign Policy

Jon Huntsman takes on the military.

Bring U.S. military in line with new reality –
Republican presidential hopeful Gov. Jon Huntsman speaks to students at George Washington University in October.
Republican presidential hopeful Gov. Jon Huntsman speaks to students at George Washington University in October.
Editor’s note: Jon Huntsman, former governor of Utah and U.S. ambassador to China, is a candidate for the Republican nomination for president. (Republican presidential candidates take on national defense, the economy, international relations and terrorism issues in the CNN Republican National Security Debate in Washington, D.C.., moderated by Wolf Blitzer at 8 p.m. ET Tuesday, November 22, on CNN, the CNN mobile apps and
(CNN) — A president’s most solemn duty is to protect America and her people — a responsibility that, in a time of evolving security threats and unsustainable debt, will only grow harder for the next administration.
In the aftermath of the failure of the super committee, we are facing cuts in defense. Yet there has still been little discussion about overall defense spending priorities and how we must transform our defense infrastructure for the 21st century.
Some of my opponents suggest maintaining the status quo, thus avoiding the tough decisions. Others advocate retrenchment and isolationism through draconian across-the-board cuts, which brings greater instability and risks.
Still others revert to the oft-repeated pledge to eliminate waste, fraud and abuse from the Pentagon — a worthy cause yet one of minimal consequence. Cutting wasteful spending alone amounts to only pennies o

These approaches miss the target in two respects. First, they let resources drive strategy, rather than using strategy to drive force structure and capabilities. Second, they fail to fundamentally alter our defense posture — so any short-term savings will be quickly erased.
In recognition of the growing asymmetrical threats we face and the evolving requirements of counterterrorism, we need a different set of capabilities. The world may have seen its last heavy armor battle between two nation-states. The relative importance of counterterrorism, intelligence, training and equipping foreign security forces, and special forces operations will continue to grow.
Our forces must be designed appropriately. This means a greater focus on intelligence gathering and more agile special forces units, which can respond swiftly and firmly to terrorist threats in any corner of the globe. We must be prepared to respond to threats — from al Qaeda and other terrorist cells — that emanate from a much more diverse geography, including Yemen, the Horn of Africa, Pakistan and the Asia-Pacific region.
We must also transform our orientation. By almost any objective measure — population, economic power, military might, energy use — the center of gravity of global human activity is moving toward the Asia-Pacific region. Embracing this reality may bring a dramatic change to the look of our military.
The Asia-Pacific region is a maritime theater whereas Europe was mostly a land theater. For the U.S., the Asia-Pacific features a collection of bilateral military alliances in contrast to our involvement with the multilateral NATO in Europe. We are a Pacific nation living in a Pacific Century, and our vital interests in that region cannot be compromised.
We can cut our base force and transition more responsibility for contingency operations to our National Guard and Reserve. In addition to being our most precious and valuable resource, our troops are also the most expensive part of our military.
If we simultaneously transform our capabilities and posture while enhancing our Guard and Reserve, our active duty army could be reduced to around 450,000 troops, from the approximately 565,000 we now have. Our Department of Defense civilian work force can also be cut by 5% to 7% of its current size.
At the same time, we should conduct a global posture review with the goal of closing at least 50 overseas military installations. The U.S. military maintains more than 700 installations outside the United States, the vast majority of which were opened during the Cold War. With a more mobile and flexible force, we simply don’t need as many facilities overseas.
We must risk American blood and treasure overseas only when there exists a vital national security interest. I have consistently called for our troops to return from Afghanistan as soon as possible. But I also believe President Barack Obama has been too quick to commit forces to other missions not core to our security interests.
Within the same week of announcing a troop drawdown in Iraq, the president announced a deployment of a small number of combat forces to Africa — an unnecessarily risky and costly mission.
America alone cannot police the world. We should increase burden-sharing for the protection of the global commons among countries that share our values and security objectives. Unfortunately, we are not the only democracy stuck in a Cold War mentality. It is time for countries such as Japan and India to play a greater role in regional security matters. We must also throw out the old map and forge new security arrangements with regional partners such as Vietnam and Brazil.
As we prepare to fight in the new battle spaces, we need to let go of old “sacred cows.” Our military and defense establishment must be effective in the cybersphere, dominant in space and able to handle the increasingly lethal and accurate ballistic and cruise missiles being acquired by many of our potential foes. This will likely mean trade-offs away from heavy armor units, fighter air wings and aircraft carriers toward a more advanced cyberwarfare infrastructure, more capable unmanned aerial vehicles and more flexible sea-based assets.
For America to remain a global force for good, we must maintain the world’s most capable military. And being the best is not simply a function of spending the most. Staying on top will increasingly depend on our willingness to adapt to the realities of the 21st century security environment.
The opinions expressed in this commentary are solely those of Jon Huntsman.

