Unemployment, Health Care, Afghanistan,Iran! WOW!

Government continues on its merry way,
Now it will determine who and what to pay.

Politicians will remain an excluded bunch,
As long as voters remain out to lunch. (See 1 below.)

Unemployment is not something politicians can ignore but Obama should not be blamed for the fact that it is rising. It is a reflection of the fact that our profligate ways have caught up with themselves. However, he can be blamed for making unrealistic campaign predictions as to how high it would go when, in fact, he could not know and he and his party can be blamed for a stimulus bill which was mostly pork.

Most importantly, there is really very little he can do about employment now because his policies were misdirected and he is too much of a committed ideologue to reverse course. Obama has wasted a lot of money, is piling on a lot of debt and his flying around the world making apologetic speeches has been dispiriting. The nation's mood of discontent and angst is a reflection of the fact that we have a president who is inexperienced, confused and too smart and arrogant to see the error of his ways. (See 1a below.)

Liberals obsessed over GW's 'supposed' restraints on our liberty and now they remain mute. The author below refers to "The Road To Serfdom" by F. Hayek - a book I urge all, who care about the stifling effect of amoebic government, read. Liberty, once lost, is hard to retrieve. Debt once incurred is difficult to pay off and one relates to the other. (See 2 below.)

I have been writing for months the health care bill is a Trojan Horse plan to get government's nose under the tent and eventually the rest of the horse will follow.

Keeping the private sector honest with a government plan that is intellectually dishonest is the height of "chutzpah." (See 3 below.)

Democrats want bi-partisan support on the health care bill because they fear a backlash if they go it alone. Republicans will never get a decent bill passed so they should just let the Democrats run with the ball. That is not a cop out, it is just plain common sense. Common sense is not something Republicans have demonstrated they possess. (See 3a below.)

Investor Daily is confused regarding Obama's plan regarding Iran's nuclear capability. Not surprising, Obama seems not to have one beyond negotiating after the fact. (See 4 below.)


A self acclaimed 'liberal intervenionist' begins to question whether our strategy in Afghanistan is likely to produce positive results since we seem not to know what we are doing. He writes: " We need to ask whether the Government has the will, strategy or tactics to do the job properly." He comes up with no convincing answer.(See 5 below.)

Nouriel Roubini has been crowned the 'Dr. Doom' of this recesssion but his forecasts have been accurate. After reviewing the latest unemployment and foreclosure figures he remains gloomy. I could not agree with him more.

It is no fun to be somber when everyone seeks a silver lining but objectively speaking the only positive thing that can be said is that the current decline is decelerating but could pick up speed if it continues much longer, as I expect it will. Connected statistics and their impact on psychology have a way of producing loop feedback results. (See 6 below.)

Edmund Conway writes that even when the recovery appears it will be a long and painful process and initially may go unnoticed. Again, I could not agree more. (See 7 below.)

A power hungry, corrupt and immoral attorney general wanted to become governor so he set about to use his awesome powers. He was on a roll and rolled AIG's Greenberg. The man who built AIG was forced out and a clueless government entered the picture. Some $187 billion later the picture remains bleak. (See 8 below.)

Democrats are not likely to pass another stimulus bill to save the one they already passed and which is failing but speculation about doing so will not go away. (See 9 below.)

Not standing up for 'Western Values' bothers Dan Henninger.

The problem is that you have to first understand what they are, then you have to believe in them, you have to accept the fact that they have worth and finally, you have to have a plan to save them. Obama , more or less, strikes out on all four. (See 10 below.)

Finally health care cost projections continue to be illusive. Probably because they are unpredictable. Therefore, Congress will eventually come up with a figure, base their program on it, sell it and be wrong. Now that is not change! (See 12 below.)

Judge Sotomayor will shortly undergo grueling nomination hearings. Our air waves and print media will overwhelm us with coverage and drown us in reportage. From Michael Jackson to Sotomayor -quite an exhausting experience.

The judge will assuredly be nominated. What will resurface is what we mostly already know - she does not necessarily believe facts should wholly determine legal outcomes and a mixture of touchy feely subjectivity is appropriate to right past wrongs.

Her appointment to the nation's highest court could set the stage for similar nominations that could render legal decisioning less predictable. Now that is change!

Have a great weekend.

Dick

1) White House Rethinks How Best to Pay the Pros
By DAVID WESSEL

President Barack Obama believes you get what you pay for -- in business, in health care and in teaching. And in each of those spheres, he doesn't think the way the U.S. pays professionals is designed to get what the nation really wants and needs.

In executive suites, he says, we rewarded reckless risk-taking and got the worst recession in half a century. In doctors' offices and hospitals, we pay for more care instead of better care and get a wastefully expensive health-care system. In K-12 classrooms, we pay teachers, good and bad, for showing up instead of successful teaching and perpetuate schools that fail.

So Mr. Obama wants to pay professionals more only if they deliver more of what he thinks America needs, a bold bet on the economic principle that incentives do matter. If he succeeds, the changes to business, health care and education could last far beyond his presidency. But this is hard to do well. The risks of unintended consequences are large, and there's a chance we'll get more of what can be measured -- not what we truly want or need.

Paying doctors, teachers and executives incentives -- not big, fixed sums -- is at the core of President Barack Obama administration's economic reform plans. As WSJ's David Wessel reports, the idea is a contentious one.

In business, Mr. Obama and Treasury Secretary Timothy Geithner are trying to redirect calls for imposing salary caps to mandating "pay for performance." This isn't foreign to companies: They have long said they intend to peg compensation to numerical results and aren't insulted by the notion that professionals are motivated by money.

In health care, Mr. Obama and his budget director, Peter Orszag, insist that the only way the nation can afford to cover the uninsured and keep health costs from devouring the federal budget is to find better ways to define and measure quality in medical care -- and then pay doctors and hospitals for providing it. "We need to move toward a system in which doctors face stronger incentives for providing high-quality care rather than simply more care," Mr. Orszag says.

With similar logic, Secretary of Education Arne Duncan insists that improving American schools requires evaluating and paying teachers, at least in part, on how much their students learn -- as measured by gains in standardized-test scores. "Test scores alone should never drive evaluation, compensation or tenure decisions," he told a skeptical National Education Association convention last week. "That would never make sense. But to remove student achievement entirely from evaluation is illogical and indefensible." He rails against "firewall" laws in California that prohibit use of test scores in paying, promoting or evaluating teachers, as well as similar statutes in New York and Indiana.

Mr. Duncan adds that not linking student achievement to teacher effectiveness is like judging a sports team "without looking at the box score." That may not be the best metaphor. Major League Baseball forbids contracts that provide bonuses for "playing, pitching or batting skill." Highlighting the delicacy of defining objectives when pay is tied to performance, baseball sees paying a player for hitting more home runs, for instance, as counterproductive; it can lead a hitter to swing for the fences when the team needs a bunt or a base hit. Some contracts do reward playing time, though. Mets pitcher Francisco Rodriguez gets $150,000 if he finishes 50 games this season, another $150,000 for finishing 55 and $200,000 more if he gets to 60.

In health care and education, measuring and paying for quality is still novel. Being a teacher or a doctor once was seen, by practitioners and the public, as a calling, not a job. Doctors and teachers were said not to be motivated by money. For some, that's still true. But for many, the world has changed: Their jobs more closely resemble those the rest of us have. The argument that there is something wrong in principle with paying them for quality is losing force.

