I recently received an update letter from the two campus presidents (Annapolis and Santa Fe) which I wish to quote from, as follows:
"...In a recent Washington Post front page article, the argument continued showing how students at a prestigious research-based university could graduate without having taken English, math or science The article compared this finding to St John's where students must complete four years of English, math and science to graduate.
More and more of our students use their summers by taking advantage of the college's paid internship opportunities...As one of our students said, "The internship reinforces my notion that I have the ability to work in almost any field I choose..."
I have repeatedly written an educated, participating electorate and a strong family unit are the bed rock of any Democracy/Republic. This is why ours seems to be falling apart.
St John's is not for everyone. It is a self-selecting type school but those who attend are exposed to a rigorous program and St John's graduates students capable of reading and reasoning. Something our nation sorely lacks.
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Another Syrian nuclear site suspected. What say Obama? More laborious negotiations through the impotent U.N? (See 1 and 1a below)
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Caroline Glick explains why our brilliant academic president is having his head handed to him by the very Arabs and Muslims he sought to and thought he could appease.
Welcome to The Middle East, Barak, or what will be left of it by the time you realize what has hit you if you ever get to that point!
Had enough change Barak?(See 2 below.)
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Some politically cheesy things are happening in Wisconsin. Obama, Progressives and union bosses are saying no they will not give in to demands they act fiscally responsible. Obviously they like gravy on their 'cake!'
The nation is getting an eye full of what human pigs look like.(See 3 below.)
Meanwhile a big pork sized man, Gov. Christie, has done his homework and is making fools of those who try opposing him. (See 3a below,)
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Does the world's economic recovery hang by the 'gold threads' of some sick old men? (See 4 below.)
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I knew the election of Obama would prove an unmitigated disaster but even I never reckoned how bad things could get in only two years.
Pour a stiff Scotch and have a great weekend.
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Dick
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1)Second Suspected Syrian Nuclear Site Identified
Commercial satellite photos have identified a second suspected Syrian nuclear installation, The Wall Street Journal reported Thursday. Syrian President Bashar al-Assad's government has rebuffed repeated International Atomic Energy Agency (IAEA) requests to conduct additional inspections of four sites the U.N. agency believes could be related to a covert Syrian nuclear program. IAEA Director General Yukiya Amano has said in recent months that he would consider calling for a so-called special inspection of Syrian sites if Damascus continues to deny U.N. staff entry. Syria could then be referred to the Security Council, if it again refused the IAEA's request.
1a)UN says has new info on alleged Iran nuclear arms
Confidential IAEA report lists 'outstanding issues which give rise to concern about possible military dimensions to Iran's nuclear program'
The UN nuclear monitoring agency said Friday that "recently received" information is adding to concerns Iran may have worked on developing nuclear arms.
At the same time, a report by the organization - The International Atomic Energy Agency - noted that Tehran continues to stonewall its attempts to follow up on that information, which points to possible experiments with components of a nuclear arms program.
Tehran expanding global search for nuke materials, says new intelligence report. Iranian engineers to map out uranium deposits in Africa, focuses on Zimbabwe, document says
An annex to the confidential report listed "the outstanding issues which give rise to concern about possible military dimensions to Iran's nuclear program." It included design work on a nuclear payload; experiments with explosives that could detonate such a payload and other work that could be linked to making weapons.
The list contained no new information, with much of its contents based on material that first surfaced seven years ago on a laptop United States intelligence agencies say was spirited out of Iran by a defector. A senior international diplomat familiar with the report said it was annexed to summarize suspicions for the 35-IAEA board member nations the report was meant for.
Still, the listing was unusual. Part of a longer annex of "areas where Iran is not meeting its (international) obligations," it also appeared to reflect IAEA frustrations that Iran has rejected its attempts to follow up on the allegations since August 2008.
New intelligence continues to come in to the agency strengthening those suspicions, despite Tehran's stonewalling, said the report, obtained by The Associated Press.
"Based on the agency's analysis of additional information since August 2008, including new information recently received, there are further concerns which the agency also needs to clarify with Iran," said the report, which was also sent to the UN Security Council.
Tehran is under four sets of UN sanctions for its refusal to stop uranium enrichment - which can create both nuclear fuel and fissile warhead material - and other instances of nuclear defiance. It insists its program is peaceful and meant only to power a future generation of reactors.
While the report did not specify how recent its new information was on possible weapons programs experiments, a senior international official familiar with Iran's nuclear program said the agency received fresh intelligence within the last three months. He asked for anonymity because his information was confidential.
"Iran is not implementing a number of its obligations including ... clarification of the remaining outstanding issues which give rise to concerns about possible military dimensions to its nuclear program," said the report.
"Iran is not providing the necessary cooperation to enable the Agency to provide credible assurance about the absence of undeclared nuclear material and activities in Iran, and therefore to conclude that all nuclear material in Iran is in peaceful activities.
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2)A first taste of the New Middle East
By Caroline B. Glick
Obama going "local" in an undated, but authentic, photo
The brilliant academic president who theorized that diplomacy-by-apology was more powerful than governing-by-strength is being outmaneuvered -- and outright humiliated -- by the Arab world: Hamas, the Muslim brotherhood and Fatah.
Wednesday night, Israelis received our first taste of the new Middle East with the missile strike on Beersheba and Netivot. Iran's Palestinian proxy, the local branch of the Muslim Brotherhood known as Hamas carried out its latest war crime right after Iran's battleships entered Syria's Latakia port.
Their voyage through the Suez Canal to Syria was an unadulterated triumph for the mullahs. For the first time since the 1979 Islamic Revolution, Iran's warships sailed across the canal without even being inspected by the Egyptian, US or Israeli navies. On the diplomatic front, the Iranian-dominated new Middle East has had a pronounced impact on the Western-backed Fatah-led Palestinian Authority's political posture towards the US.
The PA picked a fight with America just after the Obama administration forced Egyptian President Hosni Mubarak to surrender power. Mubarak's departure was a strategic victory for the Muslim Brotherhood in Egypt and for its sister branch Hamas in Gaza.
As part of his efforts to neutralize the threat the Muslim Brotherhood posed to his regime, Mubarak sealed off Gaza's border with Egypt after Hamas seized power there in June 2007. The Gaza-Sinai border was breached during last month's revolution. Since Mubarak's forced resignation, the military junta now leading Egypt has failed to reseal it. The revolution in Egypt happened just after the PA was thrown into a state of disarray. Al Jazeerah's exposure of PA documents indicating the leadership's willingness to make minor compromises with Israel in the framework of a peace deal served to discredit Fatah leaders in the eyes of the Israel-hating Palestinian public. In the wake of the al Jazeerah revelations, senior PA leaders escalated their anti-Israel and anti-American pronouncements. The PA's chief negotiator Saeb Erekat was forced to resign.