Posted By Uri Friedman

Yes, it’s Oman to the rescue yet again. Today we’re learning that the Omani government helped negotiate the release of three French aid workers held by al-Qaeda militants in Yemen. A Yemeni tribal mediator tells the Associated Press that Oman and a Yemeni businessman paid an unspecified sum to the militants, who had been demanding $12 million in exchange for the hostages.
The state-run Oman News Agency reports that Oman’s ruler, Sultan Qaboos bin Said, directed officials to “provide all facilities” to help France in recognition of the “distinguished relations” between the two countries. French President Nicolas Sarkozy, for his part, has “warmly” thanked the sultan for his “decisive help.” The aid workers crossed the Yemeni-Omani border by car, flew to Muscat on an Omani military plane, and then left for France.
If this scenario sounds familiar, that’s because it is. In 2010, Omani sources paid $500,000 bail to win the release of American hiker Sarah Shourd, who had been detained by Iran along with her fiancé Shane Bauer and Josh Fattal a year earlier for straying across the Iran-Iraq border. This fall, Oman shelled out close to $1 million for the release of Bauer and Fattal. A diplomatic cable released by WikiLeaks indicates that Oman helped secure the release of British sailors captured by Iranian forces in 2007 as well.
How did Oman become the Denzel Washington of Middle East hostage situations? The answer lies in Oman’s pragmatic, Switzerland-esque approach to foreign policy. In 1970, Qaboos — who maintains a tight grip on power and who Robert Kaplan has described as the “most worldly and best-informed leader in the Arab world” — overthrew his father in a palace coup and set about transforming an isolated and unstable country into a nonaligned regional power. In the 1980s, for example, Oman somehow managed to maintain diplomatic relations with both sides in the Iran-Iraq war while backing U.N. Security Council calls to end the conflict.
This diplomatic balancing act has enabled Oman to enjoy good (but not excessively cozy) relations with both Iran and the U.S. and its Western allies. Qaboos, a supporter of the Shah before the Iranian revolution, has eschewed the hostile stance that Gulf neighbors like Saudi Arabia have adopted toward the Islamic regime. Instead, Oman and Iran cooperate to secure the Strait of Hormuz, which divides the two countries and transports 40 percent of the world’s oil and gas.
“Oman views Iran as the strategic threat to the region but has chosen to manage the threat by fostering strong working relations with Tehran,” a 2010 U.S. diplomatic cable explained. Iran, for its part, may not view the small sultanate as much of a threat and may value the alliance as it grows increasingly isolated. Oman has pressed Iran to negotiate with the U.S. over its nuclear program and even offered to facilitate secret talks.
America’s friendly relationship with Oman, meanwhile, dates back to at least 1841, when Oman became the first Arab nation to recognize the U.S. The sultanate has a free trade agreement with the U.S. and has permitted American forces to use its military bases in the past (in 2010, however, Omani officials strongly denied reports that they had discussed deploying U.S. missile defenses in the country). Oman’s role as a key interlocutor between Iran and the U.S. was underscored last month when Secretary of State Hillary Clinton met with Qaboos following the revelation of an alleged Iranian plot to kill the Saudi ambassador to the U.S. “We would expect that Omanis would use their relationship with Iran, as they have in the past, to help the Iranians understand the implications of what they’re doing,” a U.S. State Department official noted during the visit.
The hostage deals, then, may represent just one more weapon in Oman’s arsenal for neutralizing threats to regional stability like the political paralysis in Yemen and deteriorating U.S.-Iranian relations. In a 2009 diplomatic cable, the U.S. ambassador to Oman informed an Omani foreign affairs official that securing the release of the three American hikers in Iran would “remove an unhelpful irritant” between Washington and Tehran. When Bauer and Fattal arrived safely in Muscat two years later, an Omani foreign ministry statement expressed hope that the deal would promote a “rapprochement between both the Americans and the Iranians” and “stability in the region.” Oman’s millions have yet to accomplish those elusive goals, but they have purchased several people their freedom.
Oman: The world’s hostage negotiator | FP Passport

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The presidential race one year out