Say on Pay"This financial crisis had many significant causes, but executive compensation practices were a contributing factor. Incentives for short-term gains overwhelmed the checks and balances meant to mitigate against the risk of excess leverage."

"We need to move toward a system in which doctors face stronger incentives for providing high-quality care rather than simply more care."

"Test scores alone should never drive evaluation, compensation or tenure decisions. That would never make sense. But to remove student achievement entirely from evaluation is illogical and indefensible."

In health, evidence abounds that doctors do more of what insurance covers. The issue isn't whether incentives matter, but which incentives are offered. In education, the status quo is clearly broken, and existing pay schemes and union contracts too often protect the worst teachers and discourage the best.

The stronger argument is that quality measures remain crude and pay-for-performance schemes don't work as intended, despite advances in information technology that make collecting and analyzing data far easier. Also, recent history illustrates the potential for unintended consequences. In the business realm, chief executives during the 1980s and '90s were seen as so eager to hold on to their empires that they resisted takeovers that would benefit shareholders. So companies were pushed to pay CEOs with stock options, instead of cash. That gave the executives reason to do whatever they could (including fudging the books) to run up stock prices in the short term, cash in their options and walk away before stock prices plunged.

"In health care, it's very difficult to get a measure that adequately takes account of all the different dimensions of quality," says Princeton University sociologist Paul Starr. The same goes for education. As a result, often the only quality that gets rewarded is the sort that gets measured -- teaching to the test instead of inspiring students. "And however you structure the system," he adds, "there is almost certainly a way to game it."

Scott Miller, who teaches English to middle-school students whose first language is Urdu, Bengali, Arabic or Spanish, told Mr. Duncan last week: "They don't perform well on standardized tests in their second or third language. How can anyone possibly suggest that my family's paycheck or my performance evaluation be based on their test scores?"

After the cheers from Mr. Miller's peers died down, Mr. Duncan acknowledged the need for better ways to measure progress of special-education children and English learners. But elsewhere he has argued: "Saying [that] since standardized tests are not perfect, eliminate testing until they are, I think that's simply ridiculous. We need to monitor progress. We need to know what is and is not working and why."

Maybe Mr. Obama will turn next to measuring the performance of Washington officials so they, too, can be paid for quality.


1a) The Unemployed Will Roar
By Marie Cocco

When a virulent disease is ravaging you like a cancer, you don't want a cacophony of voices promoting different or contradictory cures. Yet that is what we're starting to hear about the economic crisis, not only from a politically divided -- and pretty scared -- capital, but from within the Obama administration itself.

In just the past few days, Vice President Joe Biden has said the young administration misread the depth of the recession -- an honest account, since most private economists did as well. Laura Tyson, an outside economic adviser to the White House, said it's wise to start preparing another stimulus package.

Then President Barack Obama made everything perfectly muddy when he said in an ABC News interview that the seriousness of the downturn and how to attack it is "something we wrestle with constantly." Yet in the next breath, he expressed concern about the burgeoning deficit.

But if anyone's looking for some clear voices, there are 650,000 of them just waiting to be heard. That is roughly the number of long-term unemployed who will begin losing their jobless benefits in September, according to the National Employment Law Project.

Remember, the recession didn't start last fall when the government bailed out AIG and the financial system froze. It began in December 2007 -- and 6.5 million jobs have been lost since then. Depending on which state and the sort of triggers that apply to benefits, hundreds of thousands of workers laid off early in the downturn are soon to be left without the basic sustenance of an unemployment check.

Meanwhile, the Labor Department says, the number of unemployed people out of work for 27 weeks or longer continues to grow, reaching 4.4 million last month. In June, three out of 10 jobless workers had been out of work for at least six months, according to the department's data.

The stimulus package the president signed soon after taking office did provide extended benefits, and boosted weekly payments. But even that extension runs out on Dec. 26, and would not apply to all the unemployed. Does anyone really believe that a significant portion of the unemployed will have found new work by then? Hardly. Both private and government economists now predict that unemployment will continue to rise at least through the end of this year.

"We can't ignore this moment when all these folks are running out (of benefits)," says Maurice Emsellem of the National Employment Law Project. "That needs to be a top priority, to help these workers."

Let's stop kidding ourselves. In no contemporary economic crisis -- not even those that unfolded on the Republicans' watch -- has Congress left the unemployed completely in the lurch. So some sort of spending package -- call it stimulus, call it stopgap emergency aid, whatever works -- is going to have to be passed.

The unemployment emergency helps feed another crisis Congress is going to be forced to address: the state budget disasters unfolding around the country. So far, 42 states have cut budgets that already had been enacted for fiscal 2009, according to the National Governors Association. More and deeper cuts are expected next year.

Already states have laid off and furloughed workers -- including, in some states, the very workers who process unemployment claims. Generally speaking, states are required to balance their budgets each year, a mandate that forces them to pull money out of the economy through spending reductions and tax hikes, counteracting the federal government's efforts to juice things up. "That is what happened during the Great Depression, we had states working against what the federal government was doing," says Heidi Shierholz, an economist with the Economic Policy Institute.

With red states and blue, Republican governors and Democrats, all struggling against the same relentless, recession-driven drops in tax revenue, an almost irresistible political coalition for more aid to states eventually will take shape. And with the fast-approaching September deadline for extending some unemployment benefits, there will likely emerge one of those must-pass measures that may or may not be called another stimulus bill.

Any hot air expended trying to stop it serves no purpose but to fuel political fires. Remember, that is the whole point of those now huffing and puffing most heartily. They don't want to figure a way out of this morass; they just want to figure out a way to unseat those now in office.


2) Saving Liberty
By R. Emmett Tyrrell, Jr.

A few weeks back, at the dawn of the Obama Administration, I was at dinner with a very bright woman of middle years who called herself an independent. She found the new president very engaging, but she was alarmed by the music in the air: a government takeover of Detroit, a $700 billion government bailout of the banks, a $787 billion stimulus bill, a cap and trade bill that will add perhaps $800-$2,000 to every family's tax bill, a massive healthcare reform now estimated to cost $1 trillion over the next decade. For the past thirty years, most of them good economic years, the federal bite into our GDP has been just under 20%. Calculating the cost of Obama's spending it will be 28.1% this fiscal year, a peacetime record!

My dinner companion was alarmed. She was not simply alarmed by the bills our president and his Democratic colleagues were ringing up on the Hill. My friend, the independent, was alarmed by something much more important, the cost to our freedoms. As I believe she put it, "the question here is our liberty." Increasingly, thoughtful Americans understand the Obama era in these terms. With the government suddenly looming so large in the life of every American, it is time for us to consider what is a singularly American possession, individual liberty. The Founding Fathers created a government that was uniquely solicitous about individual liberty. With the federal government so deeply involved in our healthcare, our banking, our manufacturing, and the many targets of its $787 billion stimulus program, it is time to think about your liberty vis-a-vis the government bureaucrats who are about to minister to you.

