Naked Capitalism Link of the Day

Today's link: NightWatch20110502, at kforcegov:

Pakistan-US: Comment: Bin Laden and a son are dead, killed in a firefight by US Navy SEALS carried in two helicopters to Abbottabad, Pakistan, just 35 miles north of Islamabad. The US commandos took custody of his body to prove he is dead and got away safely.

News services quoted unidentified US officials that the body was prepared for burial according to the Muslim ritual. Readers might wonder who gave such an order and why.

The Abbottabad location is important for two reasons. Bin Laden could not have lived in a compound in Abbottabad without official Pakistani government sustenance. Abbottabad is an upscale area and a garrison town, but not so large as to be impersonal. Bin Laden was living in protected luxury. Many people had to know that and probably will come forward in a little time.

On 7 December 2001, Bin Laden escaped from the tunnels in Tora Bora, Nangarhar Province, Afghanistan, with the help of a local warlord named Hazrat Ali, who betrayed US forces who had hired him to help capture bin Laden and is now a member of the Afghan Parliament for Nangarhar. Bin Laden and his gang crossed the Tora Bora mountains to Parachinar, Pakistan, where a Pakistan Army brigade was deployed to ensure his capture if he crossed the border. They failed, of course. He headed east to Kohat, another Army garrison town and disappeared.

The distance from Kohat to Abbottabad is several hundred kilometers by road, but the two towns are part of the Pakistan Army network of garrison towns in the northwest. Bin laden reportedly moved around in the northwest,  but one inference is that bin Laden has been in the safe keeping of the Pakistan Army for a decade. The news reports suggest the compound was specially built for him and his enterprise, which had to have been subsidized by Pakistan and, through Pakistan, by US aid to Pakistan.

Secondly, his compound could not have been attacked from Afghanistan, him killed and his body taken by US Navy SEALs flying US helicopters so close to Islamabad without official Pakistani government cooperation. The US insisted Pakistan played no part in the operation and that the team flew from Afghanistan. That clearly is a cover story for Pakistani public consumption to try to avert overwhelming anti-Pakistan and anti-US demonstrations, which are probably inevitable in any event.

Abottabad is not some remote village on the border. It is a large town in eastern Pakistan, on the main road to Kargil and the north as well as to Muzaffarabad and Pakistani Kashmir to the east. It is northeast - towards India - of Islamabad and within the Pakistan air defense intercept zone for the national capital which is protected by the Pakistani integrated air defense system. Nothing can fly in that region without detection and without permission from the Pakistan Air Force, even from Afghanistan.

The conclusion is inescapable that the Pakistan Army protected bin Laden and recently decided to give him up, rather than sacrifice the Army's relationship with the US. The terms are not known as yet, but there certainly is a trade in which bin Laden was sacrificed. The trade might involve an end to US drone attacks across the border, which humiliate the Pakistan Army, or a new coordination regime for drone attacks into Pakistan.

Realpolitik sure is a dirty business.  The entire report, covering fighting in Afghanistan, with notes from Libya is very interesting.  I just found this discussion of the US-Pakistan-Bin Laden triangle interesting.  It does raise some very interesting questions about quid pro quos.  Maybe we are hearing the true story, but it doesn't sound very likely to me.  Either Pakistani defenses aren't much for Indian to worry about at all, or they knew we were coming, and they let us.

Elections at Home

Thank you Ohio Republican Party.  Since you forced through your 20% state income tax cut, (resulting in savings of slightly more than 1% of income) our local school income tax rate went from 0.5% to 1%.  Today we receive the opportunity to raise it another 0.75%.  I'm glad you guys can feel good about lowering taxes, even though you are just passing the back to local governments.  You are true Profiles in Courage.  Bite my ass and move away, please.

Election Results Up North

The CBC is calling the election with the Conservatives holding 167 seats, 12 more than was needed for a majority government.  The New Democrats picked up 102, an all-time high for them, while the Liberals won an all-time low 34 seats, the Bloc won 4 and the Green Party won 1.

Blowing Up A Levee

NYT:

Chugging north along the Mississippi River, twin barges laden with more than 250 tons of explosive material were ordered to dock at a final staging area on Saturday in an apparent sign that the Army Corps of Engineers was making further preparations to breach a nearby levee, inundating roughly 130,000 acres of Missouri farmland to relieve pressure on the groaning levee system upstream.

Missouri officials sued unsuccessfully last week to try to block the corps from flooding the cropland, a federally mandated flood way that is home to about 200 people. On Saturday, the Eighth Federal Circuit Court of Appeals affirmed the lower court’s decision, clearing the way for the corps to move forward if necessary.

