What Libertarianism Is
Property, Rights, and Liberty
Libertarians tend to agree on a wide array of policies and principles. Nonetheless, it is not easy to find consensus on what libertarianism's defining characteristic is, or on what distinguishes it from other political theories and systems.
Various formulations abound. It is said that libertarianism is about individual rights, property rights,[1] the free market, capitalism, justice, or the nonaggression principle. Not just any of these will do, however. Capitalism and the free market describe the catallactic conditions that arise or are permitted in a libertarian society, but do not encompass other aspects of libertarianism. And individual rights, justice, and aggression collapse into property rights. As Murray Rothbard explained, individual rights are property rights.[2] And justice is just giving someone his due, which depends on what his rights are.[3]
The nonaggression principle is also dependent on property rights, since what aggression is depends on what our (property) rights are. If you hit me, it is aggression because I have a property right in my body. If I take from you the apple you possess, this is trespass — aggression — only because you own the apple. One cannot identify an act of aggression without implicitly assigning a corresponding property right to the victim.
So capitalism and the free market are too narrow, and justice, individual rights, and aggression all boil down to, or are defined in terms of, property rights. What of property rights, then? Is this what differentiates libertarianism from other political philosophies — that we favor property rights, and all others do not? Surely such a claim is untenable.
After all, a property right is simply the exclusive right to control a scarce resource.[4] Property rights specify which persons own — that is, have the right to control — various scarce resources in a given region or jurisdiction. Yet everyone and every political theory advance some theory of property. None of the various forms of socialism deny property rights; each version will specify an owner for every scarce resource.[5] If the state nationalizes an industry, it is asserting ownership of these means of production. If the state taxes you, it is implicitly asserting ownership of the funds taken. If my land is transferred to a private developer by eminent domain statutes, the developer is now the owner. If the law allows a recipient of racial discrimination to sue his employer for a sum of money, he is the owner of the money.[6]
Protection of and respect for property rights is thus not unique to libertarianism. What is distinctive about libertarianism is its particular property assignment rules: its view concerning who is the owner of each contestable resource, and how to determine this.
Property in Bodies
A system of property rights assigns a particular owner to every scarce resource. These resources obviously include natural resources such as land, fruits of trees, and so on. Objects found in nature are not the only scarce resources, however. Each human actor has, controls, and is identified and associated with a unique human body, which is also a scarce resource.[7] Both human bodies and nonhuman, scarce resources are desired for use as means by actors in the pursuit of various goals.
Accordingly, any political theory or system must assign ownership rights in human bodies as well as in external things. Let us consider first the libertarian property assignment rules with respect to human bodies, and the corresponding notion of aggression as it pertains to bodies. Libertarians often vigorously assert the "nonaggression principle." As Ayn Rand said, "So long as men desire to live together, no man may initiate — do you hear me? No man may start — the use of physical force against others."[8] Or, as Rothbard put it:
The libertarian creed rests upon one central axiom: that no man or group of men may aggress against the person or property of anyone else. This may be called the "nonaggression axiom." "Aggression" is defined as the initiation of the use or threat of physical violence against the person or property of anyone else. Aggression is therefore synonymous with invasion.[9]
In other words, libertarians maintain that the only way to violate rights is by initiating force — that is, by committing aggression. (Libertarianism also holds that, while the initiation of force against another person's body is impermissible, force used in response to aggression — such as defensive, restitutive, or retaliatory/punitive force — is justified.)[10]
Now in the case of the body, it is clear what aggression is: invading the borders of someone's body, commonly called battery, or, more generally, using the body of another without his or her consent.[11] The very notion of interpersonal aggression presupposes property rights in bodies — more particularly, that each person is, at least prima facie, the owner of his own body.[12]
Nonlibertarian political philosophies have a different view. Each person has some limited rights in his own body, but not complete or exclusive rights. Society — or the state, purporting to be society's agent — has certain rights in each citizen's body, too. This partial slavery is implicit in state actions and laws such as taxation, conscription, and drug prohibitions.
The libertarian says that each person is the full owner of his body: he has the right to control his body, to decide whether or not he ingests narcotics, joins an army, and so on. Those various nonlibertarians who endorse any such state prohibitions, however, necessarily maintain that the state, or society, is at least a partial owner of the body of those subject to such laws — or even a complete owner in the case of conscriptees or nonaggressor "criminals" incarcerated for life. Libertarians believe in self-ownership. Nonlibertarians — statists — of all stripes advocate some form of slavery.
Self-ownership and Conflict-avoidance
Without property rights, there is always the possibility of conflict over contestable (scarce) resources. By assigning an owner to each resource, legal systems make possible conflict-free use of resources, by establishing visible boundaries that nonowners can avoid. Libertarianism does not endorse just any property assignment rule, however.[13] It favors self-ownership over other-ownership (slavery).
The libertarian seeks property assignment rules because he values or accepts various grundnorms such as justice, peace, prosperity, cooperation, conflict-avoidance, and civilization.[14] The libertarian view is that self-ownership is the only property assignment rule compatible with these grundorms; it is implied by them.
As Professor Hoppe has shown, the assignment of ownership to a given resource must not be random, arbitrary, particularistic, or biased, if it is actually to be a property norm that can serve the function of conflict-avoidance.[15] Property title has to be assigned to one of competing claimants based on "the existence of an objective, intersubjectively ascertainable link between owner and the" resource claimed.[16] In the case of one's own body, it is the unique relationship between a person and his body — his direct and immediate control over his body, and the fact that, at least in some sense, a body is a given person and vice versa — that constitutes the objective link sufficient to give that person a claim to his body superior to typical third party claimants.
Moreover, any outsider who claims another's body cannot deny this objective link and its special status, since the outsider also necessarily presupposes this in his own case. This is so because, in seeking dominion over the other and in asserting ownership over the other's body, he has to presuppose his own ownership of his body. In so doing, the outsider demonstrates that he does place a certain significance on this link, even as (at the same time) he disregards the significance of the other's link to his own body.[17]
Libertarianism recognizes that only the self-ownership rule is universalizable and compatible with the goals of peace, cooperation, and conflict-avoidance. We recognize that each person is prima facie the owner of his own body because, by virtue of his unique link to and connection with his own body — his direct and immediate control over it — he has a better claim to it than anyone else.
Property in External Things
Libertarians apply similar reasoning in the case of other scarce resources — namely, external objects in the world that, unlike bodies, were at one point unowned. In the case of bodies, the idea of aggression being impermissible immediately implies self-ownership. In the case of external objects, however, we must identify who the owner is before we can determine what constitutes aggression.
As in the case with bodies, humans need to be able to use external objects as means to achieve various ends. Because these things are scarce, there is also the potential for conflict. And, as in the case with bodies, libertarians favor assigning property rights so as to permit the peaceful, conflict-free, productive use of such resources. Thus, as in the case with bodies, property is assigned to the person with the best claim or link to a given scarce resource — with the "best claim" standard based on the goals of permitting peaceful, conflict-free human interaction and use of resources.
Unlike human bodies, however, external objects are not parts of one's identity, are not directly controlled by one's will, and — significantly — they are initially unowned.[18] Here, the libertarian realizes that the relevant objective link is appropriation — the transformation or embordering of a previously unowned resource, Lockean homesteading, the first use or possession of the thing.[19] Under this approach, the first (prior) user of a previously unowned thing has a prima facie better claim than a second (later) claimant, solely by virtue of his being earlier.
Why is appropriation the relevant link for determination of ownership? First, keep in mind that the question with respect to such scarce resources is: who is the resource's owner? Recall that ownership is the right to control, use, or possess,[20] while possession is actual control — "the factual authority that a person exercises over a corporeal thing."[21] The question is not who has physical possession; it is who has ownership.
Thus, asking who is the owner of a resource presupposes a distinction between ownership and possession — between the right to control, and actual control. And the answer has to take into account the nature of previously unowned things — namely, that they must at some point become owned by a first owner.
The answer must also take into account the presupposed goals of those seeking this answer: rules that permit conflict-free use of resources. For this reason, the answer cannot be whoever has the resource or whoever is able to take it is its owner. To hold such a view is to adopt a might-makes-right system, where ownership collapses into possession for want of a distinction.[22] Such a system, far from avoiding conflict, makes conflict inevitable.[23]
Instead of a might-makes-right approach, from the insights noted above it is obvious that ownership presupposes the prior-later distinction: whoever any given system specifies as the owner of a resource, he has a better claim than latecomers.[24] If he does not, then he is not an owner, but merely the current user or possessor. If he is supposed an owner on the might-makes-right principle, in which there is no such thing as ownership, it contradicts the presuppositions of the inquiry itself. If the first owner does not have a better claim than latecomers, then he is not an owner, but merely a possessor, and there is no such thing as ownership.
