One way a people defines itself is by the ideals the members aspire to achieve. In a very different, indeed opposite sense, others define themselves by who they are not. It is certainly possible to do both, but what is noteworthy in Exodus is that the Hebrews were defined initially by what they were not. They were not Egyptians. The whole effort of the ten plagues as I depicted in the previous two blogs was intended to wash “Egyptianess” out of their souls. Their spirits had to be cleansed before they could travel up to that city on the hill called Jerusalem.

It is said that Jews primarily define themselves as a people who flee the devil while Christians define themselves as a people who seek salvation in oneness with their God. Of course, this is a caricature. But when Jesus gives his sermon on the mount as recorded in the Gospel of Matthew 5-7 just after he has been baptized by John the Baptist (chapter 3) and after he went through a period of fasting and an effort to cleanse his spirit in the wilderness, that is when it is said that he moved from being a Jew to becoming a Christian. For a Jew, one’s life is spent washing the sins of Egypt from one’s soul. For a Christian, that is simply a staged precondition of spending one’s life in search of redemption.

Now it is easy enough to claim that these are two sides of the same coin. And they could be. But not if cleansing oneself from the sins of Egypt is a precondition of even being able to seek salvation. In my interpretation of Exodus, it is characterized by the escape from Egypt and then spending forty years in the wilderness – that is, two generations – trying to wipe Egypt out of your spirit, out of your élan. For Jesus, in repeating this experience, this is but a brief prelude to his ministry which focuses almost entirely on depicting the city on the hill and the aspirations for one’s life. For some, the focus is on how we were born sinners and inherited the evils of the past that must be extirpated. For others, we are reborn in Christ, bathed in the glory of beatification, for the real journey is not a horizontal one from Egypt to Jerusalem, but a vertical one from this life to one of eternal salvation. However, for those who travel forward in space, they must travel forwards in time. To travel forward in time means traveling backwards, not to be expelled, but to expel the spirt of Egypt from one’s soul. For America, it means finally facing how deep the desire is to become an undemocratic monarchy like the world they left behind rather than move ahead to create a new world.

Just before Jesus offers his Sermon on the Mount, he gathers his disciples. It is a tale of leadership and followers and one must have followers if one is about to become a leader. But the Hebrews who enter Sinai on route to the promised land are already a people, a people forged in sweat and labour, in oppression and repression, in facing utter despair at almost every turn. They have a hard time accepting leadership. The problem is not Moses, for he retains the complete conviction throughout the tale that he is totally unsuited to provide such leadership. Nevertheless, he gradually earns the trust of his people and perhaps, more importantly, trust in himself. Jesus, on the other hand, has no doubts about his mission and his suitability – at least, before he is nailed to the cross.

As a precondition for his sermonizing, Jesus fasts. In the desert story, the Hebrews get manna from heaven. In the Jesus story, great crowds follow him and live off every drop of his words. Jesus “came down from the mountain” and was “followed by great multitudes.” Moses has yet to climb the mountain and he returns 40 days later alone with the tablets that dictate what thou shall NOT do. Moses is a stutterer. The people are already constituted but not yet formed as a people. They spend a great deal of effort resisting his words and what he teaches. In Matthew, as in Luke and the other gospels, Jesus offers the beatitudes. They describe the character of a people who live in heaven. They are blessed. The Hebrews, on the other hand, remain cursed with the elements of Mitzrayim they carried with them in their souls as the fled Egypt, primarily an attraction to idolatry. They eventually convince the brother of Moses, the priest Aaron, to build them a golden calf.

In Luke, the woes follow the beatitudes. If you do not accept Jesus as your leader and savoir, you will be cursed. The beatitudes precede those woes. For the Hebrews, the trip through the desert is emphasized, the woes from which we must unburden ourselves if we are to move forward. Clearly, Jesus may indeed have been a Hebrew, but he turned Hebraism on its head and inverted its central message. The initial and predominant message was not the character of the city on the hill, but a new set of ideals focused on love rather than hatred of all that Egypt stood for, a focus on humility rather than a discovery of how to have pride in oneself.  Do you focus on aspiring to become the highest ideals within yourself, to perfect your soul, which was the mission of most Greek philosophers, or is it to free your soul from the burdens of an unwelcome past that dragged you down, inhibited your development and made you nostalgic for the past?

Judaism is about compassion. Judaism is about concern for others. But it is NOT about loving your neighbour as yourself, but respecting your neighbour even though he is different from yourself. It is about treating the stranger well, welcoming him with hospitality, not making the stranger your intimate bosom buddy. Mercy guides your hand rather than the effort to relieve suffering, even if such devotion requires the ruthlessness of a surgeon to reset a bone that is displaced or the infusion of a vaccine to eliminate a virus that has invaded your flesh. Purity is a condition of rather than a result of treatment.

In the teachings of Jesus, disciples are “the salt of the earth.” In the experience in the wilderness, the constant quest is to find fresh water and not to be “washed in the blood of Christ.” The salt of the Reed Sea where the Egyptians drowned must be left behind, abandoned, lest nostalgia grip one’s soul. In the wilderness, a nation is forged with the ideal of becoming a light unto the nations, an exemplar for others. When one submits to the teachings of Jesus and is reborn in Christ, one is immediately transformed into a light unto the world. For that is who Jesus is according to the Gospel of John; he is a light unto the world. It would take a great amount of twisting and turning to describe a political leader like Moses in such a way.