America’s missing middle

The coming presidential election badly needs a shot of centrist pragmatism

IT IS a year until Americans go to the polls, on November 6th 2012, to decide whether Barack Obama deserves another term. In January the Republicans start voting in their primaries, with the favourite, Mitt Romney, a former governor of Massachusetts, facing fading competition from Herman Cain, a pizza tycoon, and Rick Perry, the governor of Texas. Already American politics has succumbed to election paralysis, with neither party interested in bipartisan solutions.
This would be a problem at the best of times; and these times are very far from that. Strikingly, by about three to one, Americans feel their country is on the wrong track. America’s sovereign debt has been downgraded. Unemployment remains stubbornly above 9%, with the long-term unemployed making up the largest proportion of the jobless since records began in 1948. As the superpower’s clout seems to ebb towards Asia, the world’s most consistently inventive and optimistic country has lost its mojo.
Some of this distress was inevitable. Whatever the country’s leaders did in Washington, the credit crunch was always going to cause a lot of suffering. Rising inequality, unfunded pensions and bad schools are not new problems. But politics, far from offering a remedy, is now adding to the national angst. Eight out of ten Americans mistrust their government. There is a sense that their political system, like their economy, has been skewed to favour the few, not the many.
The European Union may seem the epitome of political dysfunction, but America has been running it close. All this year the deadlock between the Republicans in Congress and Mr Obama has meant that precious little serious legislation has been passed. The president’s jobs bill is stuck; the House of Representatives’ budget plans have been scuppered by the Democrat-controlled Senate. At the end of this year temporary tax cuts and other measures, worth around 2% of GDP, are set to expire—which could push America back into recession.
Surrender to extremists
On the face of it, neither side has gained from this stand-off. Only 45% of Americans approve of Mr Obama’s performance. The approval rating for Congress dropped to 9% in one recent poll. A plurality of Americans call themselves independents, and on the most divisive economic argument—how to solve the budget mess—two in three of them back a combination of spending cuts and tax rises. But politics is being driven by extremists who reject any such compromise (see article).
The right is mostly to blame. Ronald Reagan, a divorcee who did little for the pro-life lobby and raised taxes when he had to, would never be nominated today. Mr Romney, like all the Republican presidential candidates, recently pledged to reject tax rises, even as part of a deal where spending cuts would be ten times bigger. Mr Cain surged briefly to the front of the pack because of a plan that would cut personal taxes to 9% (seeLexington); Mr Perry lost support for wanting to educate the children of illegal immigrants. Meanwhile, in Congress, the few remaining pragmatic Republican centrists, like Senator Richard Lugar, are being hunted down by tea-party activists.
Mr Obama has tried harder to compromise. But he foolishly failed to embrace a long-term budget solution put forward by the bipartisan Simpson-Bowles commission, which he himself appointed. Ever since the furore over the debt ceiling this summer, he has “pivoted” to the left, dabbling in class war, promising his supporters that the budget can be solved by taxing “millionaires and billionaires”. He is also trying to issue more executive orders, to bypass Congress (see article).
The divisiveness is hardly new, but it is increasingly structural. As the battle for billions of campaign dollars heats up, neither side dares grant the other any modicum of success, or risk the ire of its donors by appearing to compromise. Gerrymandered districts mean that most congressmen fear their partisans in the primaries more than their opponents in the general election. Ever more divisive media feed the activists’ prejudices. So, at worst, a bitter contest could merely reinforce the gridlock, with a re-elected, more leftish Comrade Obama pitted against a still more intransigent Republican Congress.
Wishing on a star
In other countries such a huge gap in the middle would see the creation of a third party to represent the alienated majority. Imagine a presidential candidate next year who spelled out the need for deep future cuts in spending on entitlements and defence, as well as the need to raise some revenue (largely by getting rid of deductions); who explained that the pain would be applied only after the recovery was solidly in place; who avoided class or culture wars; who discussed school reform without fear of the Democrats’ paymasters in the teachers’ unions. Better still, imagine a new centrist block in Congress, which might give that candidate (or for that matter a President Obama or Romney) something to work with in 2013.
And so the fantasy continues, for that is sadly what it is. Even if the money were forthcoming, there are all sorts of institutional barriers, especially to starting new parties, and the record of even very well-heeled third-party presidential candidates is bleak. Instead, the middle will have to be recreated from what is already there.
The immediate, rather slim, chance is of a grand bargain on the budget emerging out of a congressional “supercommittee” set up after the debt-ceiling fiasco. If it were to embrace a centrist option, politics over the next year would be considerably more civilised. But it too appears deadlocked, with the Republicans once again ruling out tax increases of any kind.
So, back to the campaign. It is not entirely without hope. You can win the White House only by winning that disenfranchised middle. For Mr Romney and his party the danger is clear: the Republicans’ intolerant obstructionism could drive independents away. But Mr Obama also has a lot to prove. Why re-elect a man who has failed to unite Americans? Now should surely be the time for the president to seize the centre ground. Otherwise, in a year’s time he may well see his own name added to the rolls of those who have lost their job.

The presidential race one year out: America’s missing middle | The Economist

From Peter Schiff of Asia-Pacific capital

SOUNDS GOOD, BUT WAIT, There is something hidden behind all those 9’s…

Theres A Hidden 9 In Herman Cains 9-9-9 Plan

October 18, 2011
Herman Cain has been gaining much traction with his 9-9-9 Plan, a bold proposal to replace our dysfunctional tax code with what could be a simpler, less invasive, and more economically stimulative alternative.
While I don’t agree with the full spectrum of Mr. Cain’s policy choices, I applaud his courage on the tax front.
Judging by his rising poll numbers, this appreciation is widely shared.
However, the plan has deep flaws, the most glaring of which is its creation of a hidden payroll tax which represents a fourth “nine.” This serious pitfall has been unmentioned by Mr. Cain and overlooked by those who have analyzed his plan.