More generally, latecomers' claims are inferior to those of prior possessors or claimants, who either homesteaded the resource or who can trace their title back to the homesteader or earlier owner.[25] The crucial importance of the prior-later distinction to libertarian theory is why Professor Hoppe repeatedly emphasizes it in his writing.[26]
Thus, the libertarian position on property rights is that, in order to permit conflict-free, productive use of scarce resources, property titles to particular resources are assigned to particular owners. As noted above, however, the title assignment must not be random, arbitrary, or particularistic; instead, it has to be assigned based on "the existence of an objective, intersubjectively ascertainable link between owner" and the resource claimed.[27] As can be seen from the considerations presented above, the link is the physical transformation or embordering of the original homesteader, or a chain of title traceable by contract back to him.[28]
Consistency and Principle
Not only libertarians are civilized. Most people give some weight to some of the above considerations. In their eyes, a person is the owner of his own body — usually. A homesteader owns the resource he appropriates — unless the state takes it from him "by operation of law."[29] This is the principal distinction between libertarians and nonlibertarians: Libertarians are consistently opposed to aggression, defined in terms of invasion of property borders, where property rights are understood to be assigned on the basis of self-ownership in the case of bodies. And in the case of other things, rights are understood on the basis of prior possession or homesteading and contractual transfer of title.
This framework for rights is motivated by the libertarian's consistent and principled valuing of peaceful interaction and cooperation — in short, of civilized behavior. A parallel to the Misesian view of human action may be illuminating here. According to Mises, human action is aimed at alleviating some felt uneasiness.[30] Thus, means are employed, according to the actor's understanding of causal laws, to achieve various ends — ultimately, the removal of uneasiness.
Civilized man feels uneasy at the prospect of violent struggles with others. On the one hand, he wants, for some practical reason, to control a given scarce resource and to use violence against another person, if necessary, to achieve this control. On the other hand, he also wants to avoid a wrongful use of force. Civilized man, for some reason, feels reluctance, uneasiness, at the prospect of violent interaction with his fellow man. Perhaps he has reluctance to violently clash with others over certain objects because he has empathy with them.[31] Perhaps the instinct to cooperate has is a result of social evolution. As Mises noted,
There are people whose only aim is to improve the condition of their own ego. There are other people with whom awareness of the troubles of their fellow men causes as much uneasiness as or even more uneasiness than their own wants.[32]
Whatever the reason, because of this uneasiness, when there is the potential for violent conflict, the civilized man seeks justification for the forceful control of a scarce resource that he desires but which some other person opposes. Empathy — or whatever spurs man to adopt the libertarian grundnorms — gives rise to a certain form of uneasiness, which gives rise to ethical action.
Civilized man may be defined as he who seeks justification for the use of interpersonal violence. When the inevitable need to engage in violence arises — for defense of life or property — civilized man seeks justification. Naturally, since this justification-seeking is done by people who are inclined to reason and peace (justification is after all a peaceful activity that necessarily takes place during discourse),[33] what they seek are rules that are fair, potentially acceptable to all, grounded in the nature of things, and universalizable, and which permit conflict-free use of resources.
Libertarian property rights principles emerge as the only candidate that satisfies these criteria. Thus, if civilized man is he who seeks justification for the use of violence, the libertarian is he who is serious about this endeavor. He has a deep, principled, innate opposition to violence, and an equally deep commitment to peace and cooperation.
For the foregoing reasons, libertarianism may be said to be the political philosophy that consistently favors social rules aimed at promoting peace, prosperity, and cooperation.[34] It recognizes that the only rules that satisfy the civilized grundnorms are the self-ownership principle and the Lockean homesteading principle, applied as consistently as possible.
And as I have argued elsewhere, because the state necessarily commits aggression, the consistent libertarian, in opposing aggression, is also an anarchist.[35]
The Republic Becomes the Empire
We have crossed the boundary that lies between Republic and Empire. If you ask when, the answer is that you cannot make a single stroke between day and night. The precise moment does not matter. There was no painted sign to say, "You now are entering Imperium." Yet it was a very old road and the voice of history was saying: "Whether you know it or not, the act of crossing may be irreversible." And now, not far ahead, is a sign that reads: "No U Turns."
If you say there were no frightening omens, that is true. The political foundations did not quake; the graves of the Fathers did not fly open; the Constitution did not tear itself up. If you say people did not will it, that also is true. But if you say therefore it has not happened, then you have been so long bemused by words that your mind will not believe what the eye can see, even as in the jungle the terrified primitive, on meeting the lion, importunes magic by saying to himself, "He is not there." That a republic may vanish is an elementary schoolbook fact.
The Roman Republic passed into the Roman Empire, and yet never could a Roman citizen have said, "That was yesterday." Nor is the historian, with all the advantages of perspective, able to place that momentous event at any exact point on the dial of time. The Republic had a long unhappy twilight. It is agreed that the Empire began with Augustus Caesar. Several before him had played emperor and were destroyed.
The first who might have been called emperor in fact was Julius Caesar, who pretended not to want the crown and once publicly declined it. Whether he feared more the displeasure of the Roman populace or the daggers of the republicans is unknown. In his dreams he may have been seeing a bloodstained toga. His murder soon afterward was a desperate act of the dying republican tradition, and perfectly futile. His heir was Octavian, and it was a very bloody business, yet neither did Octavian call himself emperor.
On the contrary, he was most careful to observe the old legal forms. He restored the Senate. Later he made believe to restore the Republic, and caused coins to be struck in commemoration of that event. Having acquired by universal consent, as he afterward wrote, "complete dominion over everything, both by land and sea," he made a long and artful speech to the Senate, and ended it by saying: "And now I give back the Republic into your keeping. The laws, the troops, the treasury, the provinces, are all restored to you. May you guard them worthily."
The response of the Senate was to crown him with oak leaves, plant laurel trees at his gate and name him Augustus. After that he reigned for more than forty years and when he died the bones of the Republic were buried with him. "The personality of a monarch," says Stobart,
had been thrust almost surreptitiously into the frame of a republican constitution…. The establishment of the Empire was such a delicate and equivocal act that it has been open to various interpretations ever since. Probably in the clever mind of Augustus it was intended to be equivocal from the first.
What Augustus Caesar did was to demonstrate a proposition found in Aristotle's "Politics," one that he must have known by heart, namely this:
People do not easily change, but love their own ancient customs; and it is by small degrees only that one thing takes the place of another; so that the ancient laws will remain, while the power will be in the hands of those who have brought about a revolution in the state.
Revolution within the form.
There is no comfort in history for those who put their faith in forms; who think there is safeguard in words inscribed on parchment, preserved in a glass case, reproduced in facsimile and hauled to and fro on a Freedom Train.
Let it be current history. How much does the younger half of this generation reflect upon the fact that in its own time a complete revolution has taken place in the relations between government and people? It may be doubted that one college student in a thousand could even state it clearly. The first article of our inherited tradition, implicit in American thought from the beginning until a few years ago, was this: Government is the responsibility of a self-governing people. That doctrine has been swept away; only the elders remember it.
Now, in the name of democracy, it is accepted as a political fact that people are the responsibility of government. The forms of republican government survive; the character of the state has changed. Formerly the people supported government and set limits to it and minded their own lives.
Now they pay for unlimited government, whether they want it or not, and the government minds their lives — looking to how they are fed and clothed and housed; how they provide for their old age; how the national income, which is the product of their own labor, shall be divided among them; how they shall buy and sell; how long and how hard and under what conditions they shall work, and how equity shall be maintained between the buyers of food who dwell in the cities and the producers of food who live on the soil. For the last named purpose it resorts to a system of subsidies, penalties and compulsions, and assumes with medieval wisdom to fix the just price.
This is the Welfare State. It rose suddenly within the form. It is legal because the Supreme Court says it is. The Supreme Court once said no and then changed its mind and said yes, because meanwhile the President who was the architect of the Welfare State had appointed to the Supreme Court bench men who believed in it.
The founders who wrote the Constitution could no more have imagined a Welfare State rising by sanction of its words than they could have imagined a monarchy; and yet the Constitution did not have to be changed. It had only to be reinterpreted in one clause — the clause that reads: "The Congress shall have power to lay and collect taxes, imposts and excises to pay its debts and provide for common defense and welfare of the United States."
"We are under a Constitution," said Chief Justice Hughes, "but the Constitution is what the judges say it is."
The president names the members of the Supreme Court, with the advice and consent of the Senate. It follows that if the president and a majority of the Senate happen to want a Welfare State, or any other innovation, and if, happily for their design, death and old age create several vacancies on the bench so that they may pack the Court with like-minded men, the Constitution becomes, indeed, a rubberoid instrument.
The extent to which the original precepts and intentions of constitutional, representative, limited government, in the republican form, have been eroded away by argument and dialectic is a separate subject, long and ominous, and belongs to a treatise on political science.