Ronald Reagan's modern conservative movement began thinking about the loss of individual liberty to government encroachment half a century ago thanks in part to the wake up call from Friedrich Hayek, delivered in his indispensable book The Road to Serfdom. Hayek believed government was a threat to freedom, enterprise, and the rule of law. Later another vigilant advocate of personal liberty, Frank Meyer, came along and became a major figure for American conservatives, propounding the exhilarating argument that freedom is essential to mankind. Freedom, he wrote, is the "essence of [man's] being," for without it a citizen cannot be moral, by which he meant cannot choose good over evil. Meyer believed freedom was at our essence because God put it there. God gave us freedom to choose, good over evil, art over schlock, a knee replacement over a Botox treatment.

Personal liberty makes each American citizen a creature of dignity. Obama overlooks this. Though in presenting Congress a $3.9 trillion budget on February 24 he insisted that "I'm not" for big government, he is. Consider the vastness of the budget, its far-reaching domestic policies, and much of his background as a community organizer. Clearly he is a big government guy. No other American president has been so committed to big government.

Historically most of our experiences with big government have been unhappy. Big government is expensive, inefficient, and once corrupted very difficult to clean up. Moreover, once a government bureaucracy has made its judgment on you, whom do you appeal to? With Obamacare, government will decide when and if you can get that knee replacement. From the clear utterances of the president's healthcare advisers, namely, Drs. Ezekiel Emanuel and David Blumenthal, that knee replacement will depend on such factors as your age and your overall health. If you are too old or decrepit, government will have a more economical place to spend its money. In other words, your health will not be decided by what you want to pay for it but by government policy. That test you wanted for colon cancer might be denied. You might just be too old. Such decisions are made by the nationalized British system all the time.

Almost any service the government provides can be more efficiently and effectively provided by private enterprise. The most striking example is the inefficiency of the money-losing U.S. Postal Service that has been swept aside by the internet and by such private carriers as UPS and FedEx. Government is not even very effective in its efforts at regulation. Consider the recent failures of Fannie Mae and Freddie Mac and at the Securities and Exchange Commission.

There is another unappreciated failing of government. It politicizes everything that it touches, including the simplest human relations. Agreements that ought to be arrived at voluntarily or through the rule of law are arrived at by lobbyists or thanks to the political power of your group -- ethnic, economic, or otherwise.

One of the little noted projects of the government healthcare reforms being considered on Capitol Hill today is the channeling of healthcare money away from the elderly and toward community services and drug or alcohol rehabilitation. Equal rights before the law is all well and good, but it is political favor and political power that matter when big government is making your decisions for you.

That is why so many Americans have opted for freedom from government. We recognize that the free society is the most humane…and the most productive.


3) The Public Option Two-Step: Why Obama won't acknowledge the 'Trojan Horse' in the room


Americans unschooled in liberal health-care politics may have trouble deciphering the White House's conflicting proclamations this week about a new government insurance program for the middle class. Allow us to translate: President Obama loves this so-called public option, but he needs to sell it in a shroud of euphemism and the appearance of "compromise."

On Monday, chief of staff Rahm Emanuel told the Journal's Laura Meckler that the Administration would accept a health bill without a public option, as long as there is "a mechanism to keep the private insurers honest . . . The goal is non-negotiable; the path is." Progressives went bonkers, so on Tuesday Mr. Obama took a break from his Moscow trip to come out strongly in favor (again) of the new trillion-dollar entitlement. Meanwhile, New York's Chuck Schumer has been loudly suggesting that compromise is unnecessary given 60 Senate Democrats -- even as the likes of Ben Nelson, Evan Bayh, Joe Lieberman and Mary Landrieu back away.

The reason left-flank Democrats are so adamant about a public option is because they know it is an opening wedge for the government to dominate U.S. health care. That's also why the health-care industry, business groups, some moderates and most Republicans are opposed. Team Obama likes the policies of the first group but wants the political support of the second. And they're trying to solve this Newtonian problem -- irresistible forces, immovable objects -- by becoming less and less candid about the changes they really favor.

Mr. Emanuel echoes his boss and says a government health plan is needed to keep the private sector "honest," but then why don't we also need a state-run oil company, or nationalized grocery store chain? (Or auto maker? Never mind.) The real goal is to create a program backstopped by taxpayers that can exert political leverage over the market.

In its strongest version, the federal plan would receive direct cash subsidies, allowing it to undercut private insurers on consumer prices. This would quickly lead to "crowd out," the tendency of supposedly "free" public programs to displace private insurance. As a general rule, Congress has to spend $2 of taxpayer money to provide $1 in new benefits. More precise academic studies of expansions in Medicaid and the children's insurance program put the crowd-out effect somewhere between 25% and 60%.

Because this is so expensive, the public version Mr. Schumer favors would supposedly receive no special advantages. But this is meaningless when Democrats are planning to mandate the benefits that private insurers must provide, the patients they must accept, and how much they can charge. Oh, and a government plan would still have an implicit taxpayer guarantee a la Fannie Mae, giving it an inherent cost-of-capital advantage.

A few swing votes such as Maine's Olympia Snowe might accept a "trigger," in which a government-run plan would only come on line if certain targets aren't met, such as reducing costs. But that only delays the day of reckoning. Another pseudocompromise is North Dakota Democrat Kent Conrad's idea to give the states seed money to set up health insurance co-ops. These plans would still be run under a federal charter and managed by a federal board, so they merely split the public option into 50 pieces.

The other goal of a new public plan is to force doctors and hospitals to accept below-cost fees. This is how Medicare tries to control costs today, but it's like squeezing a balloon: Lower reimbursements mean that providers -- especially hospitals -- must recoup their costs elsewhere, either by shifting costs onto private payers or with more billable tests and procedures. The only way costs can conceivably be managed via price controls is if government is running the whole show, which naturally leads to severe restrictions on care while medical innovation withers.

A rhetorical gong Mr. Obama has been banging a lot lately is the idea that the people pointing all this out are liars. "When you hear the naysayers claim that I'm trying to bring about government-run health care," he said in one speech, "know this: They're not telling the truth." He adds that opposition to a public option isn't "based on any evidence" and that it is "illegitimate" to argue that his program is "is somehow a Trojan horse for a single-payer system."

So much for changing the political tone. Perhaps the President should check in with his more honest liberal allies. Jacob Hacker, now a professor of political science at Berkeley, came up with the intellectual architecture for the public option when he was a graduate student in the 1990s. "Someone once said to me, 'This is a Trojan horse for single payer,' and I said, 'Well, it's not a Trojan horse, right? It's just right there,'" Mr. Hacker explained in a speech last year. "I'm telling you, we're going to get there, over time, slowly."

The real question the political class is debating now is how slowly, or quickly, it takes to get there. And how they're best able to disguise this goal -- ideally as a "compromise."

3a) Health care overhaul bill suffers another setback
By DAVID ESPO and ERICA WERNER

The drive to remake the nation's health care system suffered yet another setback in Congress on Thursday when a pivotal group of House Democrats demanded numerous changes in legislation the leadership was drafting on a fast track.

The emerging bill "lacks a number of elements essential to preserving what works and fixing what is broken," 40 members of the Blue Dog Coalition of moderate to conservative Democrats wrote in a letter to party leaders. To win their support, they said, any legislation would need to be much more aggressive in reining in the growth of health care.