The shift in the regional power balance following Mubarak's fall has caused Fatah leaders to view their ties to the US as a strategic liability. If they wish to survive, they must cut a deal with Hamas. And to convince Hamas to cut a deal, they need to abandon the US.
And so they have. Fatah's first significant move to part company with Washington came with its relentless bid to force a vote on a resolution condemning Israeli construction in Jerusalem, Judea and Samaria at the UN Security Council. In an attempt to avert a vote on the resolution that the US public expected him to veto, Obama spent fifty minutes on the phone with PA Chairman Mahmoud Abbas begging him to set the resolution aside. Obama promised to take unprecedented steps against Israel in return for Abbas's agreement to stand down. But Abbas rejected his appeal.
Not only did Abbas defy the wishes of the most pro-Palestinian president ever to occupy the White House, Abbas told the whole world about how he defied Obama.
Abbas's humiliation of Obama was only the first volley in the Fatah leader's campaign against the US. Abbas, Prime Minister Salam Fayyad and their PA ministers have sent paid demonstrators into the street to protest against America. They announced a boycott of American diplomats and journalists. They have called for a boycott of American products. They have scheduled a "Day of Rage," against America for Friday after mosque prayers.
While excoriating Obama and the US, the PA is actively wooing Hamas. Wednesday the PA accepted the legitimacy of Hamas control over Gaza. Three and a half years after Hamas wrested control over Gaza from Fatah in a bloody coup, on Wednesday Fayyad said that the PA is willing to end its objection to Hamas control over the area if Hamas agrees to participate in the general elections Abbas has scheduled for September.
At the same time as he publicly beseeched Hamas to join forces with Fatah, Fayyad announced that the PA is willing to forego US financial assistance if that assistance continues to come with political strings attached. The only real string attached to US aid is the stipulation that no US financial assistance can be used to finance Hamas.
The PA's announced willingness to end its receipt of US aid is by far its boldest move to date. With the Arab world going up in smoke Fatah officials know they cannot expect to receive any significant funding from Arab states for the foreseeable future. That makes them entirely dependent on US and Europe.
And make no mistake; the PA budget is entirely a creation of foreign aid. The PA is the largest per capita foreign aid recipient in the world. Last year it received $1.8 billion in foreign assistance. US direct assistance accounted for $550 million or nearly a third of that amount. The US gave the PA another $268 million in indirect assistance through UNRWA. UNRWA is the UN agency devoted exclusively to providing welfare benefits to the Palestinians while subordinating itself to the Palestinian political agenda.
Without US assistance, the PA would cease to be a political factor in the region. So by offering to forego the aid, Fayyad, Abbas and their colleagues are essentially threatening to commit political suicide.
The Palestinians' declared readiness to forego US aid is all the more remarkable when compared to Israel's refusal to countenance the thought of foregoing or even cutting back the assistance it receives from the US. Whereas the Palestinian economy will collapse without US assistance, were Israel to forego the $3 billion in military assistance it receives every year from Washington, the move would have little impact on the economy.
Economic analyses of US military assistance have noted that several factors degrade the value of the aid. The US requires Israel to spend 75 percent of the assistance in the US. Israel's inability to open its purchases to competitive bidding in the world market has forced it to pay inflated prices for much of what it buys.
So too, by buying US weapons systems, Israel has harmed its own military industries which are blocked from selling or developing systems for the IDF.
Moreover, because the US has tied its aid to Egypt to its aid to Israel and justified its military aid to Jordan and Lebanon through its military assistance to Israel, by accepting the aid, Israel is enabling its neighbors to upgrade their military capabilities. Their upgraded military capabilities in turn force Israel to invest still more resources in its defense budget to maintain its qualitative edge against its US subsidized neighbors. With all the hidden costs the military assistance entails, it is reasonable to discount the actual value of the assistance by fifty percent. That is, the actual value of annual US military assistance is about $1.5 billion.
The direct military cost of the Second Lebanon War is estimated at $2.2 billion. The direct military cost of Operation Cast Lead is estimated at $1.4 billion. The actual costs of both wars to the Israeli economy were several times higher. Those who claim that Israel cannot manage without US military aid ignore the fact that neither of these wars had any discernable sustained impact on the economy.
The political cost Israel has paid for US military assistance has been astronomical. As a recent study of US military assistance by the Jerusalem Institute for Market Studies demonstrated, the psychological impact of the US aid on Israeli and American leaders alike has had a disastrous impact on the relations between the two states. It has impaired their ability to understand the actual strategic rationale of their alliance. Israeli leaders have developed a subservient mentality towards the Americans and the Americans have forgotten that a strong Israel is the US's most valuable strategic asset in the region. The Palestinians' expressed willingness to forego their assistance from the US is no doubt a bluff. And Congress would do well to call their bluff and cancel US assistance to the PA.
Yet their behavior presents Israel with an important lesson about the fundamentals of diplomacy that appear lost on our leaders.
The Palestinians understand the rules of diplomacy far better than Israel does. Israel believes that diplomacy is about getting other governments to be nice to us. The Palestinians understand that diplomacy is a non-violent means of weakening your enemies and expanding your own power. They also understand that the starting point for any effective diplomatic strategy is a reality-based assessment of other governments' interests.
As the revolutions throughout the region show, in the real world the Arabs do not care about the Palestinians. Europeans and leftist Americans care about the Palestinians. European leaders need to support the Palestinians for domestic political reasons. US leaders support the Palestinians to maintain good relations with Europe and with the American Left. Recognizing this, the likes of Abbas and Fayyad understand that no matter what they say or do the West will probably not abandon them. European leaders need them to continue carrying out their political war against Israel because that is what European voters demand. US leaders will continue to support the Palestinians because they follow Europe's lead.
On the other hand, given their newfound power, PA leaders have to bend over backwards to appease Hamas and Iran if they wish to survive.
Since they rightly assess that the West needs them more than they need the West, not only are the Palestinians unwilling to pay any price to maintain Western support. They are willing to initiate ugly confrontations with the US and humiliate Obama in order to win the approval of Hamas and Iran.
Facing this reality, Israel's best bet is to initiate a few confrontations of its own to demonstrate its strategic importance to the US and Europe. With the conflagrations raging in the Arab world essentially making its argument that a strong Israel is imperative for the West, Israel should be going on the offensive against the Palestinians and the international Left that supports them.