The one fact now to be emphasized is that when the process of erosion has gone on until there is no saying what the supreme law of the land is at a given time, then the Constitution begins to be flouted by Executive will, with something like impunity. The instances may not be crucial at first and all the more dangerous for that reason. As one is condoned, another follows, and they become progressive.
To outsmart the Constitution and to circumvent its restraints became a popular exercise of the art of government in the Roosevelt regime. In defense of his attempt to pack the Supreme Court with social-minded judges after several of his New Deal laws had been declared unconstitutional, President Roosevelt wrote: "The reactionary members of the Court had apparently determined to remain on the bench for as long as life continued-for the sole purpose of blocking any program of reform."
Among the millions who at the time applauded that statement of contempt there were very few, if there was indeed one, who would not have been frightened by a revelation of the logical sequel. They believed, as everyone else did, that there was one thing a President could never do. There was one sentence of the Constitution that could not fall, so long as the Republic lived.
The Constitution says: "The Congress shall have power to declare war." That, therefore, was the one thing no president could do. By his own will he could not declare war. Only Congress could declare war, and Congress could be trusted never to do it but by will of the people — or so they believed. No man could make it for them. Even if you think that President Roosevelt got the country into World War II, that was not the same thing. For a declaration of war he went to Congress — after the Japanese had attacked Pearl Harbor. He may have wanted it, he may have planned it; and yet the Constitution forbade him to declare war and he dared not do it. Nine years later a much weaker president did.
President Truman, alone and without either the consent or knowledge of Congress, had declared war on the Korean aggressor, 7000 miles away, Congress condoned his usurpation of its exclusive constitutional power. More than that, his political supporters in Congress argued that in the modern case that sentence in the Constitution conferring upon Congress the sole power to declare war was obsolete.
Mark you, the words had not been erased; they still existed in form. Only they had become obsolete. And why obsolete? Because now war may begin suddenly, with bombs falling out of the sky, and we might perish while waiting for Congress to declare war.
The reasoning is puerile. The Korean war, which made the precedent, did not begin that way; secondly, Congress was in session at the time, so that the delay could not have been more than a few hours, provided Congress had been willing to declare war; and, thirdly, the president as commander-in-chief of the armed forces of the Republic may in a legal manner act defensively before a declaration of war has been made. It is bound to be made if the nation has been attacked.
Mr. Truman's supporters argued that in the Korean instance his act was defensive and therefore within his powers as commander-in-chief. In that case, to make it constitutional, he was legally obliged to ask Congress for a declaration of war afterward. This he never did. For a week Congress relied upon the papers for news of the country's entry into war; then the president called a few of its leaders to the White House and told them what he had done.
A year later Congress was still debating whether or not the country was at war, in a legal, constitutional sense. A few months later Mr. Truman sent American troops to Europe to join an international army, and did it not only without a law, without even consulting Congress, but challenged the power of Congress to stop him. Congress made all of the necessary sounds of anger and then poulticed its dignity with a resolution saying the president's action was all right for that one time, since anyhow it had been taken, but that hereafter Congress would expect to be consulted.
At that time the Foreign Relations Committee of the Senate asked the State Department to set forth in writing what might be called the position of executive government. The State Department obligingly responded with a document entitled, "Powers of the President to Send Troops Outside of the United States — Prepared for the use of the joint committee made up of the Committee on Foreign Relations and the Committee on the Armed Forces of the Senate, February 28, 1951."
This document, in the year circa 2950, will be a precious find for any historian who may be trying then to trace the departing footprints of the vanished American Republic. For the information of the United States Senate it said (Congressional Record, March 20, 1951, p. 2745):
"As this discussion of the respective powers of the President and Congress has made clear, constitutional doctrine has been largely moulded by practical necessities. Use of the Congressional power to declare war, for example, has fallen into abeyance because wars are no longer declared in advance."
Caesar might have said it to the Roman Senate. If constitutional doctrine is moulded by necessity, what is a written Constitution for?
Thus an argument that seemed at first to rest upon puerile reasoning turned out to be deep and cunning. The immediate use of it was to defend the unconstitutional Korean precedent, namely, the resort to war as an act of the president's own will. Yet it was not invented for that purpose alone. It stands as a forecast of executive intentions, a manifestation of the executive mind, mortal challenge to the parliamentary principle. The simple question is: Whose hand shall control the instrument of war? It is late to ask. It may be too late, for when the hand of the Republic begins to relax another hand is already putting itself forth.
Afghanistan
From insurgency to insurrection
The fraying state of a distant land in which the West seems increasingly bogged down
AT A taxi-rank on the southern edge of Kabul, drivers lounged against dusty car bonnets and held a grim conversation. Business was bad, they said. The road they travelled, shuttling between Afghanistan’s capital and the violent eastern provinces of Logar and Paktia, was often unusable. Between 4pm and 4am, Islamist militants preyed upon it. At other times, American troops closed it.
“We’re caught in the middle and we’re sick of it,” said Ghafoor, a resident of Ahmadkhel village in Paktia—where he claimed 60 civilians had been killed in on-off fighting between Americans and militants. “We need security. But the Americans are just making trouble for us. They cannot bring peace, not if they stay for 50 years.”
At which, your British correspondent, who had been attracting attention in a dicey area, offered his hand and made to leave. Mr Ghafoor responded with two distastefully outstretched fingers, and said: “I won’t shake hands with a Kafir.”
It would be wrong to judge any country, let alone one as fractured and complicated as Afghanistan, on an anecdote. Yet this encounter was consistent with a worrying change detected by many grizzled Afghanistan hands, Western diplomats and soldiers. Across Afghanistan, but especially in the mainly-Pushtun south and east (Pushtuns making up about 43% of this multi-ethnic population), resentment against the foreign-funded government of President Hamid Karzai, the NATO-led force that protects it, known as ISAF, and Westerners in general, is growing.
On August 15th a suicide-bomb attack outside ISAF’s Kabul headquarters killed seven; on August 18th a salvo of Taliban rockets struck Kabul, including Mr Karzai’s palace. The violence was perhaps aimed at Afghanistan’s second presidential election, which was held on August 20th amid reports of intimidation and widespread rigging. Yet there are also worrying signs that the Taliban insurgency, now estimated to affect 40% of the country’s districts, has in some places become an insurrection.
Eight years after the Taliban were blasted from power by American jets, and despite the splashing of $32 billion of foreign aid on Afghanistan, there are many reasons for Afghan anger. A failure to provide the security they crave—despite the deployment of over 100,000 ISAF and American troops, more than 120 of whom have been killed in the past six weeks—is the most obvious. Almost two-thirds of Afghanistan, one of the world’s poorest places, where 30 years of anti-Soviet, then civil and now anti-NATO war have obliterated irrigation systems and turned roads to dust, is considered too dangerous for aid agencies to reach.
Civilian casualties of the fighting, of which there have been over 1,000 this year, are another source of resentment—and another motive for the insurgency in Pushtun society, where vengeance is justice. Nearly 60% of these deaths were in fact caused by the Taliban and allied Pushtun militants, through their increasing use of terrorist tactics, including over 90 suicide-blasts in Afghanistan this year. But misdirected American air strikes, which have many times destroyed wedding-parties and sleeping villagers in Afghanistan—for example, in western Farah province in May when at least 63 civilians were killed—are the main focus for Afghan rage. Acknowledging this, Mr Karzai on the campaign trial has often been critical of foreign troops.
The grudge-list goes on. Afghans, who welcomed this Kafir intervention in 2001 with outstretched arms, tell stories of American and British soldiers barging into cloistered Pushtun women’s quarters, at night, with unclean dogs. If often exaggerated, these tales are rooted in truth. Casual detentions of thousands of Afghan men, on no good evidence, have also done damage. In his Kabul home, Abdul Salam Zaeef, the Taliban’s black-bearded former ambassador to Pakistan, describes with disbelief the interrogations he endured during three-and-a-half years in Guantánamo Bay. “They said: ‘You are Mullah Omar, you are al-Qaeda, you are a drug-dealer, you are a gold-dealer…’”
With too little knowledge and too few troops, America and its allies have often relied on malign local proxies. Underlining the difficulty of the task, many of these held government posts. Between 2002 and 2006 in southern Uruzgan, for example, American special-forces soldiers were persuaded by the controversial then-governor, Jan Mohammad Khan, that a rival Pushtun tribe, the Ghilzais, supported the Taliban. In the mayhem that ensured, this soon became a self-fulfilling prophecy.