For Jesus, the threat is eternal damnation, the fires of hell. For the Hebrews, the threat was slipping back into nostalgic longing for a greater leader who is to be treated like a god. The Hebrews always regarded Moses with a great deal of skepticism. The greatness of leadership was overcoming that self-doubt, and its corollary skepticism, to enable one to move forward, Anger and resentment are to be extirpated form the soul – unless there is an immediate cause. But the Hebrew soul is fed by remembering, by recalling both how they were mistreated and, even more importantly, how they were drawn to, how they were attracted to the Egyptian values that the plagues revealed to be without power and force. Baptism for Jews is going to a mikveh to cleanse the flesh of nostalgia. Baptism is not the transformational experience itself. One must be clean to go before God. Purification was not the product of being one with God, for that by definition is an impossibility.

Jesus rejects the eye for an eye practiced by God in dealing with the Pharaoh. Accountability goes to the heart of Judaism. Forgiveness, even for the pharaoh lies at the heart of the teachings of Jesus and is why he is regarded as an apostate and not just Paul and his teachings. You do not turn your other cheek in Judaism. You smack the other on the cheeks of their soul to wake them up from the magical thinking into which they have sunk, from the beliefs in illusions that the plagues were offered to make these forces impotent. For a Jew, materialism is not a superficial extravagance, but a precondition of a decent life. The acquisition of material goods is valued, not despised, but not to be worshipped, but simply as a precondition of well-being and an insurance against hard times.

There is nothing wrong with good works, nothing wrong with giving and even glorying in recognition for those good works and outstanding accomplishments. One does not have to ensure that they emerge from pure motives, for all motivation is mixed. But you must not be driven, like Pharaoh, by a desire to have control and power over the bodies of others, and, even more importantly, over their minds. Fascism is to be abhorred and critical intelligence encouraged, but criticism without malice or absolute cynicism.

In Judaism, one begins by judging others, in particular the Egyptians, and assert that this is not who we are. In Christianity as taught by Jesus and exemplified in different ways at different stages by his followers, you judge yourself before judging others. In Judaism, one must learn and be taught to judge others in order to judge oneself and ensure that you and you alone are, in the end, responsible for your actions. But that is a lesson learned for the display of who you should not be. And holding evil-doers responsible for their evil deeds is a precondition of learning, not a path to be avoided until one is first pure of heart. Instead of “Judge not that ye be not judged,” the dictum is that you must “Judge others so that one may judge oneself.”

That is why law courts are crucial. They are the scenes where one learns both the process of making judgements plus the content of the values to be revealed in such judgements. It is God who hardens Pharaoh’s heart so that he may become an exemplar of what Jews are not to be and whom they are not to follow. That is why four decades in the wilderness must follow four centuries of mental and physical slavery. It takes time for such a transformation. Process counts. Even the worst of us must be given a fair trial and initially be offered many opportunities to reform, not to be born again, but to show one can avoid bad habits and slip backwards into blind obedience rather than traveling a route that depends of questioning.

For aspirants, the city on the hill is a goal not an accomplishment. When John Winthrop, the Puritan author of “A Model of Christian Charity,” set out for Southampton Bay in what is now Massachusetts on the good ship Arbella, it was to found a community that would be “a city on a hill,” one on which the eyes of the world would gaze in admiration with a desire to emulate. That meant fulfilling their Covenant with God. That meant that the Puritans were already attempting to get back to the Jewish roots of their Christianity, to find a political solution constituted by a covenant, neither simple faith nor blind obedience to a sovereign on earth purportedly appointed by God. This was the birth of American exceptionalism, as an aspiration rather than an accomplishment. Not “Make America Great Again,” but “Make America Great.” That is your mission.

Barack Obama in a commencement address when he was still a U.S. Senator referred to the Puritans “dreaming of a City Upon a Hill.” It is why Amanda Gorman wrote and read her poem, “The Hill We Climb” as the highlight of Joe Biden’s inauguration. Written words barely capture the excitement and inspiration of the performance of this 22-year-old. It is a poem about coming together and healing not about divisions between those who have seen the light already versus those who have failed to do so. Harsh truths are not to be erased, but faced.

Like the Hebrews in the wilderness in Sinai that had to be forged into a united nation as a distinctive chapter in Jewish history, Amanda Gorman put forth the desire of America to open a new chapter in its history in the quest to become “A City on the Hill.” The second last plague that engulfed Mitzrayim was a plague of darkness, both external and the internal melancholy that is its complement. And the most horrific consequence if we were not able to emerge from that darkness and more towards the light – we consume our own. We sacrifice our first born, but to no avail, for we once again pursue a misguided effort to resurrect ourselves and head for self-destruction in pursuit of making others once again slaves rather than freeing ourselves.

And so Amanda began:

“When day comes, we ask ourselves, where can we find light in this never-ending shade? The loss we carry, a sea we must wade. We’ve braved the belly of the beast, we’ve learned that quiet isn’t always peace and the norms and notions of what just is, isn’t always justice. And yet the dawn is ours before we knew it, somehow we do it, somehow we’ve weathered and witnessed a nation that isn’t broken but simply unfinished.”

The goal is not perfection, not a perfect union, but “a union with purpose,” a union that can serve humanity as both a witness and an exemplar. “And, yes, we are far from polished, far from pristine, but that doesn’t mean we are striving to form a union that is perfect, we are striving to forge a union with purpose, to compose a country committed to all cultures, colors, characters and conditions of man.”

How? By facing our future rather than creating an imaginary nostalgic past. How? By recognizing the slavery and repression of others upon which that past was built. By recognizing the differences between each and every one of us, not as a wall along the Mexican border, not as a hardened division, but as a recognition and appreciation of diversity.