But instead, of pointing out the truth, Prime Minister Binyamin Netanyahu and his colleagues maintain their posture as supplicants to Washington, making concession after concession in exchange for further abuse in the hopes of avoiding a confrontation. For instance, Netanyahu has defied his own party and broken his word to the public by maintaining an undeclared freeze on Jewish building in Jerusalem, Judea and Samaria. Since January 2010, Netanyahu has systematically denied Jews building permits in the area in the hopes of appeasing Obama.
And how has Obama repaid Israel for our government's willingness to deny Jews their civil rights? The Obama administration has branded all Jewish communities in post-1967 Jerusalem, Judea and Samaria as "illegitimate," and blamed Israel for the absence of peace in the region.
As our region is consumed by the flames of rebellion and revolution, the challenges and threats Israel faces multiply by the day. In these new and trying times, our leaders must shed their failed concepts of statecraft based on weakness and adopt new ones founded on strength. The PA is playing a bad hand wisely. We are playing a good hand foolishly.
JWR contributor Caroline B. Glick is the senior Middle East Fellow at the Center for Security Policy in Washington, DC and the deputy managing editor of The Jerusalem Post.
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3)Rubicon: A river in Wisconsin
By Charles Krauthammer
The magnificent turmoil now gripping statehouses in Wisconsin, Ohio, Indiana and soon others marks an epic political moment. The nation faces a fiscal crisis of historic proportions and, remarkably, our muddled, gridlocked, allegedly broken politics have yielded singular clarity.
At the federal level, President Obama's budget makes clear that Democrats are determined to do nothing about the debt crisis, while House Republicans have announced that beyond their proposed cuts in discretionary spending, their April budget will actually propose real entitlement reform. Simultaneously, in Wisconsin and other states, Republican governors are taking on unsustainable, fiscally ruinous pension and health-care obligations, while Democrats are full-throated in support of the public-employee unions crying, "Hell, no."
A choice, not an echo: Democrats desperately defending the status quo; Republicans charging the barricades.
Wisconsin is the epicenter. It began with economic issues. When Gov. Scott Walker proposed that state workers contribute more to their pension and health-care benefits, he started a revolution. Teachers called in sick. Schools closed. Demonstrators massed at the capitol. Democratic senators fled the state to paralyze the Legislature.
Unfortunately for them, that telegenic faux-Cairo scene drew national attention to the dispute - and to the sweetheart deals the public-sector unions had negotiated for themselves for years. They were contributing a fifth of a penny on a dollar of wages to their pensions and one-fourth what private-sector workers pay for health insurance.
The unions quickly understood that the more than 85 percent of Wisconsin not part of this privileged special-interest group would not take kindly to "public servants" resisting adjustments that still leave them paying less for benefits than private-sector workers. They immediately capitulated and claimed they were only protesting the other part of the bill, the part about collective-bargaining rights.
Indeed. Walker understands that a one-time giveback means little. The state's financial straits - a $3.6 billion budget shortfall over the next two years - did not come out of nowhere. They came largely from a half-century-long power imbalance between the unions and the politicians with whom they collectively bargain.
In the private sector, the capitalist knows that when he negotiates with the union, if he gives away the store, he loses his shirt. In the public sector, the politicians who approve any deal have none of their own money at stake. On the contrary, the more favorably they dispose of union demands, the more likely they are to be the beneficiary of union largess in the next election. It's the perfect cozy setup.
To redress these perverse incentives that benefit both negotiating parties at the expense of the taxpayer, Walker's bill would restrict future government-union negotiations to wages only. Excluded from negotiations would be benefits, the more easily hidden sweeteners that come due long after the politicians who negotiated them are gone. The bill would also require that unions be recertified every year and that dues be voluntary.
Recognizing this threat to union power, the Democratic Party is pouring money and fury into the fight. Fewer than 7 percent of private-sector workers are unionized. The Democrats' strength lies in government workers, who now constitute a majority of union members and provide massive support to the party. For them, Wisconsin represents a dangerous contagion.
Hence the import of the current moment - its blinding clarity. Here stand the Democrats, avatars of reactionary liberalism, desperately trying to hang on to the gains of their glory years - from unsustainable federal entitlements for the elderly enacted when life expectancy was 62 to the massive promissory notes issued to government unions when state coffers were full and no one was looking.
Obama's Democrats have become the party of no. Real cuts to the federal budget? No. Entitlement reform? No. Tax reform? No. Breaking the corrupt and fiscally unsustainable symbiosis between public-sector unions and state governments? Hell, no.
We have heard everyone - from Obama's own debt commission to the chairman of the Joint Chiefs of Staff - call the looming debt a mortal threat to the nation. We have watched Greece self-immolate. We can see the future. The only question has been: When will the country finally rouse itself?
Amazingly, the answer is: now. Led by famously progressive Wisconsin - Scott Walker at the state level and Budget Committee Chairman Paul Ryan at the congressional level - a new generation of Republicans has looked at the debt and is crossing the Rubicon. Recklessly principled, they are putting the question to the nation: Are we a serious people?
3a)How Chris Christie Did His Homework
By MATT BAI
Like a stand-up comedian working out-of-the-way clubs, Chris Christie travels the townships and boroughs of New Jersey, places like Hackettstown and Raritan and Scotch Plains, sharpening his riffs about the state’s public employees, whom he largely blames for plunging New Jersey into a fiscal death spiral. In one well-worn routine, for instance, the governor reminds his audiences that, until he passed a recent law that changed the system, most teachers in the state didn’t pay a dime for their health care coverage, the cost of which was borne by taxpayers.
And so, Christie goes on, forced to cut more than $1 billion in local aid in order to balance the budget, he asked the teachers not only to accept a pay freeze for a year but also to begin contributing 1.5 percent of their salaries toward health care. The dominant teachers’ union in the state responded by spending millions of dollars in television and radio ads to attack him.
“The argument you heard most vociferously from the teachers’ union,” Christie says, “was that this was the greatest assault on public education in the history of New Jersey.” Here the fleshy governor lumbers a few steps toward the audience and lowers his voice for effect. “Now, do you really think that your child is now stressed out and unable to learn because they know that their poor teacher has to pay 1½ percent of their salary for their health care benefits? Have any of your children come home — any of them — and said, ‘Mom.’ ” Pause. “ ‘Dad.’ ” Another pause. “ ‘Please. Stop the madness.’ ”
By this point the audience is starting to titter, but Christie remains steadfastly somber in his role as the beseeching student. “ ‘Just pay for my teacher’s health benefits,’ ” he pleads, “ ‘and I’ll get A’s, I swear. But I just cannot take the stress that’s being presented by a 1½ percent contribution to health benefits.’ ” As the crowd breaks into appreciative guffaws, Christie waits a theatrical moment, then slams his point home. “Now, you’re all laughing, right?” he says. “But this is the crap I have to hear.”