Fuel on the fire
Until 2006, southern Helmand had only 300 American combat troops. While thus neglected, it developed into the opium-growing heart of a complicated insurgency in which drugs, tribal politics and Islamist militancy all play a part. The deployment of 3,300 British troops there in early 2006 poured petrol on this fire. Many have been killed—including 35 in July and August—for little obvious gain. An institutional reluctance to admit the obvious—that the British were too few to bring security to Helmand—made matters worse. It led, for example, to an insane tactic of sporadic sweeps by British soldiers through Taliban-controlled areas, known as “mowing the lawn”, which might have been designed to turn local villagers to the Taliban. Helmand is now in arms, with 20,000 British and American troops now battling to control its main towns and roads.
Even Lashkar Gah, the provincial capital, is unsafe. Its walls were pasted with a few campaign posters this week, but also with threatening “night-letters” from the Taliban, warning people not to vote. The militants, it was rumoured, meant to cut off the inky forefinger of anyone thus marked as having disobeyed their injunction. A local parliamentarian, Niamatullah Afari, who said he had been unable to visit his lands on the town’s outskirts for years, predicted that no Helmandi would vote outside the province’s two main towns.
In Helmand, and elsewhere in the south, the illegal opium trade—which the UN estimated to be worth $3.4 billion at export last year, or 33% of GDP—has also been incendiary. British troops in the fertile Helmand river valley, which alone produces more sticky opium resin than any nation, have been unwitting pawns in drug wars involving tribes, government officials and the Taliban, who get perhaps a third of their income from taxing the trade. An American-funded effort to plough up opium poppies, the main cash crop in much of the Pushtun south, has been wasteful and self-defeating. Last year this policy turned Nad Ali, which, under the control of a pro-government drug gang, had been a rare Taliban-resistant district of Helmand, into a place as hostile as any other.
ISAF maps, showing incidents of insurgent violence in yellow, reveal the effect of these setbacks. In 2005 southern and eastern Afghanistan were light yellow, while a speckly yellow arc traversed the west and north. In 2009 Afghanistan is covered by an almost-unbroken yellow ring, encompassing every thickly populated area. The south and east are rich gold. The northern and western arc is now thickly freckled maize. It includes formerly peaceful Kunduz province where German soldiers, sent there by an anxious government largely for their safety, were last month engaged in heavy fighting.
To what extent is the conflict a popular resistance? It is not a national Pushtun insurrection—like those, rooted in implacable xenophobia, that defeated 19th-century British adventurers and Soviet occupiers in the 1980s. By the government’s estimate—unreliable as it may be—the Taliban and other Pushtun militant groups may be able to call on 25,000 fighters. Yet there is at least reason to fear, on the evidence of Helmand alone, that foreign troops are now creating more conflict than they can possibly quell. As an argument for ramping up Afghan security forces—which he later sought to contradict—the Afghan army’s spokesman, Major-General Zahir Azimi, acknowledged this. “Where international forces are fighting, people think it is incumbent on them to resist the occupiers and infidels. This feeling is strong in the south and east and it may spread to other places.”
Afghanistan, it seems wise to assume, is at a critical point. The news is not all bad. Kabul, recently reinforced by some 4,000 freshly-trained police, feels a bit safer these days. And 21,000 extra American troops, including 17,000 already dispatched to Helmand and elsewhere, could begin to show similar results. Mr Karzai’s cabinet has also improved, with half a dozen technocrats recruited in the past year to the main economic ministries. Yet it seems clear that the international effort to bring stability to Afghanistan, in which a strong, somewhat liberal and democratic state can take root, is failing. Among a relatively few foreign experts on the country—as opposed to the thousands of fat-salaried Western consultants bunkered in Kabul—the mood is bleak. “We think we’re at the centre of things, but we’re not, we’re at the margins of Afghanistan,” says Martine van Bijlert of the Afghanistan Analysts Network, a think-tank. “And we’re so busy having meetings and discussing our plans we’re not even seeing what’s coming at us.” Complete failure—withdrawal by NATO and a return to civil war—seems unimaginable. But failure of some lesser sort, still undefined, looks increasingly inevitable.
Fixing Mad Max
Softening the blow, there are two reasons for hope. First, however angry and disappointed, most Afghans still back the reconstruction effort. A recent poll for the International Republican Institute (IRI) showed them to be optimistic on a range of related issues, including security and the economy. General Stanley McChrystal, the overall American commander in Afghanistan, finds succour in this. Asked whether he considered his mission possible, he said: “Afghanistan is this tremendously complex, Mad Max, utterly devastated society that’s got to be repaired, and I don’t know if we can fix it. But we can’t ignore it. And I believe there are certain forces here, maybe just the will of the people, fatigue with war—there is a tremendous desire to sort it out.”
The re-election of Mr Karzai, a clear favourite in this week’s vote, would in part be an expression of that desire. A small-time leader in the anti-Soviet jihad, from a noble Pushtun family, he was installed as Afghanistan’s leader by America in 2001. As a symbol, then, of international support for the country—and not for anything he achieved, while mostly confined for fear of assassination in his Kabul palace—Mr Karzai went on to win Afghanistan’s inaugural presidential election in 2004. He has achieved little since, presiding over a spread of narco-corruption by which he seems blithely unperturbed. In July Mr Karzai pardoned five well-connected drug-traffickers who had been imprisoned for up to 18 years for attempting to trade heroin for two truckloads of sub-machineguns. These convictions had been considered a ground-breaking success for Afghan counter-narcotics efforts.
As a hedge against wavering foreign support, Mr Karzai has also favoured detested warlords—including several whom the Taliban were first launched, in the mid-1990s, to eliminate. To boost his chances of re-election, he has formed alliances with Rashid Dostum, an Uzbek warlord linked to the slaughter of 2,000 Taliban prisoners, and Mohammad Mohaqeq, a Hazara strongman, who claims to have been promised five Hazara cabinet seats for his support. As a campaign adviser, Mr Karzai enlisted Abdul Rasul Sayyaf, an Islamist who welcomed Osama bin Laden to Afghanistan in 1996. In an IRI poll released last week, Afghans said that of all their politicians, they disliked Mr Dostum, Mr Mohaqeq and Mr Sayyaf most.
The poll predicted that Mr Karzai would win 44% of the vote—a strong lead over his rivals, but not the outright majority he would need to avoid a second-round run-off, provisionally set for October 1st. At the same time, IRI found that 83% of Afghans thought their country needed to change direction. A surge of support for Mr Karzai’s main challenger, Dr Abdullah Abdullah, a champion of the Tajik minority, hints at what sort of change they would like. Unlike Mr Karzai, he has campaigned across the country, rallying Afghans and offering them ideas—some good, some bad—on how to solve their problems. In fact in Afghanistan’s main cities, the election has fuelled lively debate, for which Dr Abdullah, and two lesser challengers, Ramazan Bashardost and Ashraf Ghani, deserve credit. Yet even without massive rigging in favour of Mr Karzai—which was expected in Pushtun areas where independent observers will fear to go—he was considered likeliest to win. His reputation, though fading, as a peaceable Pushtun, a national unifier and, above all, as the likeliest guarantor of the foreigners’ shining promise to Afghanistan may best explain this.
They need to be both bolder and more carefulMcChrystal’s hopes
A second reason for hope is Barack Obama, who on August 17th reiterated his commitment to this war (see article). His administration, the inheritor of a losing cause, has set about turning things around in Afghanistan with vim and humility. The appointment of Richard Holbrooke, who at least has vim, as America’s new “Af-Pak” envoy represents an overdue appreciation of the regional dimensions of a conflict in which old rivals, Pakistan and India, Russia and America and Iran, all have a stake. Mr Holbrooke would most like to stop Pakistan suffering—if not abetting—the use of its territory by the Taliban’s senior leaders, who are said to reside in the Pakistani city of Quetta. Alas, he has been consumed by the equally pressing task of turning Pakistan against its own Taliban foes, with some success. This week an aide to their leader, Baitullah Mehsud, confirmed that he had been killed in an air strike.
In Afghanistan Mr Obama’s arrival has brought a flurry of strategy reviews and a ruthless change of command, to usher in General McChrystal—whose own review will be unveiled later this month. It will re-emphasise that the main goal of ISAF and American troops is to protect Afghans, not kill the Taliban among them. Orders to this effect have already gone out. Air power is to be used only when there is no significant risk of civilian deaths.
In a three-week period last month, an American marine battalion, tasked with taking control of Garmser, a Talibanised district of southern Helmand, called in one air strike, to drop a 500-pound bomb. In the same period in July 2007, British troops in Garmser, albeit facing stiffer opposition, called in air strikes that dropped 12,000-pounds of bombs on the district. On the wall of the marines’ base in Garmser, a note reads: “You have to look at these people as if they want to kill you, but you can’t treat them that way.”