“So we lift our gazes not to what stands between us, but what stands before us. We close the divide because we know to put our future first, we must first put our differences aside. We lay down our arms so we can reach out our arms to one another, we seek harm to none and harmony for all.”

The Hebrews in the wilderness did not give up the values and attitudes of a repressed people easily. They longed for, they even grieved for what they had left behind and even thought of returning. But they were saved by growing into a nation, by using their pain to remember what they left behind and what must not be repeated.

“Let the globe, if nothing else, say this is true: that even as we grieved, we grew, even as we hurt, we hoped, that even as we tired, we tried, that we’ll forever be tied together victorious, not because we will never again know defeat but because we will never again sow division.”

Each of us has our own and unique path to follow at the same time as we work together to forge a common future. To do this, we have to overcome fear, fear of others, fear of ourselves. This is why we lived four decades in that desert.

“That is the promise to glade, the hill we climb if only we dare it because being American is more than a pride we inherit, it’s the past we step into and how we repair it. We’ve seen a force that would shatter our nation rather than share it.”

“In this truth, in this faith, we trust, for while we have our eyes on the future, history has its eyes on us, this is the era of just redemption we feared in its inception we did not feel prepared to be the heirs of such a terrifying hour but within it we found the power to author a new chapter, to offer hope and laughter to ourselves, so while once we asked how can we possibly prevail over catastrophe, now we assert how could catastrophe possibly prevail over us.

“We will not march back to what was but move to what shall be, a country that is bruised.”

My first wife was born in West China. Once, over a few years, I had been peripherally involved in Canadian Chinese community politics. I was on the founding board of the Yee Hong senior care organization, now the largest such service in Ontario, and was an honorary member of the founding board of the Canadian Chinese Congress. Yet of the very many countries in the world in which I have spent time, in spite of my fascination with Chinese culture and politics, I have never been to China – unless you call a 4-hour stopover at Hong Kong’s airport where, in 1982, on returning to Canada, I bought my one and only and favourite watch.

The preoccupation is not only with the enormous economic improvements in the country that I sketched in my last blog, and with the politics of dissent with the rise of Maoism and the Cultural Revolution in the sixties that I briefly discussed, it is not only with the rights of minorities – the Tibetans and the Uighurs – or the human and political rights of Hong Kongers – it is also with the humanity, the energy, the creativity of Chinese people. In my graduate class at Princeton University, 80% were Asian Chinese, one from mainland China as it was referred to then. I have a picture on my wall of most of that class that they gave me – it is entitled (by them) – “Howard’s Angels.”

The United States is not the only country with a long and complex involvement with Chinese affairs. China has always been an important focus for Canadian politicians. Currently, former diplomat, Michael Kovrig, and Businessman, Michael Spavor, have been in a Chinese prison for over two years. Kovrig was charged on suspicion of spying for state secrets and intelligence; Spavor was charged on suspicion of spying for a foreign entity and illegally providing state secrets. They are being held “on suspicion of endangering national security,” but have never been formally tried. They were arrested on 10 December 2018, a few days after Canada detained Huawei Technologies’ chief financial officer, Meng Wanzhou, who happens also to be the daughter of the founder of the Chinese telecommunications giant, Huawei. Meng, however, is not in prison. She is held under house arrest in a large mansion she owns in Vancouver. She is being held as the Canadian justice systems grinds on to determine whether she should be extradited to the United States to face charges there of traversing American sanctions against Iran – yes, Iran again – using a Hong Kong shell company.

Though Canadian diplomats have been in touch with Kovrig and Spavor, they have not been permitted to visit them. In fact, Canadian officials do not even know where they are imprisoned. It seems to be a case of tit-for-tat, but really TIT-for-tat. China does not practice international diplomacy in terms of proportionality but, instead, sends a clear message that if you dare to even lay a finger on one of “ours,” no matter how light a finger it is, we will respond with double action and quadruple force. The message is unmistakable. “Don’t you dare mess with us.” It is diplomacy raised to the high art of international bullying. Just in case Canadians do not get the message, two other Canadians were convicted of smuggling. They were sentenced to death and China banned the import of Canadian canola.

In the last blog, I referred to Chinese President Xi Jinping’s speech at the World Economic Forum held virtually in Davos a few days ago in which he, without any sense of obvious irony, insisted that “the strong should not bully the weak.” Both on the world stage and domestically with respect to the Uighurs, Tibetans and now the residents of Hong Kong, China is a super-bully. China flexes its muscles on the border with India, in disputed islands it occupies in the South China Sea and has fought skirmishes with Japan and wars with Vietnam and India. China is a constant threat to Taiwan. If that were not enough, China insists that its repressive laws against free speech have a global scope and apply to Chinese throughout the world.

Chinese behaviour has earned it the enmity of many members of the U.S. Congress. As Obama writes, China kept systematically “evading, bending, or breaking just about every agreed-upon rule of international commerce during its ‘peaceful rise’. For years, it had used state subsidies, as well as currency manipulation and trade dumping, to artificially depress the price of its exports and undercut manufacturing operations in the United States. Its disregard for labor and environmental standards accomplished the same thing. Meanwhile, China used nontariff barriers, like quotas and embargoes; it also engaged in the theft of U.S. intellectual property and placed constant pressure on US companies doing business in China to surrender key technologies to help speed China’s ascent up the global supply chain.” (474)

But there has been a widespread backlash, which became very vociferous and belligerent under the Trump administration, to threaten that supply chain, to “decouple the U.S. from China as a source of goods and, therefore, likely, as a country to which it can sell goods and services. It was precisely this fear of decoupling that Xi Jinping addressed on Monday at Davos. Yet the headline of the Wall Street Journal Opinion (25 January 2021), which reprinted the speech – or parts of it – read, “Xi Jinping Wows Them at Davos.”