If General Walsh orders the levee breached, the two barges will pump explosives into an 11,000-foot system of pipes buried below the levee. A detonation crew will then blast the levee, allowing water to tear through the gap at an estimated 550,000 cubic feet per second, which they expect to drastically lower water levels upstream. Over the following 24 hours, the crew would blast two more holes in the levee downstream, allowing the water to re-enter the river.

Flooding 130,000 acres of farmland, or losing a 3,000 person town.  That's a lose-lose situation.  So those levees are built with pipes underneath to facilitate demolition?  I didn't know that.

Torture DIDN'T Get Key Intelligence

Washington's Blog guest blogging at naked capitalism:

There’s a new meme widely circulating today claiming that torture was okay after all, because it helped us locate and kill Bin Laden. See this, this, this and this.
As ABC News notes:

The revelation that intelligence gleaned from the CIA’s so-called black sites helped kill bin Laden was seen as vindication for many intelligence officials who have been repeatedly investigated and criticized for their involvement in a program that involved the harshest interrogation methods in U.S. history.
“We got beat up for it, but those efforts led to this great day,” said Marty Martin, a retired CIA officer who for years led the hunt for bin Laden.

But as ABC notes in the next paragraph:

Mohammed did not reveal the names while being subjected to the simulated drowning technique known as waterboarding, former officials said. He identified them many months later under standard interrogation, they said, leaving it once again up for debate as to whether the harsh technique was a valuable tool or an unnecessarily violent tactic.

Torture apologists are trying to defend themselves and give Bush credit for this success.  For one, Bush didn't follow it up.  For another, torture does not work.  Treating people like human beings does work.  Torture is immoral and a war crime for which Japanese soldiers were tried after World War II.  There is no reason that the U.S. should have ever used torture.

Oil Prices - Speculation, Supply and Demand or Both

Ezra Klein discusses James Hamilton's report on the price run-up in 2007-2008:

Traditionally, Hamilton says, Saudi Arabia, the world’s largest producer of oil, would smooth out spikes in demand. But around 2007, Saudi Arabia stopped. They left oil in the ground, assuming they could sell it for more later. Hamilton calls this “the beginning of a new era for oil pricing dynamics: without the Saudis’ willingness or ability to adjust production to smooth out price changes, any disturbance to supply or demand will have a much larger effect on prices than in earlier periods.” Greenstone agrees with Hamilton, and says that this can hardly be overstated. Saudi Arabia is the one player with the power to really do what people think speculators do: take enormous amounts of potential oil off the market because they think they can get a better deal later.
But that was 2007-2008. Is Saudi Arabia part of the story now? It appears so. Not only did they slash production in March, but they’re freaking everybody out by offering accounts of their production volume that don’t make any sense.
On the demand side, China — and other developing nations, but mostly China — is the 800-pound gorilla in the room. “China was a net exporter of petroleum up through 1992, and its imports were still only 800,000 barrels a day in 1998,” writes Hamilton. “By 2007, however, China’s net petroleum imports were estimated to be 3.7 mbd, making it the world’s third-largest importer and a dominant factor in world markets.”
Here’s what Hamilton argues happened in 2007-2008: Everyone knew that the world was demanding more oil, but they had made two assumptions that turned out to be mistakes. First, they thought that higher prices would lead to a lot less oil use in rich countries, which would allow what oil we did have to stretch further. Economists call this ”elasticity,” and oil turns out to have a lot less of it than we thought. Second, they thought we — or, more specifically, Saudi Arabia — would be able/willing to increase production much more dramatically than proved to be the case. But they weren’t. So supply held relatively steady even as demand shot up and demand held relatively steady even as prices shot up.
So what ended the 2007-2008 oil crisis? A global recession more sever than anything we’d experienced since the early 20th century. But now the same factors are reasserting themselves. Demand from both developed and developing countries has returned. Saudi Arabia is tapping the brakes. Now add in turmoil in the Middle East. Now look at the price of gasoline and note that demand isn’t falling.
“The key question you should be asking is the following,” says Hamilton. “Is the current price too high in the sense that the physical quantity being produced is greater than the physical quantity being consumed? If yes, then where is the difference going, and what mechanism accounts for that?” Left unsaid is the “if no.” But if no, then who is supposed to start using less oil in the coming years, and if the answer is no one, then how, absent recurrent recessions, are we supposed to make what oil we have go around at a price the global economy can handle?
On some level, speculation is an easy problem to handle. It’s a problem you can crack down on. The same can’t be said for China, Saudi Arabia or the world’s dependence on oil.

The Long View

From Economic Principals.  First, expectations of the future:

Some of what is going to happen over the next ten years is obvious. Global warming is going to be affirmed by experience. Human embryonic stem cell research will go forward, despite challenges in the courts.
Some is only slightly less obvious.  Social Security will be restored to actuarial balance through a mix of mild tax increases and benefit cuts.  Medicare will be preserved and, perhaps, extended through a second health-care statute.  The 15-member Independent Payment Advisory Board, established by the Affordable Care Act, will gradually morph into a Health Care Fed, a geographically decentralized organization with provider input engineered into the system at every level.
The harder problems that will become apparent in the next ten years have to do with the inequality that is growing all around the world.