In similar fashion, military convoys are to be driven more carefully. House-searches must be conducted more politely, with respectful understanding of Pushtuns’ habit of keeping their womenfolk prisoner and their names secret. Detention facilities, General McChrystal will recommend, should be more humane—and better intelligence gathered from them. Hundreds of civilians are to be sent to assist his forces, mainly to pep up their flagging efforts to provide economic development. Whether ISAF will get more troops, as the general would no doubt like, is unclear. His sacked predecessor, General David McKiernan, requested around 10,000 more American troops—a modest number—and was denied them. Either way, much greater onus will be placed on building up Afghan security forces, a task only seriously begun four years ago. The Afghan army, currently 94,000-strong, is to be pushed to 134,000 within two years. Both it and the Afghan police, of whom there are currently 84,000, may end up being doubled.
The aim of all this is to separate resisters from committed insurgents—to turn the current gold-yellow map back to the lighter hues of 2005. And then to go further. American planners estimate that 70-80% of their enemies should be persuadable, through kinder tactics, economic opportunities—and a formal reconciliation process. That too is on the agenda, though there is currently little agreement on how it might be done. Mr Karzai has often said he is willing to sit down with the Taliban’s supremo, Mullah Mohammad Omar. The UN and some European countries would perhaps support that. America, which for seven years has called the Taliban al-Qaeda’s cousins, may find this harder to condone. Yet it is worth noting that the Taliban’s one-eyed leader has not accepted Mr Karzai’s offer.
And why would he? Wherever he is, Mullah Omar must be smiling. America’s fresh effort is horribly belated and its commitment to Afghanistan is probably shakier than Mr Obama suggests. To maintain political support for his task, General McChrystal reckons he has a year to show serious progress—a blink-of-an-eye in counter-insurgency time. Nor are all his suggestions entirely new. Previous ISAF commanders, including General McKiernan, also issued promising directives, only to fail because of too few resources and too little understanding in their forces, and too little support from the Afghan government. Rebooting Mr Karzai, assuming that he wins re-election and that it is possible, would be much better for his country than many more American brigades.
But at least Afghanistan’s accelerating decline seems at last to have been admitted. That should be a blessing for its people who are caught, wavering, between two enemies. In the words of Colonel Ghooli Khan, the police chief of Garmser, “They do not like the British or the Americans. They just wanPiracy and private enterprise
Splashing, and clashing, in murky waters
Private security firms are increasingly involved in the fight against pirates. The allocation of tasks between them and navies needs some thought
OF THE dozens of ships recently captured by pirates off east Africa, few stirred so much interest in their home country as a German freighter, the Hansa Stavanger, seized by Somalis in April. As its captivity wore on, the crew of 24 was reported in Germany’s media to be ailing and in need of medicine and water.
At one point, German police commandos were training on board an American navy ship, hoping to storm the vessel, until America’s national security adviser, James Jones, said it was too dangerous. At last, on August 3rd, the saga ended after negotiations between the ship’s Hamburg-based owners and the pirates, who boasted that they had netted $2.75m in ransom.
Parleying with pirates, and then paying the ransom (often by airdrops), are jobs that shipowners regularly contract out to private firms or “risk consultancies”. Other maritime security services are less controversial: fitting ships with kit, such as barbed or electric wires, to make it hard for pirates to clamber aboard. Increasingly, security firms also put armed guards on ships, or offer their own craft as escorts.
Business protecting ships off east Africa has tripled in the past year, says Eos Risk Management, a London firm that says it has fended off at least 15 attacks from Somali pirates since January. Eos usually uses non-lethal defences, but David Johnson, its boss, says new players are rushing into maritime security, taking advantage of the ample supply of weapons in Africa.
Armed escort ships, offering protection for a price, are becoming a lot more common off east Africa. Local coastguards, where they exist, have got used to private-security vessels plying their waters, says Stan Ayscue of Securewest International, a firm based in Singapore and Virginia.
But for strategists grappling with the diminished safety of the world’s seas—off east Africa and in other perilous spots such as South-East Asia and the waters of Nigeria—figuring out a sensible and workable division of labour between navies and private firms is not easy.
In at least one way, the activities of private firms clash with the concerns of navies and their masters. The payment of ransoms is a menace for law and order. As Robert Gates, America’s defence secretary, lamented in April, the fight against piracy would be going better if shipowners stopped paying to regain their vessels.
But of course, when private security companies, often employing veterans of national armed forces, work well to prevent piracy, they and the world’s navies are broadly on the same side. America in particular says countering piracy requires a joint effort by states, shipowners and other private interests, including security firms. “In appropriate circumstances, onboard armed security, private or military, can provide an effective deterrent to pirates in the Horn of Africa region for certain vessels deemed to be at high risk,” the State Department has said.
It is clearly true that no single agency in the war against piracy is likely to succeed. About 15 countries conduct anti-piracy naval patrols in the Indian Ocean under various hats. That might sound a lot; but 30 warships are operating in an area almost as big as the United States. Achim Winkler, a spokesman for the European Union naval force, says hundreds of ships would be needed to secure the area.
And for navies, almost as much as for private security providers, the surge in piracy has affected their institutional interests in confusing ways. As cynics note, the fight against piracy has certainly given navies a noble new mission, a claim on budgets and an area for cross-border work to which nobody objects.
NATO’s new secretary-general, Anders Fogh Rasmussen, recently agreed with Russia’s envoy to the alliance, Dmitry Rogozin, that piracy was a field where they could work together. However, Russia, which has sent a series of naval ships to the Horn of Africa, says it will not serve under NATO or EU command.
Meanwhile, the Russian navy has in recent days been engaged in what it has presented as a dramatic anti-piracy mission: apprehending, off the Cape Verde islands, eight people on board a Russian-owned cargo ship called the Arctic Sea, whose crew claimed to have been hijacked, at least briefly, in the Baltic in late July. Other countries were sceptical of that story.
Apart from biggish powers like Russia, the war on piracy is attracting small countries. For example, Croatia recently said it was joining an EU-led force, after vowing to respect the “human rights” of pirates.
John Pike, of GlobalSecurity.org, an American consultancy, offers a hard-boiled view of all this. “A lot of navies are looking for something to do—and there are many ships in the world prepared for big naval war, which isn’t going to happen.”
But some naval types say tackling barefoot Somalis with bazookas is not the best use of large warships. “They feel that tackling a skiff is an odd thing to do with a ship costing hundreds of millions,” says Jason Alderwick, an analyst with the London-based International Institute for Strategic Studies. Nor are warships always ideal for the job. A naval craft may take 20 minutes to send a helicopter to a nearby merchant vessel in danger. That is easily enough time for pirates to seize a ship; once that happens, there is no easy way to regain control.
Deterrence, or at least stopping attacks at the earliest stage, is always best. These are areas in which the private sector (both shipowners and their security advisers) must play a role. America has also encouraged small countries with large shipping registries such as Liberia, Panama, the Marshall Islands and the Bahamas to mandate prudent self-protection by vessels.
Already, the line between peaceful merchant ships and naval ones is blurring a little. These days, maritime-security providers operating off east Africa almost always make some use of weapons, says Didier Berra, a French army veteran who has worked for Secopex, a naval-security firm based in Carcassonne in France.
Draconian force is seldom necessary, adds Mr Berra. Attackers often give up when 12.7mm machineguns are fired into the water, creating a big splash. The head of another European security firm says many outfits sidestep bans on weapons in port by tossing them overboard. Yet a show of firepower is increasingly necessary because pirates are getting blasé about “non-lethal” defences like water hoses and sonic blasts, says David Schewitz, whose California-based company, RSB International, helps protect ships.
Navies are also starting to deploy seamen on merchant ships, something hitherto rare unless the cargo was military. The French navy, for example, has been sending sailors to protect the country’s tuna-fishing ships in waters around the Seychelles. Such assertiveness at least marginally reduces the opportunities for private firms; a few games really are zero sum.
In any case, private security firms can’t do more than tackle the symptoms of piracy. More needs to be done onshore. Tracking where the ransoms are stashed, reportedly in banks in the Gulf, would be one way to start. Another idea would be to find new ways for young Somali boat-owners to survive. Somalis who once fished say they were pushed out by foreign trawlers.
Ultimately piracy in Somalia is unlikely to stop until chronic instability, caused by rival warlords and Islamist fighters, is tackled. Yet no outsider has a convincing panacea. American forces have bombed Islamist fighters in southern Somalia, and Russia favours knocking out pirate coastal bases; neither action promises stability.
The absence of an effective state in Somalia means there is no local ability to police national waters. Last year the “transitional federal government” signed a deal with Secopex under which the firm would have set up a small national navy. Secopex estimated it would need two dozen fast gunships. But the deal failed. The government was too broke and disorganised.