The attendees evidently lauded his boosting of economic globalization as he spoke of “inclusive growth,” “green development,” “global governance,” and “consensus building.” Collaboration, not confrontation, was the hip word of the day. Yet just the previous two days, China flew fighter aircraft over Taiwanese air space demonstrating its muscular diplomacy. But, as Xi Jinping insisted, “we should stay committed to international law and international rules.”

What about the international agreement with Britain over Hong Kong and the guarantee to perpetuate the two systems-one country until at least 2047. The persecution of Hong Kong dissidents and the prevention of free speech and rights of assembly are merely early pin pricks for China ignoring of its treaty obligations to suppress the rights of the Hong Kong people. So much for Chinese guarantees of “autonomy.”

What about issues of global and not just inter-state concern? Climate policy was the major one. The problem was that Obama, went to Copenhagen in December 2009 to deal with the renewal of the Kyoto Protocol and extract some changes –Donald Trump withdrew from its successor, the Paris Agreement, altogether and Joe Biden just rejoined. In particular, Obama was exercised over the provision for “common but differentiated responsibilities.”

Now it is generally conceded – except perhaps by Trumpists – that Western prosperous countries have a disproportionate obligation to contribute to the costs of countering the challenges of climate change since:

• In the process of almost two centuries of industrialization, those countries have contributed the most to the global carbon footprint
• Poor countries had a limited ability to contribute
• Changes in the policies of the rich countries would have the greatest impact on reducing the world carbon footprint.

However, “common but differentiated responsibilities” had been interpreted to allow quickly industrializing countries, like Brazil, China and India, from carrying their respective weights and responsibilities.  As Obama wrote, “in the middle of a brutal recession, with Americans already seething over the steady outsourcing of U.S. jobs, a treaty that placed environmental constraints on domestic factories without asking for parallel action from those operating in Shanghai or Bangalore just wasn’t going to fly. As it was, China had surpassed the United States in annual carbon dioxide emission in 2005.” (506)

What did Xi Jinping have to say about this in 2021? In addition to promoting:

• macroeconomic policy coordination and joint promotion of strong, sustainable, balanced and inclusive growth of the world economy
• abandoning ideological prejudice and jointly following a path of peaceful coexistence, mutual benefit and win-win cooperation
• closing the divide between developed and developing countries and jointly bringing about growth and prosperity for all,

Xi Jinping advocated coming “together against global challenges (to) jointly create a better future for humanity,” in particular, in the fight against pandemics like COVID-19 through global public health governance, and also scaling “up efforts to address climate change and promote sustainable development” on which the future of humanity depends. “No global problem can be solved by any one country alone. There must be global action, global response and global cooperation.”

Stated like a true globalist.

Twelve years ago, Obama had proposed that “emerging Powers’ also put forward a “self-determined plan for greenhouse gas reduction” (507) depending on the country’s wealth, energy profile and stage of development with provisions for independent verification of claims to fulfill those plans. Obama offered billions of dollars for poorer countries to play their part. China opposed incorporating such provisions in a binding treaty. Further, given the then state of the American economy – as well as the political makeup in Congress (even though the Democrats then controlled both the House and the Senate) – Obama would also not go along with the European push for a treaty.

Obama in advance of his attendance, had authorized that the U.S. would commit to reducing its carbon footprint by 17% by 2020 and pledge $10 billion towards the international Green Climate Fund. ”to help poor countries with climate change mitigation and adaptation efforts.” (510)

What was the Chinese response to Obama’s proposed compromise between the push for a treaty by Europe and the position of the developing economies, particularly China, that self-policing was sufficient – for in Chinese terms, globalization depended on voluntarism on the part of China. Wen Jiabao, the Chinese premier, initially took an “inflexible and imperious” position, “refusing to agree that China would submit to any form of international review of their emissions.” (512)

In the most exciting bit of international diplomacy recorded in the book, Obama gave the account of how he and Hilary (and the usual huge American entourage) crashed the meeting of the Chinese, Indians and Brazilians who were planning to reject the European proposal and blame the Americans for the failure of the conference. Obama interrupted the meeting and bluntly addressed Wen.

“Mr. Premier, we’re running out of time, so let me cut to the chase. Before I walked into this room, I assume the plan was for all of you to leave here and announce that the U.S. was responsible for the failure to arrive at a new agreement. You think that if you hold out long enough, the Europeans will get desperate and sign another Kyoto style treaty.” The thing is, I’ve been very clear to them that I can’t get our Congress to ratify the treaty you want. And there is no guarantee Europe’s voters, or Canada’s voters, or Japan’s voters, are going to be willing to keep putting their industries at a comparative disadvantage and paying money to help poor countries deal with climate change when the world’s biggest emitters are sitting on the sidelines.

“Of course, I may be wrong. Maybe you can convince everyone that we’re to blame. But that won’t stop the planet from getting warmer. And remember, I’ve got my own megaphone and it’s pretty big. If I leave this room without an agreement, then my first step is the hall downstairs where all the international press is waiting for news. And I’m going to tell them that I was prepared to commit to a big reduction in our greenhouse gases and billions of dollars in new assistance, and that each of you decided it was better to do nothing. I’m going to say the same thing to all the poor countries that stood to benefit from the new money. And to all the people in your own countries that stand to suffer the most from climate change. And we’’ll see who to believe.” (514)

When I read that, I wished I had been at Copenhagen. I would have stood up and started to applaud. And I would keep clapping as the flustered Chinese environmental minister sputtered and protested in pretended rage. It is worth reading the whole volume just for that page. As it turned out, I was not needed. Wen silenced his minister and quickly conceded to Obama’s demands for a compromise agreement. As one of Obama’s staffers opined, “I gotta say, boss, that was some real gangster shit back there.” (515)

As Obama said, this had been the key to the breakthrough Paris Accord seven years later.