Acid monologues like this have made Christie, only a little more than a year into his governorship, one of the most intriguing political figures in America. Hundreds of thousands of YouTube viewers linger on scenes from Christie’s town-hall meetings, like the one in which he takes apart a teacher for her histrionics. (“If what you want to do is put on a show and giggle every time I talk, then I have no interest in answering your question.”) Newly elected governors — not just Republicans, Christie says, but also Democrats — call to seek his counsel on how to confront their own staggering budget deficits and intractable unions. At a recent gathering of Republican governors, Christie attracted a throng of supporters and journalists as he strode through the halls of the Hilton San Diego Bayfront Hotel like Bono at Davos.
While Christie has flatly ruled out a presidential run in 2012, there is enough conjecture about the possibility that I felt moved to ask him a few weeks ago if he found it exhausting to have to constantly answer the same question. “Listen, if you’re going to say you’re exhausted by that, you’re really taking yourself too seriously,” Christie told me, then broke into his imitation of a politician who is taking himself too seriously. “ ‘Oh, Matt, please, stop asking me about whether I should be president of the United States! The leader of the free world! Please stop! I’m exhausted by the question!’ I mean, come on. If I get to that point, just slap me around, because that’s really presumptuous. What it is to me is astonishing, not exhausting.”
There is, in fact, something astonishing about the ascent of Chris Christie, who is about as slick as sandpaper and who now admits that even he didn’t think he would beat Jon Corzine, the Democrat he unseated in 2009. Some critics have posited that Christie’s success in office represents merely the triumph of self-certainty over complexity, the yearning among voters for leaders who talk bluntly and with conviction. Yet it’s hard to see Christie getting so much traction if he were out there castigating, say, immigrants or Wall Street bankers. What makes Christie compelling to so many people isn’t simply plain talk or swagger, but also the fact that he has found the ideal adversary for this moment of economic vertigo. Ronald Reagan had his “welfare queens,” Rudy Giuliani had his criminals and “squeegee men,” and now Chris Christie has his sprawling and powerful public-sector unions — teachers, cops and firefighters who Christie says are driving up local taxes beyond what the citizenry can afford, while also demanding the kind of lifetime security that most private-sector workers have already lost.
It may just be that Christie has stumbled onto the public-policy issue of our time, which is how to bring the exploding costs of the public workforce in line with reality. (According to a report issued last year by the Pew Center on the States, as of 2008 there was a $1 trillion gap, conservatively speaking, between what the states have promised in pensions and benefits for their retirees and what they have on hand to pay for them.) Then again, he may simply be the latest in a long line of politicians to give an uneasy public the scapegoat it demands. Depending on your vantage point, Chris Christie is a truth-teller or a demagogue, or maybe even a little of both.
To say that New Jersey has a budget problem wouldn’t really be accurate. The state has at least three major budget problems related to the costs of the public workforce, all of which contribute to a shortfall that the state’s legislative accounting office projects to be almost $11 billion this year — an amount that’s more than a third of the state’s total budget. And in order to understand what’s happening in statehouses all over the country, and what Christie is trying to do about it in New Jersey, it helps to have some sense of how these problems tie together.
First, there’s the local aid. New Jersey sends 40 percent of its annual budget to an overlapping tangle of 566 municipalities and 600-plus school districts, in order to help them slow the mutantlike growth of local property taxes, which are among the highest in the country. Each of these little hamlets and districts negotiates its own labor contract with the police and firefighters, sanitation workers and, most consequentially, teachers, which means the contracts established by the most affluent communities end up setting a statewide standard — a process that drives up everyone else’s costs to a level that the local governments simply can’t sustain by themselves.
Second, in the long term, New Jersey doesn’t have nearly enough money on hand to cover its pension obligations to teachers and other state workers. At no time in the last 17 years has New Jersey fully met its annual obligation to the pension fund, and in many of those years, the state paid nothing at all. (That didn’t stop one governor, Donald DiFrancesco, a Republican, from increasing payouts by 9 percent and lowering the retirement age before he left office, which would be kind of like Bernie Madoff writing you a $1 million check before heading off to jail.) Even had the state been contributing faithfully to the fund as it was supposed to, however, there would still be trouble ahead. That’s because New Jerseyans, who are glass-half-full kind of people, have assumed an improbably healthy return of 8.25 percent annually on the state pension fund. The actual return over the last 10 years averaged only 2.6 percent.
Finally, the state will pay close to $3 billion this year in health care premiums for public employees (including retired teachers), and that number is rising fast. New Jersey has set aside exactly zero dollars to cover it. All told, in pensions and health care benefits, New Jersey’s “unfunded liability” — that is, the amount the actuaries say it would need to find in order to meet its obligations for the next 30 years — has now passed the $100 billion mark.
There was little in Christie’s uninspiring campaign to make anyone think he would address these issues with more tenacity than the governors who preceded him. A U.S. attorney whose only overtly political experience entailed serving on the Morris County Board of Chosen Freeholders (seriously, they still call it that), Christie had only a fraction of Corzine’s public exposure or personal fortune. About the only thing he had going for him was that Corzine was pervasively unpopular. And so rather than come up with a lot of actual ideas, which Corzine would then be free to oversimplify and distort in a barrage of television ads, Christie simply offered up a bunch of conservative platitudes and tried to make the campaign a referendum on the Democratic governor. (When we talked during the campaign, Christie could articulate little by way of an agenda, except to say that he would “get in there and make it work.”) Even a lot of Republicans thought Christie was underwhelming as a campaigner.
In the end, Christie won by about four points on Election Night in 2009, with little notion of what he was going to do next. When I asked him if there was any one moment of clarity that put him on the path from cautious candidate to union-bashing conservative hero, Christie pointed to a meeting about a month into the transition, when his aides came to him brandishing an analysis of the state’s cash flow produced by Goldman Sachs. They advised the governor-elect that, without some serious action, the state could fail to meet payroll by the end of March. After scrutinizing the budget, Christie told me, his team came to the conclusion that the only way to get control of local taxes and state spending was to go after the pension and health care benefits that the public-sector unions held sacrosanct. From that point on, it seems, Christie has conducted his governorship as if he were still a grandstanding prosecutor, taking powerful unions on perp walks with evident enthusiasm.
The centerpiece of Christie’s frenzied agenda, which passed the Democratic-controlled Legislature last July, is a strict cap on local property taxes, which will be allowed to rise no more than 2 percent every year. When combined with a reduction in state aid, what this means, practically speaking, is that New Jersey’s townships and cities will have to hold the line when negotiating municipal labor contracts if they want to remain solvent, because they can’t rely on either their residents or the state for more money.