The letter addressed to House Speaker Nancy Pelosi and Majority Leader Steny Hoyer also called for greater protections for small businesses and rural health care providers. It did not specify how much additional time the group wanted, but Rep. Mike Ross, D-Ark., said he believes no vote should take place until September.

That is well past a midsummer informal deadline set by Pelosi, D-Calif. "I promised the president that we would have legislation out of the House before we went on an August break," Pelosi said earlier in the day. "That is still my goal."

The group issued its letter as Democrats on the House Ways and Means Committee were laboring to put the final pieces in place on a bill that the White House has praised. The party's leadership had hoped to unveil it Friday and push it through committee next week, a timetable now thrown into doubt.

The developments came as a similar timetable appeared in danger of slipping away in the Senate.

There, the Democratic leadership is intent on scuttling a proposed tax on health care benefits that has long been key to attempts at a bipartisan compromise. At the same time, Senate Majority Leader Harry Reid and others went out of their way to emphasize their interest in gaining Republican support for legislation.

As an alternative, Democrats are considering raising taxes on wealthy investors to help pay for health care legislation, along with numerous other options, according to officials who spoke on condition of anonymity. The proposal to extend the current 1.45 percent Medicare payroll tax to capital gains earned by high-income taxpayers would bring in an estimated $100 billion over 10 years.

Obama has made health care legislation his top domestic priority, and Democrats in Congress vowed to make it their own, as well, when they returned from their July 4 vacation.

Despite some success — the nation's hospitals agreed to a cut of $155 billion in projected Medicare and Medicaid payments — progress has been scant and internal differences magnified.

In general, any bill that emerges from Congress is expected to follow Obama's blueprint for reining in health care costs overall while extending coverage to 50 million who lack it.

Another objective is to make sure that insurance companies can no longer deny coverage or raise premiums to unaffordable levels to individuals with pre-existing medical conditions.

But literally hundreds of details are involved in drafting legislation, and gaining a consensus even among Democrats is proving to be remarkably — if predictably — difficult, despite their large majorities in both houses.

As an example, some Democrats are demanding legislation that permits the government to sell insurance in competition with private companies. Republicans overwhelmingly oppose such a plan, deeming it a stalking horse for universal government-run insurance, and many Democrats have concerns, as well.

Some Democrats prefer a plan for a nonprofit cooperative to take the place of government in competing with private companies. Others favor a government role only in cases in which consumers lack a choice in coverage.

Similarly, Democrats are divided on paying for the bill, some preferring more tax increases than others, some favoring more cuts in Medicare and Medicaid.

"We've just got a lot of question and the top of the list would be how to pay for it," said Rep. Marion Berry, D-Ark., one of the Blue Dogs.

"I don't think we have significant cost-containment mechanisms in the proposal yet," said Rep. Adam Schiff, D-Calif. He said he favors provisions aimed at preventing overtreatment of patients and overpayments to doctors, hospitals and other providers.

A dispute over tax increases was at the core of upheaval in the Senate earlier in the week.

Sen. Max Baucus, D-Mont., and chairman of the Finance Committee, has been working for months with Republicans in hopes of gaining support for a bipartisan bill that can command 60 votes.

Efforts to raise money to pay for subsidizing the cost of insurance had focused on a tax on health care benefits for workers with high-cost coverage provided by their employers.

Baucus and Republican supporters argued it would also have tended to reduce the cost of health care overall, as well as offset the cost of the bill. But the Democratic leadership stepped in forcefully, citing poor public polling, opposition of organized labor and concerns about taxing middle-income workers.

As a result, Baucus and other members of the Finance Committee have broadened their search for alternative taxes to replace the $320 billion the benefits tax would have raised over a decade.

In addition to the tax on capital gains, officials said other options include a fee on insurance companies or drug manufacturers, a plan to allow states to issue health care bonds, and possibly a tax on sugary drinks.

An income tax surcharge on the wealthy was also on a list in circulation, as was Obama's proposal from last winter to limit the value of itemized deductions for those with the highest income.

Neither seemed likely to gain Republican support.




4) Mixed-Up On Iran
By INVESTOR'S BUSINESS DAILY

Mideast: As Iran continues to work on a nuclear weapon that will forever shift the world's balance of power, the U.S. position gets muddier by the day. What, exactly, is our policy?


Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, says the "clock has continued to tick" on Iran, which so far has ignored the International Atomic Energy Agency, the U.S., NATO and the European Union to proceed with its prohibited nuclear program. But what's it ticking down to?

The U.S. has officially decided to give Iran until the end of this year to halt its nuclear program and show its good faith as a member of the global community.

All well and good. Let diplomacy work. But what about when time expires, and Iran's still building a nuke? What then? The signals the White House is sending are mixed, to put it mildly.

Last Sunday, Vice President Joe Biden seemed to suggest the U.S. has given Israel a green light to attack Iran. As he said on ABC's "This Week": "We cannot dictate to another sovereign nation what they can and cannot do when they make a determination, if they make a determination, that they're existentially threatened."

Within hours, the State Department corrected Biden, saying there's "no green light" for an Israeli attack. This, it emphasized, is a matter for Mideast governments to work on, and the U.S. would seek "even stricter" sanctions on Iran if talks fail.

And on Tuesday, President Obama reversed Biden's remarks, saying the U.S. had "absolutely not" approved an attack by Israel. "We have said directly to the Israelis that it is important to try and resolve this in an international setting in a way that does not create major conflict in the Middle East," Obama said.

Problem is, Saudi Arabia — the Mideast's major Arabic power broker — has already made it clear it would not stop Israel from flying over its territory to attack archenemy Iran.

Is all this an exercise in constructive ambiguity, keeping the opponent off guard by not letting him know your true intent? Are we winking at Israel and Saudi Arabia? Or is it simply confusion?

According to several news reports, Israeli Prime Minister Benjamin Netanyahu has decided not to ask the U.S. for permission to attack Iran. He fears the new administration would say no.

Given Iranian President Mahmoud Ahmadinejad's repeated calls for Israel to be wiped off the map, Israel lives with a very real threat — one that will become deadly if Iran gets a nuke.

A nuke in the hands of Iran would be a game changer — one that would endanger not just Israel, but also Iraq, India, Saudi Arabia, Egypt, Turkey and Southern Europe. The world's balance of power would shift, and many of our allies would be in danger.

With so much at stake, is ambiguity the best policy? Not as far as we're concerned. In both word and deed, the U.S. needs to make it clear to Tehran that a nuclear weapon will not be tolerated.

Intelligence estimates say the Iranians may be as little as one year away from having a workable nuclear weapon. If they think we won't do anything about it, they'll keep working on it.

"I'm hopeful," Mullen says, "that . . . dialogue is productive. I worry about it a great deal if it's not." So do we.

5) Afghanistan: We're asking our troops to do the impossible It is time for a new strategy and fresh commitment to Afghanistan.
By Nick Clegg


When I visited British troops in Afghanistan last year I was, like everyone else, hugely impressed by their professionalism and courage. That admiration only deepens when news comes, all too regularly, of the death of someone serving there. Lt Col Rupert Thorneloe, who helped organise my visit, was killed last week alongside Trooper Joshua Hammond, in a vehicle unable to withstand a roadside bomb. We owe it to them to ensure their sacrifice is not in vain.