Then, what he expects is the answer for economic inequality:

I belong to a luncheon club whose smartest member is a longtime investment manager whom I have observed for many years, He walked out of the room after a global tour d’horizon talk the other day and said on the sidewalk in front of the building, “The only things that can possibly address inequality of a magnitude that will soon be judged to be unacceptable in this country are much higher levels of taxation on the well-to-do and a negative income tax for the poor.”  I hadn’t heard it put so simply or succinctly before, but in the circumstances I was convinced instantly that he was right.
A “negative income tax” is a euphemism designed forty years ago to avoid what otherwise might have been called a “guaranteed annual wage,” when even Milton Friedman endorsed the idea.  Call it a “disability benefit” if you prefer.  We’ve learned a fair amount since then about how to entice workers to take low-paying jobs through earned income tax credits.
Some income floor beneath which citizens are not permitted to fall is the next frontier of social policy. Universal health care was the most recent skirmish in an ongoing campaign. The US will do fine in its economic competition with the newly industrializing world as long as its social fabric doesn’t become irreparably frayed. This is the world for which we are heading, and the sensible thing to do is to prepare for it.

It amazes me that Republicans are pushing for greater inequality, and Democrats can't adequately arouse voter concern about Republican policies.  It further amazes me that people I know who are not well-to-do are actively cheering for the rich and against the government and any sane progressive tax policy.  I had a guy on Facebook tell me that increasing dividend taxes is just theft by the government.  I'm certain that I make much more in dividends (and overall income) than he does, yet he is fighting to lower my taxes, while I want them to go up for the good of the country as a whole.  At this point, I am resigned to the fact that future policy may be terrible for the country, but I may benefit greatly.  I hope that isn't the case, but about 40-45% of the middle class seems to be working for their own destruction, just to spite brown people who are even poorer.  Dumbasses.

Bin Laden Is Dead

Awesome NYT photograph, via Balloon Juice:

Update:  James Fallows, scoring the President's speech last night, highlights what will hopefully be the best outcome of the killing of Osama Bin Laden:

5) The potential significance: an end to the distortions of the GWOT? For years anti-terrorism experts have stressed the decentralized, self-sustaining nature of al Qaeda and related terrorist organizations around the world. The elimination of the celebrated symbol and inspiration of the movement will certainly not mean the end of terrorist threats, and in the short run could trigger revenge attacks. (I will be leaving from LAX tomorrow morning; will be interesting to see whether the security drill is different in any way.)

But here is potentially the greatest significance of this news, apart from the "bringing justice to our enemies" satisfaction: it holds the potential of marking an end to the otherwise un-endable "Global War or Terror."

Signifying an end to a "global war" does not mean the end of a threat. America faces a daily threat from crime; for the foreseeable future Americans and others will face a continuing threat of terrorist attack; the entire world faces a threat that the thousands of nuclear warheads still in existence could destroy millions, through accidental or deliberate misuse. But we classify all those as threats, requiring our continued vigilance and best efforts to prevent them. Rather than as ongoing, open-ended wars with the consequent distortions that wars can impose on our values, institutions, and public lives.

 As long as the "Global War on Terror" was defined as eliminating all threat of terrorist activity, it could never be ended. That threat -- like other threats -- will never completely go away. But if this admittedly symbolic victory in the "war" can be taken as closing a loop opened ten years ago (and earlier, with previous OBL-inspired attacks), perhaps it could free us to continue the vigilance while beginning to correct the decade-long warping of our values. That is another gift the commandos who carried out this mission may have given America. We will see whether Obama is willing to lead that way, and others are willing to follow.

I agreed with Fallows when he called for Declaring Victory in the War on Terror, and I also hope that we can use this as an opening to back off on all the crazy actions taken in the name of the War on Terror.  

Market Failures-Pharmaceutical Example

Washington Post, via the nc links:

Doctors, hospitals and federal regulators are struggling to cope with an unprecedented surge in drug shortages in the United States that is endangering cancer patients, heart attack victims, accident survivors and a host of other ill people.
A record 211 medications became scarce in 2010 — triple the number in 2006 — and at least 89 new shortages have been recorded through the end of March, putting the nation on track for far more scarcities.
The paucities are forcing some medical centers to ration drugs — including one urgently needed by leukemia patients — postpone surgeries and other care, and scramble for substitutes, often resorting to alternatives that may be less effective, have more side effects and boost the risk for overdoses and other sometimes-fatal errors.
“It’s a crisis,” said Erin R. Fox, manager of the drug information service at the University of Utah, who monitors drug shortages for the American Society of Health-System Pharmacists. “Patients are at risk.”
The causes vary from drug to drug, but experts cite a confluence of factors: Consolidation in the pharmaceutical industry has left only a few manufacturers for many older, less profitable products, meaning that when raw material runs short, equipment breaks down or government regulators crack down, the snags can quickly spiral into shortages.
“It seems like there were a lot of things happening with consolidations and quality issues and more things coming from overseas,” said Allen J. Vaida, executive director of the Institute for Safe Medicine Practices, a nonprofit group that helped organize a conference last fall to examine the issue. “It just reached a point where the number of shortages was slowly going up and up, and now we have a national crisis with this huge shortage of critical medications.”
While the dearth that has garnered the most public attention is — ironically — for a barbiturate that is hindering prisons trying to execute inmates, the scarcities are having a much broader impact on keeping people alive, especially in emergency rooms, oncology wards and intensive care units.

I think there are several things to note here.  These are lower-profit products, so the companies don't have much interest in manufacturing them.  It is much more profitable to make sure a 70-year-old can get a hard on than it is to provide a drug to treat for leukemia.  Secondly, reliance on overseas production is both an issue as far as quality control, and tax avoidance.  Pharmaceutical companies were among the biggest gainers from the last overseas profit corporate tax holiday, which caused them to increase overseas production in expectation that it would happen again.  Off the Charts blog was featured among nc's links yesterday explaining why another corporate tax holiday would be a bad idea:

A similar tax holiday enacted in 2004 proved to be a complete policy failure. Its backers claimed that firms would use the repatriated earnings to invest in U.S. jobs and economic growth.  Instead, they mostly used the money for purposes that the tax-holiday legislation had sought to prohibit, such as repurchasing their own stock and paying bigger dividends to their shareholders.  Moreover, many firms actually laid off large numbers of U.S. workers even as they reaped multi-billion-dollar benefits from the tax holiday and passed them on to shareholders.  To cite just two examples, Pfizer — which repatriated around $37 billion in foreign profits, the most of any firm — eliminated around 10,000 American jobs in 2005, while Merck repatriated $15.9 billion and announced layoffs of 7,000 workers in 2005.  (These layoffs cannot be attributed to general economic weakness: they came at a time when the U.S. economy was growing significantly and adding jobs.)

Repeating the tax holiday would increase incentives to shift income overseas. Many companies responded to the 2004 holiday by shifting even more profits overseas. If Congress enacts a second tax holiday, rational corporate executives will conclude that more tax holidays are likely in the future.  That will make them even more inclined to invest abroad and less likely to invest in the United States.  That’s why Congress, in enacting the 2004 tax holiday, explicitly warned that it should be a one-time-only event.  It’s hard to see how the 14 million Americans who are out of work would benefit from having their government provide another enticement for companies to invest overseas.

I would directly attribute the Pfizer and Merck cuts in the U.S. to taking advantage of overseas tax shelters in places such as Ireland, Bermuda and the Cayman Islands in anticipation of future opportunities to repatriate overseas profits in another tax holiday.  Shareholder "rights" have become too cherished in our economy versus the good of society.  This is just one further example.  A major reordering in our society is overdue.

Naked Capitalism Link of the Day

Today's link: China Controls Our Food Supply, Barry Lynn interviewed by Dylan Ratigan:

Because of our obsession with efficiency over flexibility, our “lowest-price-above-all” philosophy over fair prices for producers, and our acceptance of a monopolistic commercial distribution structure, lots of essential products are now coming over seasons from a single foreign source.
That includes one critical preservative that is in nearly every food in America’s grocery stores, which China currently has a monopoly on.
The issue with getting critical products from one place is that, as we’ve seen over recent years, the world isn’t predictable.  Global disruptions — like an economic squabble with China, a massive political upheaval in the Middle East, or a natural disaster like the tsunami in Japan — have the capacity to topple the very fragile U.S. import structure.  The culprit? Our reliance on monopolistic, single-source production and distribution structure for things we need to survive, says Barry.
China currently has a production stranglehold over a critical chemical compound that helps keep food fresh — ascorbic acid.  We use this to preserve almost all the food that is on the store shelves.  It’s essential to keep food on America’s tables, and we don’t have any control over its production or distribution.
“It was first synthesized by an American scientist, it was first mass produced by an American company.  100% of our ascorbic acid or vitamin C now comes from China,” says Barry.  “In terms of pricing,  just about to the day that the Chinese finished capture and control over our supply of Vitamin C, ascorbic acid, they jacked up the price by 400%,” says Barry.

This doesn't seem to be a smart way of doing business.  As Yves notes, "First rare earths, now this."  Always striving for the cheapest has undermined our manufacturing base, now it is crucial supplies in which we are at others will.  Our oil dependence is also tremendously deleterious to our future.