To help them do that, Christie has put forward 33 measures that are part of what he calls his “toolkit” for reform. These include, for instance, a proposal that would allow localities to opt out of the civil-service system altogether, giving them more control over hiring and firing local officials, and another that would limit the cash payouts that retiring workers can take for their unused sick days. On the pension front, if Christie has his way with the Legislature, most union members would contribute more to their plans than they have up to now, and all of them would retire later and receive lower benefit payments.
The crux of Christie’s argument is that public-sector contracts have to reflect what has happened in the private sector, where guaranteed pensions and free health care are becoming relics. It’s not surprising that this stand has ingratiated Christie to conservatives in Washington; advocacy groups and activists on the right have carried out a long campaign to discredit the ever-shrinking labor movement in the private sector, and what Christie has done, essentially, is to blast his way into the final frontier, taking on the public-sector unions that have come to wield enormous political power. More surprising is how the governor’s proposals are finding sympathy from less-partisan budget experts, if only because they don’t see obvious alternatives. “I’ve tried to look at this objectively, and I just don’t know of any other option,” says Richard Keevey, who served as budget director for a Democratic governor, Jim Florio, and a Republican governor, Tom Kean. “You couldn’t tax your way out of this.”
Union leaders, on the other hand, are howling. The heads of the police and firefighters’ unions say that Christie’s cuts to local aid have already cost the state several hundred firemen and police officers, and they warn that his 2 percent cap on property taxes will have dire effects on public safety, as more towns and cities try to shave their payrolls to conform with the cap. “I don’t think they’re going to get it until the body bags pile up,” Anthony Wieners, president of the police union, warns darkly.
Leaders of the teachers’ union, meanwhile, are apoplectic about Christie’s proposed changes to their pension plan, which they say will penalize educators for the irresponsibility of politicians. After all, they point out, it wasn’t the unions who chose not to fund the pension year in and year out, and yet it’s their members who will have to recalibrate their retirements if the benefits are cut.
When I made this same point to Christie, he simply shook his head. What’s done is done, he told me, and it’s time for someone to tell these workers the truth, which is that the state is simply never going to have the money to make good on its commitments. “Listen, if they want to travel in the Michael J. Fox time machine and change time, I guess we could try that,” he said. “We could get the DeLorean out and try to go back there. But I think realistically that that was just a movie and make-believe. So we’ve got to live with what we’ve got.”
Chris Christie is fat. You can use nicer words if you want — rotund, portly, big-boned — but it is what it is, and the governor will be the first to tell you so. And because he’s fat, a lot of people, consciously or not, tend to assume certain things about Christie — that he’s undisciplined and impulsive, graceless and bullying. (Corzine’s most brutal campaign ad accused Christie of “throwing his weight around.”) At times, Christie seems to exploit this persona. He likes to present himself as the proverbial bull in the china shop, the ungainly, somewhat boorish guy who lacks the artifice to keep from saying whatever obvious truth pops into his head. “I don’t think you elected me because of my charm and good looks,” Christie likes to say, just to show he’s in on the joke.
And yet, to portray Christie in this cartoonish way, as so many critics do, is to vastly underestimate his skill as a politician. The most sophisticated communicators of the modern era hammer at a consistent argument about their moment and the response it demands, and they choose carefully constructed metaphors to make the choices ahead seem obvious — think of Ronald Reagan’s morning in America, or Bill Clinton’s bridge to the 21st century. And Christie’s communications strategy is about as sophisticated as any you will find in American politics right now.
Take Christie’s choice of a somewhat mundane image, the “toolkit,” as a unifying frame for his proposals. As a metaphor, the toolkit works on two levels, depending on the audience. You can visualize it either in the sense of screwdrivers and hammers or, if you work in an office all day, you might envision it more as a software suite. Either way, the toolkit symbolizes flexibility and local control. It’s a way of saying that Christie isn’t putting unwieldy restrictions on towns and cities, as the cops and firefighters charge — he’s just empowering those towns and cities with a variety of implements and gadgets with which to attack their budget problems themselves.
In sustaining his assault on the public-employee unions, Christie knows he has to make his subject comprehensible. One reason that leaders in a state like New Jersey haven’t been able to get a handle on pension and benefit costs, despite years of dire warnings from good-government advocates, is that the subject is agonizingly dull and all but impossible to explain. There are myriad plans for all the different public-employee unions, various contribution formulas for each one and actuarial projections that require an advanced degree to unravel.
Christie, it turns out, has a preternatural gift for making the complex seem deceptively simple. Last month I saw him hold forth at a town-hall meeting in Chesilhurst, a South Jersey borough of about 1,600. Chesilhurst is about half African-American, and I sensed more curiosity than enthusiasm among the racially mixed crowd as it flowed into the little community-center gymnasium. An unusually large number of folding chairs were empty. About 20 minutes after the program was supposed to start, there came over the loudspeakers the kind of melodramatic instrumental that might introduce a local newscast, or maybe an Atlantic City magic show, and in came Christie, taking his position in the center of the crowd. The theme of the week was pension-and-benefits reform, and in his introductory remarks, Christie explained the inefficiency in the state’s health care costs not by wielding a stack of damning statistics, as some politicians might, but by relating a story.
When he was a federal prosecutor, Christie told the audience, he got to choose from about 100 health-insurance plans, ranging from cheap to quite expensive. But as soon as he became governor, the “benefits lady” told him he had only three state plans from which to choose, Goldilocks-style; one was great, one was modestly generous and one was rather miserly. And any of the three would cost him exactly 1.5 percent of his salary.
“ ‘You’re telling me,’ ” Christie said he told the woman, feigning befuddlement, “ ‘that no matter which one I pick, the good one or the O.K. one or the bad one, I’m going to pay 1½ percent of my salary?’ And she said, ‘Yes.’
“And I said, ‘Then everyone picks the really good one, right?’ And she said, ‘Ninety-six percent of state employees pick the really good one.’
“Which led me to have two reactions,” Christie told the crowd. “First, bring those other 4 percent to me! Because when I have to start laying people off, they’re the first ones!” His audience burst into near hysterics. “And the second reaction was, of course I would choose the best plan,” Christie said, “and so would you.
“Now listen, I don’t think this is groundbreaking stuff,” Christie added. “I don’t think this means that instead of being governor, you know, I should be at NASA, working on the space shuttle. I’m no genius. Just seems to me that if you give people an option to get something for nothing, they’ll take it.” Scanning the nodding faces around me, it seemed there wasn’t a person in the gymnasium, at that point, who wouldn’t have voted to make state workers and teachers pay more for the better plan.