Across Africa, in Nigeria, lies another danger zone for ships. According to GEOS, a French firm, the insurgents who make pirate-like attacks on shipping in Nigeria’s Delta region are very well armed and informed about targets, through contacts in the oil and shipping worlds. Yet Nigeria’s semi-functioning state helps keep piracy within bounds. GEOS typically protects its clients’ ships with help from a Nigerian police boat or small navy gunship.
The UN Security Council has authorised naval ships to enter Somali waters in pursuit of pirates. But the high seas are simply getting more perilous than they were, and neither governments nor private interests seem to have the capacity to make them safe.
Rebuilding Jaguar Land Rover
Tata takes charge
How a poker game with the government changed the deck at JLR
FOR several months, the future of those sleek Jaguar saloons and robust all-terrain Land Rovers, symbols of a once-great British motor industry, seemed to hang in the balance as Tata, parent of Jaguar Land Rover (JLR), and government officials wrangled over the knotty issue of financial support.
Dangling before JLR and other carmakers and suppliers was the promise, made in January by Lord Mandelson, the business secretary, of £2.3 billion ($3.2 billion) of government loans and guarantees to aid investment in low-emission car projects. So far not a penny of the money has been spent, though separately £300m has gone on a car scrappage scheme, which mainly helps makers of small, cheap cars.
On August 11th an exasperated Tata said it no longer needed government help. That ended over six months of sometimes bitter negotiation with the Shareholder Executive, a state agency that looks after the government’s stakes in businesses. (Those include Northern Rock, a rescued mortgage bank, but not RBS and Lloyds Banking Group, which are handled by UK Financial Investments.)
Tata, having bought JLR in June 2008 for $2.3 billion, found it was hit by the credit crunch, like all other car firms. Bank funding dried up and in November JLR asked the government for guarantees to enhance its credit on commercial loans. Unlike the French and German governments, which were able to help carmakers via these firms’ financing arms, which are authorised banks, the British government did not have that option. The Shareholder Executive had to deal directly with JLR and first of all judge whether Tata, which owns businesses ranging from British steel mills and tea packers, to chemical and car plants in India, was really that needy of cash. Tata’s commitment to JLR seemed firm. But JLR had previously been a division of Ford Motor Company: it had no proper treasury function and was thinly capitalised.
In protracted investigations, the Shareholder Executive, staffed mainly by hard-nosed former corporate financiers, began to demand radical changes to JLR’s financial structure, if they were to put taxpayers’ money at risk. That may have been reasonable, but it was not what Tata management wanted to hear. The European Investment Bank (EIB) was offering JLR a £340m loan for the development of green technology, but required a government guarantee. On top of that JLR wanted around £400m of short-term funding. But the Shareholder Executive played hardball. The requested guarantee shrank to £175m. Moreover, the agency wanted a premium of close to 10% and a counter-guarantee from a commercial bank so that, in the case of a payout, it had a chance to claw back the funds. And it wanted the power to remove JLR’s chairman if necessary.
Tata found these terms unacceptable, even an affront, and finally wrote to say it was looking elsewhere: the EIB would get a guarantee from a consortium of banks instead, and JLR would raise bridge finance by pledging future cashflows. This new-found confidence was helped by the buoyancy of Tata’s car sales in India, and a modest recovery of orders at JLR.
But there is some residual rancour and speculation that prompter action, at least on the EIB funding, would have accelerated JLR’s development of the LRX, a small, low-emission Land Rover, whose production is due to replace that of the Jaguar X-type at Halewood at the end of this year.
On the other hand, it could be argued that abrasive dealings with the Shareholder Executive forced Tata to get to grips with JLR and bring in consultants KPMG to drive down costs, and Roland Berger of Germany to develop strategy. Ravi Kant, non-executive vice-chairman of Tata Motors, is now spending more time at JLR headquarters in Gaydon, Warwickshire. There are thoughts of more co-operation with Tata, perhaps involving shared production platforms. At the same time Tata does not appear that strapped for cash, having put £1.2 billion into JLR over the past 14 months.
America's housing market
Where it all began
Signs of stabilisation should not obscure the big problems still ahead
HE IS hardly your typical distressed seller. Hugh Hefner recently sold his personal residence in Holmby Hills, California, next door to the Playboy mansion, to a 25-year-old entrepreneur for $18m—some 36% below the asking price. It will come as little solace to the ageing Lothario that the discount looked about right: house prices have fallen by one-third from their peak nationwide, and by much more than that in the worst-hit states, such as California, Florida and Nevada.
Although global financial sickness first erupted in American residential property, thanks to ludicrously lax subprime lending, policymakers have recently seemed more worried about asset classes to which the infection subsequently spread. When the Federal Reserve this week extended the life of a facility to support asset-backed securities, for instance, it was more out of concern for commercial property than for housing. Nevertheless, observers agree that America’s economy—and all those banks still saddled with underperforming mortgages—will struggle to recover while house prices are still falling. The Obama administration’s economic successes “will be for naught” if the housing free-fall continues much longer, says Mark Zandi of Moody’s Economy.com.
Hence the excitement over some recent, albeit tentative, signs of stabilisation. The S&P/Case-Shiller index, which tracks home prices in 20 cities, ticked up slightly in May, its first gain in 34 months (see chart 1, left-hand side). New construction of single-family homes rose in July for the fifth straight month. Sales of existing homes are expected to show their fourth consecutive month of gains when latest numbers are released on August 21st (see chart 1, right-hand side). Toll Brothers, a big home-builder, just recorded its first gain in net orders (new orders minus cancellations) for four years. With homes now at their most affordable in living memory, relative to median income, “we’ve finally found a level where people want to do deals,” says Pam Liebman, chief executive of Corcoran, an estate agency. The revival is largely at the lower end, which helps explain this week’s $1.4-billion acquisition of Centex, a home-builder which specialises in cheaper houses, by Pulte Homes.
Dig deeper, however, and the recovery’s foundations look shaky. Rising joblessness will continue to weigh on demand for homes. The unemployment rate, currently 9.4%, is expected to peak at more than 10% some time next year. The economic effect of unemployment is wider: as more and more of those still in work know someone who has lost their job, they will think twice before buying a property. Consumer confidence remains fragile.
For those seeking a mortgage, credit is still hard to come by. The two main federally backed mortgage agencies, Fannie Mae and Freddie Mac, have tightened their standards for new loans (though mortgages handled by their sibling, Ginnie Mae, have fallen in quality). A Federal Reserve survey of loan officers, released on August 17th, suggested that banks will remain tight-fisted for some time. They are still grappling with growing losses from residential mortgages. These will not peak until early next year, reckons Betsy Graseck of Morgan Stanley.
Moreover, the positive signs in housing are partly driven by short-term factors. One is the tax credit for first-time buyers that was included in Mr Obama’s stimulus package: some are rushing to buy now because deals must close by November 30th to qualify. Annual tax refunds, handed out in recent months, may also have given the market a temporary lift. Attractive mortgage rates helped, too. But these have climbed off their historic lows, despite efforts to keep them down through the Fed’s purchases of mortgage-backed securities. Many expect them to rise further as ballooning government borrowing puts upward pressure on Treasury yields.
A glut of supply will also weigh on prices, thanks to a wave of repossessions. Foreclosures are running at record levels, with one in 355 of the nation’s homes receiving a filing in July alone. Seized properties now account for almost one in four sales (see chart 2). Increasingly, those losing their homes are supposedly safer borrowers with “prime” mortgages. They now account for more foreclosures than subprime borrowers, says the Mortgage Bankers Association (MBA).
With 1.8m homes already in foreclosure, a “similar amount” may be heading that way, reckons Torsten Slok, an economist at Deutsche Bank. Even those states that were the first to feel pain are still seeing a sharp increase in pre-foreclosure notices. In California one type of notice, for “trustee sales”, leapt by 32% from June to July, according to ForeclosureRadar, a website. Even more worryingly, delinquencies, the raw material for foreclosures, are still on the rise across much of the once-golden state. In Orange County nearly 7% of mortgages are at least three months overdue but not yet foreclosed, up from around 5% at the start of the year.
The rise in negative equity—when a borrower’s mortgage debt exceeds the value of his home—is also fuelling foreclosures, not least because many would rather walk away than keep making payments on a home that is worth much less than the sum owed on it. Zillow.com, a property-information service, estimates that 23% of homes with mortgages are underwater. Others put it higher. A staggering 60% are submerged in Las Vegas. Deutsche Bank’s securitisation team expects negative equity to peak at 48% of total homes by 2011. That may be too pessimistic, but all agree that the number will rise further. This matters because negative equity weighs doubly heavily on home prices, by both weakening demand (it traps potential buyers in their homes) and adding to supply (it often ends in seizure and distressed sales).