Cain would replace the current system of income and payroll taxes with a 9% flat-rate personal income tax, a 9% corporate tax, and a 9% national sales tax. Great idea. Such a system would unburden businesses, provide a tax cut for most Americans, and shift taxation to consumption and away from income generation. \
This is exactly what our economy needs. But unlike our current corporate tax system, the plan eliminates the deductibility of wages and salaries from corporate income. The net effect is the creation of a brand new 9% tax on wages. When this fourth 9 falls from Cain’s sleeve, many of his opponents will likely accuse him of cheating.
Much of the plan’s virtue lies in its elimination of Social Security and Medicare taxes (payroll taxes) that fall heaviest on lower income workers. This includes the 6.2% Social Security tax and the 1.5% Medicare tax paid directly by the worker. But it also includes the 6.2% and 1.5% portions paid indirectly by workers through their employers. Payroll taxes are, in reality, a cost of employment.
From the employer’s perspective these costs are part of the wage package. Absent these taxes, employers could raise wages by an equivalent amount without raising labor costs. Inclusive of this portion, payroll taxes currently cost workers 15.4% of their wages.

The Cain plan scraps this tax. But the elimination of wage deductibility from corporate taxes replaces it with a 9% payroll tax. Therefore a more honest name for Cain’s proposal is the 9-9-9-9 plan. The forth nine changes everything.
Cain admits that the 9% sales tax would fall heaviest on the poor, but he claims that the elimination of the payroll tax would more than compensate. But when the hidden 9% payroll tax is factored in, more than 50% of workers who currently pay an average income tax rate of just 3% would see a huge tax hike, from 18.4% (former payroll tax plus income tax) to 27%: 9% payroll tax, 9% income tax and 9% consumption tax (poorer workers generally spend all their income).
On the other hand, high income tax payers get a huge break. Not counting the consumption tax, the 9-9-9 plan reduces the highest marginal tax rate from 38% (35% income tax and 3% payroll tax – on income over $105,000) to just 18% (9% income tax plus 9% payroll).
For the self-employed, who can transform their wages into dividends (that are deductible business expenses under the 9-9-9 plan), the rate would fall to just 9% (all income tax, no payroll or business tax). Of course, in either case, the 9% sales tax will apply to spending, but even if 100% of earnings are spent (which is generally not true of high earners) the top rate would still top out at only 27% for the highest salaried employees and just 18% for the self-employed. In essence, tax cuts for the rich are paid for with tax hikes on the poor and middle class. If these aspects were widely known the plan would become a political dead letter.
Even with its flaws, the 9-9-9-9 plan would create an economic windfall by lowering the top corporate rate to 9% from 50% (35% at the corporate level and 15% on dividends taxed at the individual level), and simplifying the tax code to reduce unnecessary compliance costs and the economically inefficient behavior that is created by perverse tax incentives.
These changes alone will make America far more globally competitive. Also by taxing individuals based more on what they spend rather than on what they earn, the plan will encourage more savings (which is a key ingredient for economic growth). As a result, the economy will grow faster, generate greater output of goods and services, and create more jobs.
The problem for Herman Cain is that unless he slashes government expenditures, his pro-growth tax structure will inevitably shift more of the tax burden to low and moderate-income people. The only way to combine tax reform with tax reductions for most taxpayers is to shrink government to a more manageable scale.
The size of the tax increases required to keep Cain’s 9-9-9-9 plan revenue neutral demonstrates just how high a percentage of our current taxes are being paid by affluent taxpayers. Couples making more than $250,000 and individuals making more than $125,000 only constitute about 3% of taxpayers but pay almost half of all taxes. Any policy that cuts their taxes will inflict a disproportional hit on government revenue.
Contrary to the rhetoric emanating from the American left, the “rich” are currently paying a lot more than “their fair share.” It is only a handful of mega-rich, those whose entire incomes are derived from dividends and capital gains, rather than salaries or business profits, who have the ability to pay lower tax rates than some members of the middle class. The left knows this but continues to build their “free loading millionaire” straw man because it makes good politics.
In the final analysis, if Cain really wants a 9-9-9 plan that doesn’t raise taxes he needs to remove the hidden 9% payroll tax. However, the only way this could be done, without blowing an even bigger hole in the federal deficit, is to combine his plan with significant spending cuts. If he can pull that off, three nines may be a winning hand after all.

There’s A Hidden 9 In Herman Cain’s 9-9-9 Plan

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