Another thing Christie understands about political messaging, especially when your adversaries are out there portraying you as callous, is that it has to be grounded in the personal. “If you’re asking people to do some really difficult things, which I am asking them to do,” Christie told me, “then I think they feel more comfortable doing those things if they know you.”
And so the 48-year-old Christie makes a point of sharing intimate details of his life and times — that he uses an asthma inhaler, that he has struggled with dieting and exercise since his days as a high-school catcher came to an end, that his mother told him on her deathbed that he should go back to work because nothing between them had been left unsaid. That last one, which elicited audible gasps of sympathy from the audience in Chesilhurst, is his way of saying that he wants to leave nothing unsaid between him and the voters, either, even if they both occasionally get hurt.
“My mother said to me all the time, ‘Christopher, you’re going to have choices in your life between being loved and being respected,’ ” Christie told his rapt audience, strains of emotion creeping into his voice. “ ‘And you should choose respected. Because if you’re respected, love can come.’ She said, ‘But seeking love without also being respected — well that love doesn’t last.’ ” It was as if some weird brain-switching experiment had taken place, and somewhere, at that very moment, Oprah was giving a talk about state budgets and tax policy.
There’s one more piece of political narrative that Christie seems to grasp, which is that every story has both a protagonist and an antagonist, someone who stands for change and someone who plays the foil. Christie never had to look far to cast his ideal antagonists. They sit just across the street and one block down from the State House, in the building occupied by New Jersey’s major teachers’ union.
WITH 200,000 MEMBERS and more than $100 million in dues, the New Jersey Education Association is easily the most powerful union in New Jersey and one of the more powerful local unions in the country. In Trenton, the union’s organizing might — and its willingness to use that might to intimidate candidates and lawmakers — has sunk a small shipyard of promising careers. So it’s not hard to see why the twilight struggle between Chris Christie and “the bully of State Street,” as he likes to refer to the teachers’ union, has transfixed New Jersey’s political observers for the last year. It’s as mesmerizing as an episode of “The Real Housewives of New Jersey,” only harder to watch, mostly because Christie can be so unrelentingly brutal.
“We have similar personalities,” Stephen Sweeney, the Democratic president of the state Senate, told me recently, when ruminating on Christie’s style. “The difference between he and I is, I have an off switch and he doesn’t. You know, if I knock you down, I’ll pick you up, brush the dirt off your back, try to build a relationship and go forward. He knocks you down, like with the teachers, and he’ll stomp on you, kick on you until he can kill you.”
The war between Christie and the union has two fronts, so closely interrelated that it’s hard to separate them. First there’s the fight over budgeting issues like pensions and benefits. And then there’s the “year of education reform,” as Christie has proclaimed 2011, in which he intends to push his case for merit pay, charter schools and the abolition of teacher tenure — all of which are, of course, anathema to the union.
At times in this epic clash, it can be hard to know where personal animus leaves off and political gamesmanship kicks in. All that’s clear is that Christie seems to be winning at every turn. Last April, for instance, Christie claimed to be infuriated by a joke memo circulated by the president of the Bergen County chapter of the union. “Dear Lord,” it read in part, “this year you have taken away my favorite actor, Patrick Swayze, my favorite actress, Farrah Fawcett, my favorite singer, Michael Jackson, and my favorite salesman, Billy Mays. I just wanted to let you know that Chris Christie is my favorite governor.”
In a 15-minute meeting, the union’s president, Barbara Keshishian, apologized to Christie for the memo, but she refused to fire the Bergen County president, which further infuriated the governor. If his chief of staff had sent out such an e-mail, Christie told her, he would have been fired immediately. “That conversation embodies the elitism and the double standard that the teachers’ union thinks applies to them,” Christie told me last month, recounting the confrontation. We were sitting in the restaurant of the Hay-Adams Hotel in Washington, where state troopers and aides with cellphones buzzed around the empty dining room. Christie was in town to headline a dinner for the New Jersey Chamber of Commerce. “And you know what? I can’t entirely blame them for it, because politicians have treated them differently than everybody else, because they’ve been scared of them. And so part of the blame goes on the political culture of New Jersey that has helped to enable this elitist, double-standard attitude.”
The death-wish incident instantly became lore in Trenton and proved politically advantageous to the governor. It gave him a pretense to break off all communication with the union; he has refused to meet personally with Keshishian or her deputies since. And he has repeatedly used the ill-advised memo to portray himself as the courageous victim of unhinged union activists. At least once a week, it seems, he reminds some audience that the union once “wished for my death,” as if he were Robert Kennedy staring down the Teamsters.
Perhaps the most consequential episode between Christie and the union, at least as far as public perception was concerned, had to do with the pay freeze. Almost as soon as the scope of the budget problem became clear, the governor called on teachers, who received scheduled raises during the recession, to accept a one-year freeze. He reminded the teachers that a lot of private-sector workers felt lucky if they could keep their current salaries, and he said a voluntary freeze would enable the union to avoid widespread teacher layoffs in cash-poor school districts. Most local chapters of the union ignored him. Ultimately some 10,000 union members — teachers and support staff — saw their jobs eliminated. Christie hasn’t stopped talking about it since.
The union maintains that Christie’s plea was mere gimmickry, because the layoffs would have happened even if its local chapters acceded to the demand for a freeze. But even if this is true, it would seem to reflect a staggering lack of political calculation. Had the teachers agreed to take the short-term hit by acquiescing to a temporary freeze, it would have been worlds harder for Christie to then run around the state demanding longer-term concessions on pensions and benefits. And when the layoffs did materialize, the governor would most likely have shouldered most of the blame. Instead, the whole affair seemed to prove Christie’s point about the union’s self-involvement, and it enabled him to blame the teachers themselves for the layoffs.
During our conversation at the Hay-Adams, I suggested to Christie that the teachers had given him a valuable political gift by refusing to compromise. “I don’t look at it as a gift to me,” he replied. “I look at it as a huge mistake by them, and also a window into who they are.
“Let’s assume that they’re smart, because I think they are,” he went on. “So then, why don’t you do it? Because they believe they are entitled to it. They believe they are special and different and that they shouldn’t have to share the sacrifice. And that’s, I think, what’s ultimately driving public opinion against them.”
One afternoon last month, at the modern, airy headquarters of the N.J.E.A., I sat with Barbara Keshishian, the union’s president, and Vincent Giordano, its executive director, and listened as they tried to puzzle out why it was that Christie seemed so determined to humiliate them.
“Frankly, I for one don’t say we’re always 100 percent right on every single issue, and certainly neither is the administration across the street,” said Giordano, a bald and goateed organizer who has been at the union for 40 years. “The difference is the tone and the mean-spiritedness of the way he talks about us. He has made us basically the whipping boy for anything that goes wrong in New Jersey and the country and in Bangladesh if there’s an earthquake. It seems that we’re just the cause of all the problems in our society today.