Government efforts have done little to stop the rot. Under the main foreclosure-prevention programme, only 235,000 struggling borrowers have had their loans altered to make payments more affordable, out of 4m targeted for help. Even with a financial incentive to modify, loan servicers remain reluctant. Many borrowers are too deep in negative equity and the redefault rate is too high. “It doesn’t help if you’re drowning in 20 feet of water instead of 30,” says Jay Brinkmann, the MBA’s chief economist. Moreover, the typical troubled mortgage is getting harder to modify because it is more likely to be the result of unemployment than an interest-rate increase. Bringing the monthly payment down by 20% does not help when the borrower has no job.
Even if the pace of modification quickens, the overhang of unsold homes will remain dauntingly large. The inventory represents 9-10 months of supply, three times the level in a tight market, says Stan Humphries, Zillow’s chief economist. Paradoxically, a further wave of supply could crash over the market if it is widely seen to be stabilising. Many homeowners who sat tight while prices fell will try to sell at the first sign of a turnaround, according to surveys. In one, conducted by Zillow in July, 29% of respondents were at least “somewhat likely” to put their home on the market once the market perked up. The release of this “shadow inventory” could smother the recovery before it gathers speed.
Just as worrying is the possible recurrence of “payment shock” as interest rates on adjustable-rate mortgages reset higher. Resets on subprime loans have mostly taken place, but the worst is yet to come for some other loans, especially the “Alt-A” category between prime and subprime and a nasty type of mortgage called an “option ARM” (see chart 3). The impact may be muted, but only if the Fed can keep short-term rates very low for the next couple of years—or if the borrowers can refinance as the reset approaches.
Given these downside risks, the recent pop in house prices will probably fizzle. Most economists expect them to fall by a further 5-10 percentage points, to their long-term trend line at roughly 40% below their peak, and not to reach bottom until some time in 2010. The pessimists predict they will go crashing through the trend-line to as little as half their 2006 high.
Analysts at Goldman Sachs, no fools when it comes to housing, hint at several years of stagnation. They argue that the rate of home ownership, currently just over 67%, will fall back to the 64-65.5% level that prevailed before prices took off in the mid-1990s, cutting deeply into demand for properties. This view is supported by a recent Fed study, which found that more than half of the boom-era rise in ownership was due to “innovative” mortgage products, many of which are now history.
It could be even worse. Now that the myth of ever-rising house prices has been shattered, it may be time to embrace another inconvenient truth: that prices can take decades to recover, at least when adjusted for inflation. A study in June by the Federal Housing Finance Agency, a regulator, pointed out that in parts of Texas house prices still languish some 30% below their 1982 peaks in real terms. Mr Hefner may not have got such a bad deal after all.
The worst unemployment figures
Benefits and the border
A simple but awkward explanation for the highest jobless rate in America
THE small city of El Centro, “the centre” in Spanish, is the centre of nothing obvious except an unforgiving desert. It is, rather, at the very edge of America, blending into Calexico, the border town that leads to the much larger Mexican industrial city of Mexicali. But El Centro has been receiving unusual amounts of attention because it is the metropolitan area that has America’s worst unemployment—at 27.5%, as of June, almost three times the then national rate of 9.7%.
“We’re not disputing the numbers, but there are numbers missing,” says Ruben Duran, the city manager, or equivalent of mayor. He has tolerated with good humour a steady influx of journalists determined to declare El Centro the “centre of the Great Recession”. Whatever it is, it is not that.
The locals admit that El Centro—and indeed all of Imperial County, of which it is the seat—is rather a boring place. In the winter there is fun to be had by racing over the nearby sand dunes in four-wheel-drive buggies. In the summer though, when the heat reaches 45°C (113°F) degrees and metal door knobs are scalding on the outside, the streets are empty as families spend air-conditioned time indoors. But despite the gloomy figures, the place is far from squalid. There are several well-attended Starbucks outlets, and a four-year-old mall does brisk business.
El Centro’s employment is dominated by federal, state and local government, in particular two nearby prisons and the ubiquitous Border Patrol, all relatively untouched by recession. The housing bust has destroyed some jobs in construction, but that is true of many places.
Fluctuations in the job market tend to be seasonal rather than cyclical because of the agricultural calendar, a point that Mr Duran illustrates with his favourite research toy, Google Earth. Zooming out from El Centro, he shows green rectangles in the white desert where lettuce, carrots and a few other crops are grown with water tapped from the Colorado river and brought in through the All-American Canal along the Mexican border (the scarce groundwater is brackish).
Every winter, between November and March, El Centro bursts into activity as pickers work 12 hours a day to harvest lettuce for $8-10 an hour. The unemployment rate drops by a few percentage points. Then, in March, the harvest moves north to places such as Salinas. In the old days the pickers migrated, but these days they stay and collect unemployment benefits during the summer months.
Seasonal variations, however, are common to all farming areas. They don’t explain a stubborn “baseline” unemployment of about 12% that never goes away, says Mr Duran. He zooms out further in Google Earth to display the single vast conurbation that is El Centro, Calexico and Mexicali, with one tentacle reaching toward Yuma, Arizona, which, at 23.1%, happens to have the second-highest unemployment rate in America after El Centro. Here is the answer, he says, pointing at the map.
El Centro is about 70% Hispanic, and Spanish is the dominant language on the radio and streets. But illegal immigrants from Mexico tend to move through Imperial County and beyond it. The Latinos who remain are mostly dual citizens or green-card holders, who go back and forth across the border with relative ease.
Many families live in both places, and many Mexicali mothers carpool to drive their children across the border to schools in El Centro, then recharge at Starbucks and Macy’s before driving back to Mexico. A lot of the cars parked at the mall have Mexican licence-plates. Timothy Kelly, the boss of the Imperial Valley Economic Development Corporation, estimates there are also some 40,000 to 60,000 people who live in Mexicali but work in El Centro.
By the same token, there must be people who live in El Centro, at least officially, and work in Mexicali making windscreens and refrigerators. Many of them might nonetheless collect unemployment benefit in El Centro at the same time. “If we added the Mexicali jobs, then we would have a normal unemployment rate,” argues Mr Duran.
This explanation seems anecdotally plausible. Francisca German, a manager at One Stop, an agency that tries to help people find jobs, says that, of the 3,000 people or so who come through her door every month, many are “not motivated” to find jobs, but just need proof that they tried. Others, of course, make a genuine effort.
Mr Kelly in El Centro, meanwhile, does not intend to imply that unemployment fraud explains all of El Centro’s problems. Many of its people lack the education and proficiency in English for modern jobs. But Imperial Valley does shows great promise for the green economy. Two companies have set up shop to harvest geothermal energy—photoelectric energy will surely be another runner as the technology improves—and Mr Kelly is inviting others. Biomass projects, involving growing algae on nearby lakes, are another option under consideration. El Centro is likely to stay what it is: neither forsaken nor bustling, but simply on the border.
Private security contractors
Blackwater's dark heart
New revelations about an American private-security contractor
THE “war on terror” has left many blots on America’s reputation—weapons of mass destruction, Abu Ghraib prison, Guantánamo Bay—and one stain continues to darken with time. This week the New York Times reported that the Central Intelligence Agency (CIA) had once hired Blackwater, a private-security contractor, in connection with a plots to assassinate al-Qaeda operatives. It was the latest in a string of controversial news. This month Erik Prince, Blackwater’s founder and chairman, was accused of facilitating or committing murder. Blackwater released a statement calling the allegations “unsubstantiated and offensive”.
Blackwater is not the only security contractor in the Middle East. The Congressional Budget Office estimates that America spent between $6 billion and $10 billion on the services of these firms from 2003 to 2007. But Blackwater is the most prominent. In 2004 insurgents in Fallujah killed four of its employees, burned their bodies and hung two from a bridge over the Euphrates. The sight of charred American bodies caused uproar at home. Marines stormed Fallujah days later. By 2007 Blackwater was accused of being a perpetrator. The company’s employees opened fire on a busy square in Baghdad, killing 17 Iraqis. The incident strained America’s relations with Iraq. Blackwater exemplified an American effort goneterribly wrong.
The latest revelation is that the CIA hired Blackwater in 2004 for a multimillion-dollar plan to locate and kill members of al-Qaeda. In June a horrified Leon Panetta, the new director of the CIA, called an emergency meeting to brief Congress on the programme, which had been kept secret. According to the New York Times, Blackwater helped with training, planning and surveillance. It is unclear whether the CIA intended to use Blackwater to carry out the assassinations—no suspected terrorists were killed under the auspices of the programme. But the scheme adds to doubts over the role of private-security firms in the war and efforts to hold contractors accountable.
A case in court in Washington, DC, may eventually shed some light on the way the company works. In December 2008 federal prosecutors charged five Blackwater employees with manslaughter for the Baghdad shootings in 2007. A sixth employee has already pleaded guilty.