As it turned out, in spite of Trump’s withdrawal from the Paris Treaty, U.S. greenhouse gas emissions between 2010 and 2019 fell 23%, 6% more than the target and 2% in 2019 alone. Further, primarily because of COVID-19 and the severe drop in land and air and water traffic, emissions fell 10% in 2020 alone. Leave it to a killer virus to get concerted action on climate change.

What about Chin? In spite of Xi’s impressive rhetoric, China still burns more coal, the greatest source of fossil fuel gas emissions that poison our planet, than the rest of the world combined. In the Paris Agreement, China agreed to reduce its emissions by 60-65%. In 2016, burning coal still represented almost 70% of the source of energy for China. That number remained relatively constant in 2018 in absolute terms. And, in that year, burning coal still represented 59% of the country’s total energy use.

Relatively speaking, as a native American in a Hollywood Western might say, “Chinse leaders speak with forked tongue.”

Why was Iran at the top of the foreign policy list of issues for Obama? Why does it continue to be for Joe Biden? When Mohammad Rouhani was elected as president of Iran on 14 June 2013 with a landslide victory of just over 50% of the votes cast in the first round (Tehran Mayor Mohammas Bagher Ghalibal ran second with 16.56% of the vote), why in Toronto could one hear a huge cheer go up in Washington among members of Obama’s foreign policy team over the election? In this morning’s Washington Post, why was it reported that “no country in the world outside the United States…was more affected by the November election than Iran?”

Rouhani won 50.71% of the vote. Biden in November 2020 won 50.8% of the vote, the highest percentage victory of any challenger to an incumbent president since Franklin Delano Roosevelt won in 1932. In Iran in 2013, 36.7 million voted, a turnout of 72.71% of eligible voters. In 2020, in the United States, 61.6% of eligible voters cast ballots for the president from a total of 131 million voters. Rouhani won after spending ten years serving as Iran’s chief nuclear negotiator with the West; he ran on a platform of removing Iran from its pariah status and re-engaging with the West and, more particularly, the U.S. The nuclear deal negotiated and signed by Rouhani on 14 July 2015 was central to his agenda. In the November election in the United States, the reinstatement of the Joint Comprehensive Plan of Action (JCPOA) with Iran, from which Donald Trump had withdrawn in 2018, was the top foreign policy goal of the Biden presidential race. Since 2013 when Obama won re-election, U.S.-Iranian relations had been at the top of the Obama-Biden team foreign policy agenda.

I cite these statistics. not to bring out parallels between the U.S. election in 2020 and the Iranian election in 2013, nor to reengage further with the Iran nuclear deal, but to contrast American relations with China in 2021. America has just under four times the population of Iran. China has just under four times the population of America. China is the third largest economic power in the world, though its GDP still remains at two-thirds the size of America’s. Iran is quickly becoming an economic basket case. However, China is the only major economy in the world that avoided an economic contraction in 2020; in fact, though its lowest growth rate since 1976, China’s gross domestic product rose 2.3% for the full year, The U.S. experienced a second quarter decline in GDP in 2020 of 31%. Economists expect China’s GDP to increase by 8.4% in 2021. America’s projected increase is 1.72%.

Given these and a host of other economic as well as security and other data, one would expect China to be at the top of the foreign policy issues in the U.S. and not just near the top.  At the Davos World Economic Forum (run virtually) on Monday, President Xi Jinping unveiled his country’s four-point plan on how the global leaders need to unify, need to put aside historical, cultural, and socially systemic differences in order to strengthen the world’s economy. Joe Biden in his inaugural address on 20 January made a direct plea for American political unity and increasingly is seen as tilting at windmills given the behaviour of the Republican Party both before and in the aftermath of his speech.

While the U.S. has lost well over 400,000 of its citizens in the COVID-19 pandemic, 20% of the worldwide death toll of two million, in China where the pandemic started in Wuhan Province, the total death toll in a country with four times that of the U.S. population was under .35 per hundred thousand of population, actually under the New Zealand death rate of .51 per hundred thousand of population of the population. In contrast, the death toll in the United States was 128.67 per 100,000 population.

No matter what the issue – except for the democratic and human rights indices – whether it is economic growth rate, leadership in climate change, initiatives in expanding free trade and even on avoidance of war, China seems to be outstripping the U.S. Though America is still by far the leader in technological development, the Chinese rate of improvement in that area has been enormous. Given this clear and unprecedented challenge to American leadership in the world, one would expect foreign policy on China to be at the top of the American agenda, especially in the Obama era when China was widely cited for its theft of intellectual property, its unfair trade practices, its extensive network of intelligence espionage to get access to American technological innovations, its currency manipulation to keep the Chinese currency low, and other questionable international practices.

Obama tells the story of a visit he made to China, when one person in the American delegation had to go back to his hotel room to retrieve a needed document, only to find two Chinese men in dark suits, presumably members of the Chinese secret service, rifling through his papers. They simply brazenly walked out. And the U.S., instead of kicking up an international diplomatic stir, took it on the chin and remained silent.  