“I don’t know what he’s got buried down there inside of him that causes him to be this totally driven,” Giordano said. “I don’t think he’s really supportive of a public-education system. If he was, he might send his kids to public school, which he doesn’t.” (Christie and his wife, Mary Pat, a bond trader, have four children, ages 7 to 17, and all attend Catholic schools.) “I think he’s not very enamored with public services in general. Public employees, public education, public pension systems — somehow he’s allergic to the word ‘public.’ Somebody ought to get him some kind of medication that gets him off of that allergy he has to anything that’s public.”
The two union leaders made several points in defense of their stances against pension reform and the pay freeze. They pointed out that despite all Christie’s talk of shared sacrifice, he refused to renew a tax on millionaires in New Jersey that would have raised about $800 million this year — not enough to solve the state’s fiscal problems, certainly, but enough to restore most of the school aid that was slashed from the budget. They noted that they already made concessions on teachers’ pensions in 2007 and 2008, when they agreed to increase contributions by 10 percent and to raise the retirement age from 60 to 62. They mentioned that the average salary of a New Jersey teacher is about $67,000, and the average pension is between $35,000 and $40,000. “Try living on that in the state of New Jersey,” Giordano said. “I don’t see why we’ve suddenly been identified as fat cats.”
In the union’s view, Christie is simply trying to exploit the downward spiral of the American labor movement. First, greedy companies, claiming pressures from the new global market, began rolling back the pensions and benefits that private-sector unions negotiated over a period of decades. And now, instead of trying to find a way to restore those hard-earned benefits for all workers, politicians like Christie are using corporate America’s bad behavior as an excuse to take benefits away from the last set of union members who managed to cling to them — those in the public sector. Christie is pitting one set of middle-class workers against the other, perhaps in the hope that private-sector unions will ultimately turn on their brethren in the public workforce, or that the public unions will turn on one another. And the end result will be that everyone loses.
All of this seems to add up to a reasonable counterargument to Christie’s main indictments against the teachers’ union, and so I asked Keshishian and Giordano why they thought they were having such a problem making their case to the public. After all, according to a Quinnipiac University poll conducted this month, most voters in New Jersey still admire teachers themselves, but only 27 percent have a favorable view of the union, while 44 percent say their view is unfavorable. By contrast, Christie’s job approval has been consistently hovering above the 50 percent mark.
“He is the governor!” Keshishian said, her voice rising. “People listen to him! You know, he could be in a crowd of people, and they’re going to interview the governor! And people, I guess, believe that what the governor says is the truth.” Keshishian taught high-school math for 29 years, but her grasp on civics sounded a bit shaky. It doesn’t seem especially likely that Christie is breaking through because he is a politician and therefore people take to heart his every word.
What the union’s leadership seems not to have considered is that public sentiment around budgets and public employees has shifted in a fundamental way. For decades, as Keshishian and Giordano were rising up through the union, it probably made sense to adopt a strategy of “no surrender,” to dig in and outlast the occasional politician who might dare to threaten the union’s hard-earned gains. But over the last 10 years or so, most American workers have come to expect less by way of benefits and security from their employers. And with political consensus building toward some kind of public-school reform, teachers’ unions in particular have lost credibility with the public. Forty-six percent of voters in a poll conducted by Stanford and the Associated Press last September said teachers’ unions deserved either “a great deal” or “a lot” of blame for the problems of public schools.
And so, when the union draws a hard line against changes to its pay and benefit structure, you can see why it might strike some sizable segment of voters as being a little anachronistic, like mimeographing homework assignments or sharpening a pencil by hand. In a Pew Research Center poll this month, 47 percent of respondents said their states should cut pension plans for government employees, which made it the most popular option on the table.
Some unions are more attuned than others to this gradual changing of the climate. The American Federation of Teachers, for example, which is by far the smaller of the two major teachers’ unions nationally, has consciously tried to position itself as a more pragmatic union and has proposed a lot of its own classroom reforms in a campaign to get out in front of public opinion. In Newark, New Jersey’s largest city, A.F.T. organizers have signaled that they will work with Christie on changes to the pension and health care system, in addition to negotiating on issues like merit pay. “Better to be seated at the table than to be on the menu” is how Joseph Del Grosso, the union’s leader in Newark, explained the strategy to me.
But the larger and mightier N.J.E.A. has made the decision to hunker down and fight all comers. And because of that, its leaders run the risk of confirming the public’s darkest suspicions about them, whether they have salient points to make or not. “They may have dug themselves a hole that will be very difficult to dig themselves out of,” Del Grosso says of his competitor. “They are on the menu.”
And so this is why Christie has gone out of his way to anoint the teachers’ union as the most sinister force in the galaxy — not because he has some long-buried torment with a teacher to work through, but because the union does a very capable job of representing for him everything about the public sector that voters don’t like. He knows there is a risk in using this strategy: he has to make sure his war on the union doesn’t ultimately come to seem like a war on individual teachers, which is why he tries constantly to draw a distinction between the union and its members. (“I love teachers — I just can’t stand your union,” is one of Christie’s signature lines.) For now, though, even some of labor’s strongest advocates will tell you that Christie has the teachers and other public-sector unions backed up against a hard wall of political reality.
“My politics are union politics,” Sweeney, the Senate president, assured me when I visited him in his State House office. He reminded me that he is not only the state’s top elected Democrat, but also a union ironworker. And yet, he said, “what I think that public-sector employees have to do is look at what’s going on around them, look at all the pain around them, and understand that no one hates them, but they want them to sacrifice like everyone else. It’s that simple.”
THE POLITICAL DYNAMIC in New Jersey tells you a lot about what’s driving similar conversations all over the country. Last year alone, 18 states either raised the pension-contribution levels for public employees or reduced benefits for their retirees, according to Susan Urahn, the managing director of the Pew Center for the States. Three states — South Dakota, Colorado and Minnesota — decided to eliminate cost-of-living raises for state workers who have already retired. (As a result, all three states are now ensnared in court challenges over whether they can alter benefits for current retirees — cases that could have a huge impact on state budgets, depending on how far states are ultimately allowed to go in rolling back already-promised benefits.) Illinois raised its retirement age to 67, and Vermont, Michigan and Utah introduced “hybrid” retirement plans that are a step away from the defined-benefit pension plans that were the standard for much of the 20th century.