In the meantime, Blackwater faces some of the most serious allegations yet. A group of Iraqis, aided by the Centre for Constitutional Rights, a New York-based human-rights pressure group, is suing Blackwater for war crimes, wrongful death and more. In sworn statements submitted for the case on August 3rd, two former employees allege that Mr Prince may have helped to murder at least one person who had divulged, or was about to divulge, damning information to the government. He denies the claims. The affidavits also claim that Mr Prince smuggled weapons into Iraq and that he “views himself as a Christian crusader tasked with eliminating Muslims and the Islamic faith from the globe”.
With these cases plodding through America’s courts, security contractors continue to work abroad. Blackwater no longer has an operating licence in Iraq—local officials refused to renew it—and the firm has lost a big contract to defend diplomats. But many former employees of Blackwater are now working for the new holder of that contract, Triple Canopy. And Blackwater has rebranded itself as Xe Services.
As the number of contractors in Afghanistan grows, the mistakes of Iraq may be repeated. Training for Afghanistan’s security contractors is weak and efforts to monitor them are disjointed, according to a report released in June by the Commission on Wartime Contracting in Iraq and Afghanistan, a bipartisan group set up by Congress. Four Xe employees are under investigation for the death of an Afghan man in May. Critics may be gladdened to learn that there is at least some semblance of oversight. The main body charged with supervising contractors in Afghanistan is also a contractor.
Pull the Plug on ObamaCare
Pull the Plug on ObamaCare
It's the best cure for what ails the Obama presidency.
Looking back, this must have been the White House health-care strategy:
Health care as a subject is extraordinarily sticky, messy and confusing. It's inherently complicated, and it's personal. There are land mines all over the place. Don't make the mistake the Clintons made and create a plan that gets picked apart, shot down, and injures the standing of the president. Instead, push it off on Congress. Let them come up with a dozen plans. It will keep them busy. It will convince them yet again of their importance and autonomy. It will allow them to vent, and perhaps even exhaust, their animal spirits. Various items and elements within each bill will get picked off by the public. Fine, that's to be expected. The bills may in fact yield a target-rich environment. Fine again. Maybe health care's foes will get lost in the din and run out of ammo. Maybe they'll exhaust their animal spirits, too.
Summer will pass, the fight confined to the public versus Congress. And at the end, in the fall, the beauty part: The president swoops in and saves the day, forcing together an ultimate and more moderate plan that doesn't contain the more controversial elements but does constitute a successful first step toward universal health care.
That's not what happened.
It all got hotter, quicker than the White House expected. The many plans of Congress congealed in the public mind into one plan, and the one plan became a poison pool. The president is now immersed in it.
President John F. Kennedy walks with humility after his Bay of Pigs fia
Big Government, Big Recession
There's no evidence for the theory that state spending has shortened this or any other slowdown.
ALAN REYNOLDS
‘So it seems that we aren’t going to have a second Great Depression after all,” wrote New York Times columnist Paul Krugman last week. “What saved us? The answer, basically, is Big Government. . . . [W]e appear to have averted the worst: utter catastrophe no longer seems likely. And Big Government, run by people who understand its virtues, is the reason why.”
This is certainly a novel theory of the business cycle. To be taken seriously, however, any such explanation of recessions and recoveries must be tested against the facts. It is not enough to assert the U.S. economy would have experienced a "second Great Depression" were it not for the Obama stimulus plan.
Even those who think government borrowing is a free lunch can't possibly believe the government has already done enough "stimulus spending" to explain the difference between depression and recovery.
CNNMoney recently calculated that the stimulus plan has spent just $120 billion—less than 1% of GDP—mostly on temporary tax cuts ($53 billion) and additional Medicaid, food stamps and unemployment benefits. Less than $1 billion has been spent on highway and energy projects. Commitments for the future are much larger, but households and firms can't spend commitments.
Proponents of Big Government can't say we avoided the next Great Depression due to hypothetical stimulus money that is mostly unspent. So they argue it's more important that the federal government merely continued spending and didn't "slash" spending as in the early 1930s. But the federal government didn't slash spending in the early '30s. Federal spending rose by 6.2% in 1930, 7.7% in 1931 and 30.2% in 1932. Since prices were falling, real increases in federal spending were huge during the Hoover years.
President Obama clearly believes Big Government is the antidote to this and perhaps all recessions. At his first news conference in February, the president said, "The federal government is the only entity left with the resources to jolt our economy back to life." Yet that raises a key question: If the U.S. economy could not recover without a big "jolt" of deficit spending, then how did the economy recover from recessions in the distant past, when the federal government was very small?
A 1999 study in The Journal of Economic Perspectives by Christina Romer (now head of the Council of Economic Advisers) found that "real macroeconomic indicators have not become dramatically more stable between the pre-World War I and post-World War II eras, and recessions have become only slightly less severe." Ms. Romer also noted that "recessions have not become noticeably shorter" in the era of Big Government. In fact, she found the average length of recessions from 1887 to 1929 was 10.3 months. If the current recession ended in August, then the average postwar recession lasted one month longer—11.3 months. The longest recession from 1887 to 1929 lasted 16 months. But there have been three recessions since 1973 that lasted at least that long.
The relative brevity of recessions before the New Deal is particularly surprising since the U.S. economy was then dominated by farming and manufacturing—industries far more prone to nasty cyclical surprises than today's service-based economy.
![[recessworse_NS]](http://s.wsj.net/public/resources/images/OB-EH287_recess_NS_20090821102733.gif)
In the late 19th and early 20th centuries, nobody thought the government could or should do anything except stand aside and let the mistakes of business and banking be fixed by those who made them. There were no Keynesian plans to borrow and spend our way out of recessions. And bankers had no Federal Reserve to bail them out until 1913. Yet recessions after the Fed was created soon turned out to be much deeper than before (1920-21, 1929-33, 1937-38) and often more persistent.
It's clear that U.S. history does not support the theory that Big Government means shorter and milder recessions. In reality, recessions always ended without government prodding, long before anyone heard of Keynes and long before the Fed existed. What's more, recessions ended more quickly before the New Deal's push for Big Government than they have in the past three decades. The economy's natural recuperative powers before the 1930s proved superior to recent tinkering by Big Government economists, politicians and central bankers.
The recent experience of other countries provides another way to test the Big Government theory of economic recovery. If it is true that Big Government prevents or cures recessions, then countries where government accounts for the largest share of GDP should have suffered much smaller losses of GDP over the past year than countries where the private sector is dominant.
The chart nearby lists 13 major economies by the size of government spending relative to GDP using OECD figures for 2007 (the U.S. is well above 40% by 2009). Europe's big spenders are at the top, the U.S. and Japan are in the middle, and fiscally frugal countries like China and India are at the bottom.
The last column shows the change in real GDP over the most recent four quarters—ending in the second quarter for the U.S., U.K., Germany, Japan, France, Italy, Sweden and China, but the first for the rest. Four of the five deepest contractions happened in countries with the biggest governments—Sweden, Italy, Germany and the U.K. Japan's government spending in 2007 was about like ours, but Japan's tax rates are far more punitive and the economy has suffered endless "fiscal stimulus" packages. China's central government spent 22% of GDP, but 30%-plus with local government included.
To believe Big Government explains why this extremely long recession was not even longer, we need to find some connection between the size of government and the depth and duration of recessions. There is no such connection in U.S. history, or in recent cyclical experience of other countries.
On the contrary, recessions have become longer as the U.S. government (and the Fed) became larger, more expensive, and more involved in the economy. Foreign countries in which government spending accounts for about half of the economy have also suffered the deepest recessions lately, while economic recovery is well established in countries where government spending is a smaller share of GDP than in the U.S.
In short, bigger government appears to produce only bigger and longer recessions.
Mr. Reynolds is a senior fellow with the Cato Institute and the author of "Income and Wealth" (Greenwood Press, 2006).
Holder's Black Panther Stonewall
Why did the Justice Department dismiss such a clear case of voter intimidation?
JOHN FUND
President Obama's Justice Department continues to stonewall inquiries about why it dropped a voter intimidation case against the New Black Panther Party.
The episode—which Bartle Bull, a former civil rights lawyer and publisher of the left-wing Village Voice, calls "the most blatant form of voter intimidation I've ever seen"—began on Election Day 2008. Mr. Bull and others witnessed two Black Panthers in paramilitary garb at a polling place near downtown Philadelphia. (Some of this behavior is on YouTube.)
One of them, they say, brandished a nightstick at the entrance and pointed it at voters and both made racial threats. Mr. Bull says he heard one yell "You are about to be ruled by the black man, cracker!"
In the first week of January, the Justice Department filed a civil lawsuit against the New Black Panther Party and three of its members, saying they violated the 1965 Voting Rights Act by scaring voters with the weapon, uniforms and racial slurs. In March, Mr. Bull submitted an affidavit at Justice's request to support its lawsuit.
Attorney General Eric Holder
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