The Chinese Revolution has been an economic miracle pulling hundreds of millions out of abject poverty. But it has also been a tale of horror. Obama writes about the students he addressed on his visit to China, “They were too young to have experienced the horrors of the Cultural Revolution or witnessed the crackdown in Tiananmen Square; that history wasn’t taught in school.” (480)

It is not only for those students that “the full weight of China’s repressive apparatus” was experienced simply as an abstraction. That is also, I believe, true for Obama if his memoir is any guide. The above is the only mention of the Cultural Revolution. In contrast, the current issue of The New Yorker has an excellent article on the Chinese Cultural Revolution (“Struggle Sessions” by Pankaj Mishra) which summarizes “a thick catalogue of gruesome atrocities, blunders, bedlam and ideological dissimulation” as depicted by the Chinese journalist, Yang Jisheng in his book, The World Turned Upside Down. The only reference to Tiananmen Square in Obama’s volume is the picture of the Chinese student moving from side to side and stopping a tank in its tracks.

What does Obama have to say about the Uighurs? Nothing, except to refer briefly to the appalling story of the seventeen Uighurs held at Guantanamo by the Bush administration. There is nothing about the genocide of the Uighurs and the re-educations camps to which they are sent, merely more sophisticated updates of the struggle sessions during the Cultural Revolution where “victims wit bowed heads in dunce caps” and heavy signboards around their necks faced outlandish accusations.

My wife and I are watching the Netflix romantic period piece set in Scotland in mid eighteenth century, Outlander, In one episode, there is a marvellously portrayed scene of a witch trial held in Scotland. Though the audience was spared witnessing one of the women on trial being burned alive, the same ignorance and mob behaviour on display in The Capitol on 6 January or in these various unconscionable displays of persecution in China are part of a similar phenomenon of intolerance and xenophobia, the surprise for me was how little Obama attended to these issues and how he expressed virtually no outrage. The issues seemed as abstract to him as they were to the students with whom he had talked.

What Obama does do is identify the feeble protests in China against the mighty powers of the state and equated them with his involvement and knowledge of the civil rights movement in the United States. “It was the same feeling I’d had earlier in the year seeing that solitary figure facing down tanks in Tiananmen Square, the same inspiration I felt whenever I watched grainy footage of Freedom Riders or John Lewis and his fellow civil rights soldiers marching across the Edmund Pettus Bridge in Selma. To see ordinary people sloughing off fear and habit to act on their deepest beliefs, to see young people risking everything just to have a say in their own lives, to try to strip the world of the old cruelties, hierarchies, divisions, falsehoods, and injustices that cramped the human spirit – that I had realized was what I believed in and longed to be part of.” (349)

That is a major difference I suppose between the main lessons I took from participating in protests against racial injustice in the U.S. in an extremely marginal way. The injustices in China or the southern United States tore at my kishkas. The resistance inspired Obama’s philosophy of hope and activism. While I ferreted out gross injustices in the contemporary period, Obama concentrated on the opportunities for engagement and cooperation with the Chinese. They are two sides of the same coin, of course. But he who focuses on heads can do more certainly than one mesmerized by the number of times tails turn up.

While Obama identified with protesters and challengers. I saw an identify between the arrogant series of leaders in China and the close call that America just went through. What if Donald Trump had been a more sophisticated or more courageous reactionary revolutionary.?After all, Trump exhibited the same paranoia as Mao Tse Dung, the same reaching outside his own party to rally “the people” previously inactive in politics, the same tapping into widespread grievances in rural areas against the elites in urban centres, and the same quest to acquire direct fealty of a fervent rank and file and, by bypassing the party itself, making the party over into a personal possession. There was much Chinese history could have taught Obama about the real domestic dangers to America which an identification of Chinese and civil rights protesters just never did.

We will observe in coming days the fracking (not simply fracturing) of the Republican Party, the competition among those who claim to have the ear of Trump, the increasing descent into disorder for which 6 January was merely a foretaste, the contrasting way China restored order compared to the steps a democracy has to take to do the same. In reading A Promised Land, I have come to recognize not only Obama’s brilliance, political and rhetorical skills, but his blind spots that led him to ignore the lessons of the past that might have forewarned him about the reactionary and belligerent wave that would grow following his presidency. He did far too little to adumbrate these possibilities because he paid more attention to individual acts of valour rather than structural shifts that sent signals of the enormous series of eruptions on the way.

Trump injected enormous amounts of very disturbing fluids into the social fissures of American society. He did so at high and unrelenting pressure. As a result, enormous volumes of trapped gas were released, but not into a contained pipeline. What if a polished and much more intelligent Republican got a hold of the passions and enmity that Trump tapped into, but controlled and directed its release? I am afraid that Obama missed seeing the domestic threats as well as the technological developments that would enlarge those dangers as well as benefits.

This was not the case when he discussed China’s economic developments and the manipulations in foreign trade and other matters that made China such a formidable competitor. That is the side of the story that I will tell tomorrow.

With the help of Alex Zisman

Obama’s strategy concerning Iran worked insofar as Iran put its nuclear program into reverse, decommissioned most of its high-speed centrifuges and significantly reduced its stock of uranium enriched beyond 3.67%. Mined uranium has only a 1% concentration. When, using centrifuges, it is concentrated up to 4.5% to be used in nuclear power plants. When enriched to 20%, the uranium is within easy distance of producing 90% enriched uranium required to make a bomb. Note that the uranium enrichment of 20% is 80% of the work; enrichment to 90% is only 20% of the work. This is one distinct source of the time pressures on reinstating the deal.