Now a new class of governors from both parties is promising to revisit union contracts in order to put their states on firmer fiscal ground. In Wisconsin, Scott Walker, an aggressive new Republican governor, just proposed legislation that would limit the rights of public workers to collectively bargain. “You can’t have one group who are the haves,” Walker told me recently, meaning government workers, “and one group, the private-sector workers, who are the have-nots.” Walker’s move led to protests in Madison, drawing President Obama into the debate and raising the prospect of French-style labor uprisings among public workers across America.
In part, the viral movement against public-sector unions is a result of political necessity. In states all over the country, balancing the budget has become an annual exercise in Copperfield-like illusion. Over the past decade, governors have exhausted all the easy options for eradicating, or at least hiding, deficits — building casinos and adding new fees, issuing bonds and securitizing tobacco revenue. Now, facing a painfully slow recovery and the end of stimulus spending from Washington, governors from both parties are finding that there are simply no more gimmicks left to exploit. They have to deal with what has long been an unspoken reality — that state governments have made a mountain of promises they can’t keep.
It’s also true, though, that what used to be unspeakable, politically, simply isn’t anymore. It’s not as if the problem of public pensions suddenly got so much worse than it was before (the shortfalls have been building steadily for years, after all), nor is this new crop of governors somehow genetically bolder than their predecessors. If politicians of both parties are suddenly willing to go after the pensions and health care plans of teachers and cops and firefighters, it’s probably not only because they’re out of budgeting options, but also because suddenly they see it as politically advantageous. In other words, not only are public employees’ contracts no longer untouchable for any politician who wants to stay in office, but it turns out that the opposite is true; taking the fight to the unions is a good way to bolster your credentials as a gutsy reformer with voters who have been losing faith for years in public schools and government bureaucracies.
This, more than anything else, is the lesson that Chris Christie has impressed on his contemporaries. The question now, and what a lot of these other governors are watching to see, is whether Christie can convert his anti-union riffs into a revised social contract for public servants. While he has enacted several pivotal pieces of his agenda, Christie has yet to pass more than a handful of the measures in his toolkit. This year will mark a major test of his staying power. The question a lot of political observers are asking, in New Jersey and nationally, is whether Christie’s argument will begin to lose its resonance as voters inevitably grow weary of the hostility and the rhetorical smack downs. Sooner or later, most people tend to tire of the boorish guy at the party, even if he’s entertaining, and even if he has a point.
Christie waves away such concerns. “When I run out of fights to have, I’ll stop fighting,” he told me. Until then, you will find him out on the town-hall circuit, play-acting, berating and emoting his way toward some kind of public reckoning, leaving nothing unsaid.
Matt Bai, a staff writer, covers national politics for the magazine.
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4)If the Saudis revolt, the world’s in trouble
The fate of the global recovery rests on events in Riyadh , says Jeremy Warner.
Footage from an amateur video shows protestors watching a police station burn in Tobruk, Libya Photo: AP
By Jeremy Warner 8:24PM GMT 24 Feb 2011 174 Comments
Be careful what you wish for. After an ambiguous start, Western leaders have broadly welcomed the wave of protest and revolutions sweeping North Africa and parts of the Middle East. But beneath the words of encouragement about people taking charge of their own destiny, there is a growing and vital concern – the security of our oil and gas supplies.
The West’s complicity in supporting the autocratic regimes that characterise many of the big oil-exporting nations is in part explained by the fact that, whatever their sins, they did at least seem to provide stability in the energy markets. That stability, however, has been thrown up in the air by the wave of protest sweeping the region.
Initially, it was assumed that there was a difference between oil-poor Arab nations such as Tunisia and Egypt, where the uprisings have been as much about living standards as anything else, and the much richer Gulf states. That theory was swiftly proved wrong.
In Saudi Arabia, even King Abdullah’s panicky decision to order another multi-billion-dollar splurge of spending on education, healthcare and infrastructure may not be enough to buy off the opposition. People seem to want something more precious than money: freedom.
Whatever happens, speculation about the possibility of major interruptions in supply has sent the already perky oil price bounding higher. At one point yesterday, Brent crude hit $120 a barrel, which in real terms is approaching the sort of peaks we saw in the 1970s.
That’s making policymakers decidedly jumpy. Never mind the effect on inflation, which is already elevated, and the consequent implications for interest rates – by absorbing money which would normally be spent on other things, high oil prices have powerfully negative consequences for demand. Each of the last five global recessions has been preceded by a sharp spike in oil prices. Are we about to see the same thing happen again?
Everyone has been so focused on buttressing the banking system against further catastrophe that they seem to have forgotten about the continued power of oil to shock. Analysts have polarised into
two distinct camps – the alarmist and the broadly sanguine, with little room for argument in between.
Those of a sanguine disposition point to the fact that, although Libya is an important producer, it represents less than 2 per cent of global output. Even if all production were suddenly to cease, the Saudis and other producers should be able to fill the gap from their ample reserves of spare capacity.
This, of course, assumes that the Saudis do indeed possess such spare capacity (many believe they don’t) and that it remains largely unaffected by the unrest. If Saudi falls, then the oil price will go through the roof, and probably stay there for a considerable length of time. That’s the alarmist scenario – and it seems more likely by the day.
Since the oil price shocks of the 1970s, Western economies have very considerably reduced their “energy intensity”, the amount of energy they use for any given unit of economic output. This, in turn, has limited their vulnerability to oil price shocks.
One positive effect of high prices is that they encourage this process. After each recession, the gas guzzlers eventually return to American highways, but always in smaller numbers than before. Most nations are also taking steps to insulate themselves from these shocks by developing alternative sources of energy. If oil consumption per head in the US were to fall to European levels, it would reduce world demand by a quantity approximately equal to Saudi’s entire output.
But these things take time. And while energy intensity is falling in the West, it’s surging in the developing world. Technology transfer ought to mean that emerging markets such as China will reach peak energy intensity at a much earlier stage of their development than the industrial pioneers of the West did – but even so, the peak is still some decades off, and in the meantime demand will keep on growing.
Most models that predict the effect of rising oil prices on economic output have always struck me as fairly meaningless. To say that for every $10 the price increases, 0.5 per cent gets knocked off global GDP, doesn’t tell you much – what matters is the speed with which prices rise and the time they stay high. The damage to confidence caused by a fast-rising oil price tends to have a much greater impact on demand, particularly in the US, where the price of petrol is a key determinant of overall spending.
After a very rapid increase, of the sort we’ve seen in the past year, there comes a point when consumers collectively decide to go on strike and stop spending. We are, I fear, perilously close to that tipping point. With advanced economies still struggling to emerge from the financial crisis, another oil price shock is just what we don’t need right. So now, everything depends on Saudi Arabia.
If it succumbs to the contagion, or fails to compensate for lost production in Libya by boosting its output, then we may have to wave the global recovery goodbye.
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