As leader of the Liberal Democrats, I have been keen to maintain the cross-party consensus on Afghanistan that formed after September 11, and has not faltered since. But recent events have led me to question, for the first time, whether we're going about things in the right way. I am concerned that we are simply not giving our troops the means to do their difficult job. We must not will the ends without being prepared to will the means.


I am a Liberal interventionist, who believes military action is justified when supported by reason and the law. I support the aim of our mission wholeheartedly: to stop Afghanistan reverting to a haven for terrorism, with its people oppressed and impoverished. To achieve that, military forces need to create enough space for stability and good governance to take root.

But we need to ask whether the Government has the will, strategy or tactics to do the job properly.

First: equipment and troop numbers. If you send people to war, you must supply the resources they need, or you should not send them at all. Otherwise you are betraying the fundamental covenant between a nation and its armed forces. I am appalled that so many of our soldiers have been killed because of inadequate equipment, and disturbed to hear from experts that we don't have enough forces to hold and rebuild territory once it has been won.

The US seems to have come to the same conclusion, and has deployed its own forces in Helmand, relegating us to the background, as in Basra. I can only imagine how demoralising it must be for our troops to feel they have to be bailed out by Uncle Sam.

But as Paddy Ashdown has been arguing, military action will never be enough. We need a co‑ordinated political strategy. For too long, governments, international agencies and NGOs have been incapable of speaking with one voice. Britain's lukewarm support for European co-operation in defence and security planning has contributed to the fragmented nature of operations. Our soldiers' lives are being thrown away because our politicians won't get their act together. To help them, we need a single individual or institution with a strong mandate, co-ordinating the actions of all international players.

Finally, there is the issue of corruption. If the Taliban are to be defeated, the Afghan people need to learn to trust state institutions – a huge challenge in a country that's never had effective central government. Yet progress is made impossible by corruption. We all hope to see free and fair presidential elections next month, but there are growing concerns that the candidates could be too compromised by their pasts. Rooting out corruption at all levels must be given a higher priority. Afghanistan will never prosper until peasant and president alike are subject to the rule of law.

The future of Afghanistan is of huge importance, but it will never be secured with troop and equipment shortages, an un‑coordinated political strategy and a blind eye turned to corruption. We must think again – not about pulling out, but about doing things differently. There are many options: the only one I would rule out is following the current course. It is a halfway house that lets our troops down by asking them to do the impossible. It is time to put real political will behind a new strategy, and a new commitment to Afghanistan. It is our last chance before it is too late.

6) Doctor Doom: Brown Manure, Not Green Shoots
By Nouriel Roubini


The June employment report suggests that the alleged green shoots are mostly yellow weeds that may eventually turn into brown manure. The employment report shows that conditions in the labor market continue to be extremely weak, with job losses in June of over 460,000. With the current rate of job losses, it is very clear that the unemployment rate could reach 10% by later this summer--around August or September--and will be closer to 10.5%, if not 11%, by year-end. I expect the unemployment rate is going to peak at around 11% at some point in 2010, well above historical standards for even severe recessions.

It's clear that even if the recession were to be over anytime soon--and it's not going to be over before the end of the year--job losses are going to continue for at least another year and a half. Historically, during the last two recessions, job losses continued for at least a year and a half after the recession was over. During the 2001 recession, the recession was over in November 2001, and job losses continued through August 2003 for a cumulative loss of jobs of over 5 million; this time we are already seeing more than 6 million job losses and the recession is not over.

The details of the unemployment report are even worse than the headline. Not only are there large job losses right now, but as a way of sharing the pain, firms are inducing workers to reduce hours and hourly wages. Therefore, when we're looking at the effect of the labor market on labor income, we should consider that the total value of labor income is the product of jobs, hours and average hourly wages--and that all three elements are falling right now. So the effect on labor income is much more significant than job losses alone.

The details also suggest that other aspects of the labor markets are worsening. If you include discouraged workers and partially employed workers, the unemployment rate is already above 16%. If you consider also that temporary jobs are falling now quite sharply, labor market conditions are becoming worse and the average duration of unemployment now is at an all-time high. So people not only are losing jobs, but they're finding it harder to find new jobs. So every element of the labor market is worsening.

The unemployment rate rose only marginally from 9.4% to 9.5%, but that's because so many people are discouraged that they exited the labor force voluntarily and therefore are not counted in the official unemployment rate.

The other element of the report that must be considered is that, for the summer, the Bureau of Labor Statistics (BLS) is still adding between 150,000 and 200,000 jobs based on the birth/death model. We know the distortions of the birth/death model--that in a recession jobs created within firms are much smaller than those created by firms that are dying. So that's distorting downward the number of job losses. Based on the initial claims for unemployment benefits, it's more likely that the job losses are closer to 600,000 per month rather than the figures officially reported.

These job losses are going to have a significant effect on consumer confidence and consumption in the months ahead. We've also seen extreme weakness in consumption. There was a boost in retail sales and real personal consumption-spending in January and February, sparked by sales following the holiday season, but the numbers from April, May and now June are extremely weak in real terms. In April and May you saw a significant increase in real personal income only because of tax rebates and unemployment benefits. In April, there was a sharp fall in real personal spending, and in May the increase was only marginal in real terms.

This suggests that most of the tax rebates are being saved rather than consumed. The same thing happened last year: With a $100 billion tax rebate, only thirty cents on the dollar were spent while seventy cents were saved. Last year, people expected the tax rebate to stimulate consumption through September. Instead, there was an increase in April, May and June, with the increase fizzling out by July.

This year it's even worse. We have another $100 billion in tax rebates in the pipeline. But the numbers suggest that in April, real consumption fell. And in May it was practically flat. So this year households are even more worried than they were last year about jobs, income, credit cards and mortgages. Most likely only around 20 cents on the dollar--rather than 30 cents last year--of that increase in income is going to be spent. In any case, that increase in income is just temporary and is going to fizzle out by the summer. So you can expect a significant further reduction in consumption in the fall after the effects of the tax rebates fade.

The other important aspect of the labor market is that if the unemployment rate is going to peak around 11% next year, the expected losses for banks on their loans and securities are going to be much higher than the ones estimated in the recent stress tests. You plug an unemployment rate of 11% in any model of loan losses and recovery rates and you get very ugly losses for subprime, near-prime, prime, home equity loan lines, credit cards, auto loans, student loans, leverage loans and commercial loans--much bigger numbers than what the stress tests projected.

In the stress tests, the average unemployment rate next year was assumed to be 10.3% in the most adverse scenario. We'll be already at 10.3% by the fall or the winter of this year, and certainly well above that and close to 11% at some point next year.

So these very weak conditions in the labor market suggest problems for the U.S. consumer, but also increasing problems for the banking system as these sharp increases in job losses lead to further delinquencies on loans and securities and lower than expected recovery rates.

The latest figures on mortgage delinquencies and foreclosures suggest a spike not only in subprime and near-prime delinquencies, but now also on prime mortgages. So the problems of the economy are significantly affecting the banking system. Even if for a couple of other quarters banks are going to use the new Financial Accounting Standards Board (FASB) rules and under-provisioning for loan losses to report better-than-expected results, by Q4, with unemployment rates above 10%, that short-term accounting fudge will have a significant impact on reported earnings. And this will show the underlying weakness in the economy. So banks may fudge it for a couple of other quarters, but eventually the effects of very sharp unemployment rates and still sharply falling home prices are going to drag down earnings and have a sharp effect on losses and capital needs of the banks and the entire financial system.