However, another distinction is made by Jim Jeffries, former ambassador to Iraq and Turkey and the Special Envoy to the Global Coalition to Defeat ISIS, and currently Chair of the Middle East Program at the Wilson Center. There is a difference between Iran acquiring enough fissionable material to produce a bomb, wherein the threat of producing one is its main leverage, and the possession of a bomb and its threatened use, which would bring a far higher level of risk of military intervention in Iran.

Though not part of the agreement’s intentions, the nuclear deal did not succeed in strengthening the moderates within Iran, dialing back its meddling in neighbouring states or modifying its missile program. That hoped for transformation – the movement of Iran from a cause to a normal country in Kissinger’s words – just did not happen. Quite the reverse. Compare Iran’s activities in 2013 versus 2018. Iran’s meddling and aggression increased exponentially in the interim until the end of 2018. The missile program especially seemed to be advancing much more quickly. And both the Obama administration and the Trump administration in its first two years were both asleep at the wheel as far as these developments were concerned.

The answer why is readily apparent. Iranian policy focuses primarily on regime preservation and on exporting its revolution initially to the rest of the Middle East. The acquisition of nuclear arms – or, more importantly, the effort to build a capacity to possess nuclear weapons – is instrumental. It can be bracketed if necessary, but not if it will compromise the preservation of the religious foundations of the regime or its export into the region. This means that any deal beyond a nuclear one is almost insurmountable.

When Donald Trump in May 2018 withdrew America from the Joint Comprehensive Plan of Action (JCPOA), the nuclear deal with Iran signed in July 2015 under the Obama administration, he ignored the fact that Iran had largely complied with its terms requiring the country to dismantle its nuclear program vis-à-vis military uses and allowed the program to be subjected both to more extensive and intensive inspections. However, as I previously documented, compliance was not perfect, particularly with respect to inspections. (See my blog Israel in the World: Part II Resurrecting the Iran Deal,” 3 December 2020 in which I focused on Israel and Saudi Arabia forming a common front to deal with the Biden administration given the prospect of resuming negotiations with Iran.) More importantly, Israel was not part of any agreement and felt free to launch a cyberattack on Iran’s nuclear enrichment and high-speed centrifuge production plant at Nantanz as well as assassinate a leading figure in Iran’s Revolutionary Guard, Qasem Soleimani.

Trump’s initiative to apply maximum economic pressure on Iran had four objectives:

• Debilitate Iran’s economy
• Undermine Iran’s abilities to fund its surrogates throughout the Middle East, including support for Hezbollah in Lebanon and Hamas in Gaza
• Contest Iran’s actual presence in Iraq, Syria and Yemen
• Create a regional resistance alliance to Iran consisting of the U.S., Israel, Saudi Arabia and the other Sunni regimes in the Gulf.

However, the downside was the increased risk to the benefits of the JCPOA in setting back Iran’s ability to build a nuclear weapon. The extent of the risk soon revealed itself. An objective of the Trump initiative was not a reform of the JCPOA. Among the shortcomings of the JCPOA, the expiration deadlines were seen to be too short – in ten years from the date of signing, that is in seven more years, centrifuge restrictions were scheduled to be lifted. The limits on the production of highly enriched uranium were also to be lifted in fifteen years. The date for limiting conventional weapons had already passed. In addition, Iran, instead of using the funds that had been impounded and then released upon signing the agreement for improving the well-being of its own citizens, intensified its conventional military support for its adventurism in Iraq, Syria and Yemen.

With America’s withdrawal and the re-imposition of even greater and other sanctions, Iran’s economy went into a tailspin. Iran had previously been largely in compliance. Even after Trump withdrew from the deal, Iran demonstrated remarkable patience for about a year as the U.S. ramped up sanctions. Finally, Iran began gradually breaking through one limitation after another in the deal. Iran resumed the production and operationalization of high-speed centrifuges, began enriching its stock of uranium first up to 4.5% and then to almost 20% in its secret Fordow facility within a mountain near Nantanz, sufficiently pure to power a nuclear weapon.

It is estimated that Iran now possesses at least 2500 kg of such enriched uranium, twelve times the amount permitted under the JCPOA and twice the amount Iran possessed when the JCPOA was signed. With enough material, the window to produce a bomb, the so-called “breakout time,” is reduced from one year to less than three months. Note, the breakout time is not the period it would take to produce a bomb, but the period of time it would take to collect enough material for a nuclear weapon, and that period is falling quickly below even the three months before the negotiations for a nuclear deal were begun. More than three months is needed to weaponize the enriched uranium.

The effect of the withdrawal from the JCPOA and the increased pressures on Iran, therefore, stalemated Iran’s growing power and influence in the region while also putting its nuclear program back on the front burner. Dealing with that shifted to military and cyber sabotage, specifically by the Israelis. In response to the bombing of its missile plant by Israel, Iran intensified and sped up efforts to finish a production facility within the mountain. These moves were only made after the EU members, and even Russia and China, refused by and large to ignore the American sanctions. Iranian oil production fell precipitously, though it managed to sell considerable oil at lower prices on the black market, especially to China. Nevertheless, both China and Russia demonstrated far less freedom in getting around U.S. sanctions than many had anticipated. During that time, Iran developed a much better camouflaged nuclear test site.