Essentially, the results today suggested that there are not as many green shoots. These green shoots, as I've argued, are mostly yellow weeds that may even turn into brown manure if a double-dip, W-shaped recession occurs in 2010-11. And it's not just the employment situation. Real consumption and retail sales remain weak. Industrial production remains weak. The housing market, in terms of price adjustment, remains weak, even if the quantities--demand and supply--may be closer to bottoming out. Indeed, the inventory of unsold new homes is so large that you could stop producing new homes for almost a year to get rid of that inventory. Moreover, about 50% of existing home sales are distressed sales (short sales and foreclosed homes).

The labor market conditions may have a significant effect on how long it takes for the housing market to bottom out. It's already estimated that by the end of this year, there will be about 8.4 million people with a mortgage who have lost jobs, and therefore have little income. Therefore, the number of people who will have difficulties servicing their mortgages is going to rise very sharply.

Home prices have already fallen from their peak by about 30%. Based on my analysis, they are going to fall by at least 40% from their peak, and more likely 45%, before they bottom out. They are still falling at an annualized rate of over 18%. That fall of at least 40%-45% percent of home prices from their peak is going to imply that about half of all households that have a mortgage--about 25 million of the 51 million that have mortgages--are going to be underwater with negative equity and will have a significant incentive to walk away from their homes.

The job market report is essentially the tip of the iceberg. It's a significant signal of the weaknesses in the economy. It affects consumer confidence. It affects labor income. It affects consumption. It affects the willingness of firms to start increasing production. It has significant consequences of the housing market. And it has significant consequences, of course, on the banking system.

Overall, it's an extremely weak report and suggests that weakness in the labor markets is going to continue, and that the recession is more likely to continue through the end of the year and the beginning of next year. It also suggests that recovery will be anemic, subpar, below trend. We are still estimating that U.S. growth next year is going to be 1% above the 2009 level, well below a potential growth rate of 3%. This is because there is little deleveraging of households, corporate firms and financial institutions while there is a massive re-leveraging of the public sector with sharply rising deficits and debts as many of the private losses have been socialized.

There are also signs that there may be forces leading to a double-dip recession sometime toward the second half of next year or toward 2011. If oil prices rise too much, too fast, too soon, that's going to have a negative effect on trade and real disposable income in oil-importing countries (U.S., Europe, Japan, China, etc.).

Also, concerns about unsustainable budget deficits are high and are going to remain high, with growth anemic and unemployment rising. These deficits are already pushing long-term interest rates higher as investors worry about medium- to long-term stability. If these budget deficits are going to continue to be monetized, eventually, toward the end of next year, you are going to have a sharp increase in expected inflation--after three years of deflationary pressures--that's going to push interest rates even higher.

For the time being, of course, there are massive deflationary pressures in the economy: the slack in the goods markets, with demand falling relative to supply-and-excess capacity. The rising slack in labor markets, which are controlling wages and labor costs and pushing them down, implies that deflationary pressures are going to be dominant this year and next year.

But eventually, large budget deficits and their monetization are going to lead--toward the end of next year and in 2011--to an increase in expected inflation that may lead to a further increase in 10-year treasuries and other long-term government bond yields, and thus mortgage and private-market rates. Together with higher oil prices driven up by this wall of liquidity rather than fundamentals alone, this could be the double whammy that could push the economy into a double-dip or W-shaped recession by late 2010 or 2011.

So the outlook for the U.S. and global economy remains extremely weak ahead. The recent rally in global equities, commodities and credit may soon fizzle out as an onslaught of worse-than-expected macro, earnings and financial news take a toll on this rally, which has gotten way ahead of improvement in actual macro data.

Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics (RGE), is a weekly columnist for Forbes. Read more of his columns here.

7) When recovery comes, it won't feel like one: The end of the recession will merely be the start of a long, painful journey.
By Edmund Conway

It's a game of far more than two halves: more tactical than cricket, more stomach-churning than boxing and more complex than bridge. Throughout a magnificent summer of sport, one competition has lasted longer than any other, and generated the most heated debate. Its goal? To guess when the recession will end.

Every week, it seems, has brought new economic indicators, good or bad. Indeed, the whole thing has recently descended into farce: first, economists were tripping over themselves to declare that we were heading for a "V-shaped" recovery, in which we soared out of the downturn at speed. Then they realised that the economy had contracted in the first three months of the year at the fastest rate since, most probably, the 1930s (the quarterly figures don't go back that far), and started talking about "double dips".

In fact, from a technical point of view, we are close to the end of the recession, in that economic growth is probably stagnating rather than shrinking. But this misses the fundamental issue: this recession was unlike any we've experienced since the Second World War. All the old yardsticks – those that measure economic expansion or contraction, for instance – are of limited use.

What we must fear this time is not the recession, but what follows. In 1931, in a lecture in Chicago, John Maynard Keynes spelt out the lesson we need to remember. The spring of that year had, much like this summer, been dominated by the search for green shoots. Markets had bounced back after the Wall Street Crash; industrial production had started to level out; confidence was returning. But, the great economist warned, "it is a possibility that the duration of the slump may be much more prolonged than most people are expecting and that much will be changed, both in our ideas and in our methods, before we emerge. Not, of course, the duration of the acute phase of the slump, but that of the long, dragging conditions of semi-slump, or at least sub-normal prosperity, which may be expected to succeed the acute phase."

In other words, it is not the recession itself that will change the way we view our economy, but what follows it. It might feel like an eternity since the banking system collapsed, but as we impatient humans frequently forget, economics is a slow-motion affair. Having undergone a life-saving emergency operation, we are (in structural terms) still barely out of the emergency room, and still under the heavy anaesthetic of lower interest rates and fiscal stimulus.

This, perhaps, explains the strange feeling that many people have, which is that it doesn't really feel like a recession at all. Most of us still have our jobs; even those whose companies are under threat of collapse are able to stave off unemployment by cutting back their hours and taking breaks from work. Consumer consumption has hardly come to a standstill: many restaurants are still doing good business; mocha frappucinos are being downed; life goes on.

Yet recessions are, by their very nature, events that affect only a minority of the population. Throughout the next few years, most of us will keep our jobs and be broadly unaffected by the ordeal. But there will be no return to the boom years: the recovery will instead take the form of a long convalescence, one that has barely even begun.

Neither is the gloom about to lift any time soon. At some point in the not-too-distant future, the anaesthetic will have to be cut off – interest rates must rise, the Government must start cutting its deficit and either reducing spending or raising taxes. Indeed, the International Monetary Fund spelled it out yesterday: while every other major country has budgeted to spend at least something on measures to lighten the downturn next year, Britain's parlous position means we will not been able to put a bean towards another stimulus.

Meanwhile, unemployment is already on the rise: the number of people in work has fallen by 400,000 in the past year – the biggest drop since comparable records began in 1971. Many of the jobless are City workers with a bit of money to support them, or university graduates unable to find work (the case for one in five young men between 18 and 24). Redundancy hurts, as does failing to get an internship after college; but neither is as bruising as facing years of repeatedly trying and failing to find a job.

In terms of house prices, the worst of the price falls are over, but the prospect of buying has become no easier for the majority, because borrowing money is so difficult. The Bank of England's interest rates are at near zero, yet banks are offering three-year fixed-rate mortgages at more than 6 per cent. And although the banks are making profits again, and financiers may award themselves even bigger bonuses, it is likely to be just as ephemeral, especially when the Government's grand pledges to clamp down on City excess actually become law. Even if yesterday's White Paper doesn't do for the bankers, there will still be intense recrimination from the masses of the unemployed in the months and years to come.

In other words, we might well be coming out of recession. But for almost every section of society, the recovery will feel anything but.

8) In AIG They Don't Trust: The company should ask Spitzer for reimbursement

The AIG follies took another turn Tuesday, as former CEO Hank Greenberg won a federal jury verdict against his old employer over some $4.3 billion in a company Mr. Greenberg now runs, Starr International, and a related foundation. This is a victory for contract law over legal invention, but it's also a reminder of a catastrophe that didn't need to happen.

The litigation began after AIG was pressured by New York Attorney General Eliot Spitzer to fire Mr. Greenberg in March 2005. After making false public claims about Mr. Greenberg, Mr. Spitzer never filed criminal charges and his civil case has been falling apart over time, with the key charges dropped years ago. But Mr. Spitzer's impact on AIG endures. Decapitated by the prosecutor in 2005, the business suffered under politically approved leadership, made huge bets on derivatives related to the housing market, and then was essentially nationalized without a shareholder vote in September 2008.

Several botched federal interventions and $173 billion in taxpayer assistance later, we now have the spectacle of AIG executives scrambling in court for money that's not theirs. Perhaps AIG would be better off seeking contributions from Mr. Spitzer, who after resigning as Governor over a fling with a prostitution ring is back in the family real-estate business when not using a column in Slate to begin his political comeback.

As a legal matter, the lesson of the case appears straightforward: If corporate executives wish to claim that a trust was created for their benefit, but they can't present documents demonstrating the creation of a trust, they will probably lose. Starr International, created in 1943, owned overseas insurers that were rolled into AIG in 1970, with Starr maintaining a large chunk of AIG stock. While running AIG, Mr. Greenberg used Starr as a vehicle to reward AIG executives with stock without diluting AIG shareholders.

Though unconventional, the arrangement attracted talented managers, who in turn delivered outstanding results for AIG shareholders for decades. Then came the Spitzer prosecution, a resulting flurry of lawsuits between the man who built AIG and the company ordered to fire him, and the claim that jurors finally had the chance to reject this week. The AIG claim was that Mr. Greenberg's method of rewarding AIG superstars was actually an entitlement created by a trust. Just one problem -- the jury decided there was no trust.

Once they get past the sting of defeat, AIG executives might see virtues in this loss. For starters, the jury may have saved them from creating the next bonus scandal. While the company's PR machine claimed the company wanted to claw cash from Starr to repay taxpayers, AIG's legal filings said AIG executives were the intended recipients.

Mr. Greenberg's victory might also help AIG's leadership focus on the insurance business. The jury verdict didn't help the company's stock price, but the lack of a coherent plan to repay the government and uncertainty over who will succeed departing CEO Ed Liddy are big reasons its shares are down roughly 40% since last week's reverse stock split. It's not easy to see how anyone could make AIG a winner for taxpayers, but a business strategy is sure to attract more investment than a litigation strategy. If federal judge Jed Rakoff affirms the jury's decision next month, AIG could at least benefit from one less distraction.


9)Do We Need a Second Stimulus? A more troubling question is why so little is being spent from the first
By EDWARD P. LAZEAR

In "Brewster's Millions," a comedy starring Richard Pryor, a man is told he can keep $300 million if he manages to spend $30 million in one month. The movie documents -- with a great deal of humor -- his difficulties getting the money spent. The Obama administration is currently facing a similar problem with its "stimulus" spending, only without the humor.

With the economy weak and the labor market continuing to decline, there is now talk of a second stimulus (which is actually the third, counting President Bush's 2008 tax rebates). This would be a mistake. The truth is there hasn't been any stimulus to speak of so far this year. Moreover, what's being called stimulus is just a smoke screen for a permanent expansion of government. Let's start with some facts.

By June 26, about $56 billion was spent on the stimulus from the American Recovery and Reinvestment Act of 2009, passed Feb. 17. A large proportion of that actually reflects mere transfers from the federal government to state governments, so the amount that has gotten into the economy is significantly lower.

But even if we call all of the $56 billion spending, it's still not enough to make a meaningful impact. By this point of the year in 2008, the Bush administration's tax-rebates got out about $80 billion. Most economists believe the rebates had a positive but hardly dramatic effect on the economy.

The Obama stimulus, being significantly smaller, cannot possibly be expected to turn the economy around. The economy will improve. But it will do so because the financial sector is recovering, largely due to the Fed policies to enhance liquidity and the success of the Bush administration's Troubled Asset Relief Program, continued by the Obama team, in helping to recapitalize the banks.

Congress and the Obama administration have used the economic downturn as an excuse to expand the size of government. Calling it a stimulus, they have instead put in place a spending agenda that will unfold over the next two years. Although a little over one-third of the American Recovery and Reinvestment Act of 2009 goes to tax relief, the rest is in the form of spending programs that will be difficult to stop once they are up and running.

Only a small share of the spending will occur in 2009, even though Keynesians would argue that stimulus spending should be frontloaded to kick-start growth. The Congressional Budget Office estimates that the largest share of the spending will occur in 2010, with the amount in 2011 being slightly larger than in 2009. Again, the timing exacerbates the problem: It will be tough to cut back on spending written into budgets as far out as 2011.

Additional evidence that the Obama administration wants to expand government rather than stimulate the economy comes from the president's own statements about deficit reduction. When the budget came out, he announced a goal of reducing the deficit to around 4% of GDP by 2013, at which point the administration believes the economy will be fully recovered. Yet to keep the ratio of public debt to GDP constant, the deficit must actually stay below about 2.7%.

For perspective, recall that the Bush deficit, which has been criticized for being too large, reached a peak of 3.6% of GDP in 2004. But it fell steadily to 1.2% of GDP by 2007 before rising again to about 3% after TARP.

Some argue that a tax cut is a weaker stimulus than direct government spending. This point is debated among economists. But it is clearly much easier for Treasury to write checks to the public than it is to get agencies to rev up spending programs and do so in a way that does not simply throw away money.

It's a bit odd that the reaction by the Obama administration and some congressional leaders to a policy that has not worked is to consider putting a similar policy in place. One interpretation is that this is yet another opportunity to spend more on programs that Democrats have wanted for years.

It may be the case that the country wants more government, that Americans now believe the European model of big government is best. That is a decision that society must make. But it should do so with no illusions: The current stimulus and calls for a future one are primarily government growth policies, not strategies to shorten the current recession.

Mr. Lazear, chairman of the President's Council of Economic Advisers from 2006-09, is a professor at Stanford University's Graduate School of Business and a Hoover Institution fellow.

10) The Dumbing Down of Democracy:Obama's reluctance to stand up for Western political values is dangerous.
By DANIEL HENNINGER

The pivotal foreign policy event so far in the Obama presidency was not this week's summit with Russia. It was instead that rarest of all events: Barack Obama's silence.

When the people of Iran filled the streets of their country demanding a fair election, the U.S. clutched for a week. Uncertain of whether U.S. interests lay with the nuke-building ayatollahs or the democracy-seeking population, the Obama team essentially mumbled sweet nothings through the first days of the most extraordinary world event in this young president's term. That moment of hesitation, when a genuine and strategically useful democratic moment needed support, could prove costly.

When the Group of Eight nations tried to shape a response to the Iranian government's repression, its newest member, Russia, knew what to say about Iran.

"No one is willing to condemn the election process," said Russian Foreign Minister Sergei Lavrov, "because it's an exercise in democracy."

Behold the official dumbing down of democracy.

Our purpose here is not to ridicule Foreign Minister Lavrov's absurd description of the Iranian elections. It is instead to show his statement the respect that anything dangerous deserves.

Two years ago in June, Vladimir Putin's main press spokesman, Dmitry Peskov, visited the offices of the Journal editorial page. It was a remarkable meeting. The editors asked about the widely discussed criticisms of the Putin government's actions against opposition political parties and individuals and its control of the media. With a calm and confident smile, Mr. Peskov replied: "Ours is a different system of democracy." That was it. He stopped talking but kept smiling, letting the message sink in.

Dmitry Peskov was defining democracy in a way that could hardly be more different than the system of political pluralism developed the past 300 years in the West. His message was clear: We are changing the rules. Get over it.

In this light, President Obama's performance this week in Moscow was disconcerting, to put it mildly. In Mr. Obama's worldview, political systems apparently don't compete. They simply . . . are. "America cannot and should not seek to impose any system of government on any other country," he said, "nor would we presume to choose which party or individual should run a country."

Mr. Obama's political equivalence, conventional wisdom now among many Western sophisticates, is wrong and dangerous. Unless the West, led by the U.S. under this president offers active push-back against the Russian definition of democracy, their version inexorably will back out ours.

The design of Iran's election was a perfect mirror of Russia's. Foreign Minister Lavrov wasn't ratifying it for our benefit. Like Dmitry Peskov, he couldn't care less what the Americans or Europeans think of his astonishing statement. His audience is the world's other leaders and parties.

Where is it written that American-style democracy will last forever, much less spread to new nations? If the members of the U.N. General Assembly could choose between the democracy of the U.S., Britain and France or that of Russia, Venezuela and Bolivia, likely it would be the latter. Genuine democracy is hard work. Why should the likes of Pakistan, Iraq, Turkey, Taiwan or Brazil endure that stress if Potemkin Village democracy is okay?

What Putin, Khamenei, Chavez, Morales and Mubarak want is fait-accompli legitimacy. When resistance to their dumbed down democracy stops, they'll have it. Vocal criticism, even as eloquent as Mr. Obama's in Moscow this week or in Cairo, is not resistance. Real resistance requires acts of political push back that all the world's people can see and recognize.

A study released last month by Freedom House, "Democracy's Dark Year," reported democratic erosion in most of the new European Union member states and in the then-inspiring "color revolution" nations -- Georgia's Rose Revolution, Ukraine's Orange Revolution and Kyrgyzstan's Tulip Revolution.

Latin America is also tipping toward dissolved democracies. The 34 nations of the Organization of American States just voted to readmit the Cuban dictatorship. After the vote, the OAS foreign ministers broke into applause, and the summit's host joyously announced, "The cold war has ended." Those words of congratulations for unrepentant anti-democrat Fidel Castro came from Manuel Zelaya, then president of Honduras.

Elected in 2005, Mr. Zelaya has been using his muscle to import the Russian-Venezuelan-Iranian political model to Honduras. That means rigged future elections and the constitution changed by fiat to validate the rigging. After meeting with Mr. Zelaya in Washington Tuesday, Secretary of State Hillary Clinton off-loaded Honduras's fate to former Costa Rican president Oscar Arias.

Letting genuine democratic aspirants in places like Iran and Honduras lose in front of a watching world will exact a price. The United States and the other John Locke democracies are in an active, long-term competition with fake democrats over whose politics governs the next century. And they will presume to choose which parties should run other counties.

There is the clear sense that anything the Bushies did, the Obama sophisticates will not do. Does the fact that the Bushies pushed democracy mean it would be bad form to support even our own political system?

11) Health-Care Overhaul Goals Prove Challenging
By JANET ADAMY

Lawmakers are trying to keep the price of a health overhaul near $1 trillion over a decade. They also want the plan to result in near-universal coverage, so that more than 95% of Americans have health insurance.

Reaching both of those numbers at the same time is turning into one of hardest tasks for Congress and the White House. The nonpartisan Congressional Budget Office has found that several initial efforts either sailed beyond the targeted price tag or left many people without insurance.

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The CBO said this week that one Senate proposal, when combined with certain expansions to the Medicaid program, would cost about $1.1 trillion over a decade and still leave 15 million to 20 million Americans uninsured in 2019. Currently, about 46 million U.S. residents lack insurance, according to the Census Bureau.

The Senate Health, Education, Labor and Pensions Committee at first developed a plan that offered generous subsidies to lower-income Americans to help them buy health insurance. The proposal would require most people to carry insurance or pay a penalty.

When the price tag came in too high, lawmakers whittled the subsidies, which helped the cost problem but made it difficult for people to buy insurance. "The more you're going to make people pay, the harder it is to say to them, 'You must buy it,'" said David Cutler, a professor of economics at Harvard University.

Keeping the federal cost to around $1 trillion or less is critical because the White House is emphasizing that the plan won't increase the deficit -- meaning savings must be found for every dollar spent.

."Rising costs are crushing us," Vice President Joe Biden said Wednesday. "They're crushing families, crushing businesses, crushing state budgets -- and they are crushing the health-care industry itself." Mr. Biden trumpeted a deal with the hospital industry to cut government payments through Medicare and Medicaid by $155 billion over a decade, savings that could be used to fund an overhaul.

According to a CBO estimate last week, the Senate health committee's proposal would cost $611 billion over 10 years. That estimate didn't include the cost of expanding Medicaid, the federal-state insurance program for the poor, because that's outside the committee's jurisdiction. The CBO said Tuesday that expanding Medicaid to a new batch of Americans with incomes as high as $33,000 a year for a family of four would add $500 billion to the cost of the proposal.

The high cost estimates and prospect that millions would remain uninsured has left negotiators scrambling for ways to make the numbers work. The Senate Finance Committee, which is working on a parallel health bill, has discussed delaying the Medicaid expansion until 2013. That would reduce the 10-year cost of the bill. The committee is considering a narrower expansion of the program than the one calculated by the CBO, so the measure may result in a smaller reduction in the uninsured number by the end of the 10-year period.

Republicans say the expansion of public programs would undercut the current employer-based health-insurance system. Sen. Mike Enzi of Wyoming, the ranking Republican on the health committee, said Wednesday that the committee's bill "breaks the Democrats' promise that if you like the care you have, you can keep it." Sen. Enzi said the plan "will force millions of Americans to lose their current health insurance."

Another way to bring down the number of uninsured while keeping down the cost is to enact stricter mandates on businesses to offer health insurance and individuals to have it. However, those mandates are politically sensitive and carry costs of their own -- albeit not directly paid by the government.