Biden ran for election vowing to re-enter the JCPOA in a reverse tit-for-tat, dropping sanctions steadily in response to Iran restoring in stages its compliance with the JCPOA. The formula was “less for less.” Only the problem of going into reverse was not as simple as it sounded. Just negotiating the terms of such a reversal required time, and time is what the Biden administration had in very short supply given the priorities of American domestic demands. Further, an Iranian election was scheduled for June. Electioneering began in April. That was preceded by a two-week religious holiday in which the whole nation literally shut down. If anything was to be done, it had to be completed by March. With less that three months, forging such an agreement seemed a stretch. And if Biden hurried, the administration would be criticized for bowing under the pressures of his own self-imposed deadline. But if nothing was done to reverse Iran’s progress towards making a nuclear bomb, Iran would have purified enough uranium to make several bombs. Further, without a demonstration of real progress in re-establishing a version of JCPOA, the position of Rouhani, who had been elected on the promise of negotiating a nuclear deal, would be undermined. The forces for moderation would be weakened and the position of the Revolutionary Guard strengthened. Thus, in addition to the process question of which country made the first move, there were the many external pressures on the length of time available to make a deal.

In other words, with respect to initiation, “You first, Charlie.” But that is what the Supreme Leader, Ayatollah Ali Khamenei of Iran, had said. The U.S. withdrew so the U.S. would have to make the first moves to return. The ball was in Washington’s court to reinstate the deal. On the other hand, Hassan Rouhani, the President of Iran who is not eligible to run for office in the 2021 June elections under the Iranian two-term limit, seemed absolutely ecstatic at Donald Trump’s departure and declared that now, “the Iran nuclear deal is alive and more kicking than ever.” After all, the JCPOA is his historical legacy. But he added that it was now up to Washington to abide by its obligations under the accord. Iran in its phased “commitment reduction” program had stepped a considerable way from the deal on practically all its provisions. However, if Biden “honestly” restored and honored American commitments, Rouhani assured the P+5 that it too would reverse the steps that it had taken.

We have a reverse challenge to the one in which two potential fighters face off and which one would first attempt to remove the chip on the other’s shoulder. Biden – if Iran comes back in compliance, we will too. Rouhani – if America comes back into compliance, we will too. If who goes first could be overcome by a congruent time-phased agreement, that might, however, prove insufficient given Iran’s breaches in undercutting the UN inspection regime and the expansion from its secret Fordow facility.

The UN inspectors still have not issued a published report on its inspections at the Marivan site at Abadeh, the site for conducting large-scale high-explosive tests, especially important since satellite imagery revealed suspicious excavations at the site after the inspectors left; two bunkers and a test ramp had been built. Further, the IAEC inspectors officially reported that the Turquz Abad inspections were unsatisfactory. After all, Iran prevented the UN nuclear inspector from even entering its uranium enrichment facility and revoked her credentials under the specious claim that she tested positive for explosives.

Antony Blinken, Biden’s new Secretary of State, held out the prospect of getting around this problem by forging a new deal altogether, one that would include the missile program and limitations on Iran’s regional activities, a non-starter if the declarations of Iran are to be believed. However, Biden through his press secretary, Jen Psaki, indicated that this was also Biden’s position – he wanted to toughen the deal “to address other issues of concern.” It appears that the Biden administration will not simply re-enter the deal but will insist on a reformed package that will entail better and longer-term inspection provisions and no longer exclude restrictions on Iranian missile development and extension of its military mischief within Arab states.

Biden has other problems. Though not likely to be in the front row of priorities, pushing human rights forward on the foreign policy agenda is one aim. But as long as Biden is lining up not only with Israel, but with Saudi Arabia, and as long as the Saudis since last March continue to hold hostage the 20-year-old and 22-year-old sons of the ex-chief of Saudi intelligence, Saad Aljabril, who now lives in Toronto, unless the latter agrees to return, Biden has a challenge of hypocrisy if he pushes Iran on human rights but is soft in dealing with Saudi Arabia.

Biden also has a domestic political problem. He has vowed to govern as much as possible in a bi-partisan way. Jake Sullivan, the new security adviser, has insisted that a reinstated agreement would have to be politically sustainable as well as diplomatically advisable. But the Republicans in the Senate as well as some of the Democrats are deeply wary of any efforts to negotiate with Iran. If Biden cannot corral the Senate, he certainly will be unable to get Russia and China to back his plan for a renewal and strengthening of the agreement.  

Iran’s Foreign Minister Mohammad Javad Zarif then went further in the other direction and insisted that the US government return to the nuclear deal “without” any negotiations. A not very promising start! Were there any Track II or backroom secret negotiations between the Biden team and Iranian representatives? None that were known. Tehran’s government spokesperson, Ali Rabiee, seemed to confirm that indeed there had been no informal talks thus far. He further added that even backroom negotiations would have no point unless the U.S. first returned to the agreement as it had promised.

In Joe Biden’s first week in office, he reversed many of Donald Trump’s Executive Orders, such as ordering the American withdrawal from the Paris Climate Accord. But the restoration of the JCPOA was not on that list. However, the international currency market seemed to be voting against the persistence of a stalemate. The value of the riad, Iran’s currency, which had plunged drastically following Trump’s sanctions, rose 10% in one week.

However, it would appear that any quid pro quo would prove insufficient, even according to Rouhani’s matching formulation: “If US signs, so will Iran. If US issues order, so will Iran. If US returns to commitments, so will Iran.” However, Michael Oren, former Israeli ambassador to the U.S., who holds dual citizenship, as does Jeffrey Goldberg, editor of the influential Atlantic magazine, both insisted that the U.S. hold out for a tougher and more encompassing deal, a position echoed by Yossi Klein Halevi, not known as a hawk.

There are others that go even further. However, Kentucky Senator Paul Rand, no friend of foreign wars, urged Biden not to launch an ambitious program of supporting regime change. Mark Dubowitz, the chief executive of the Foundation for the Defense of Democracies, a Washington, D.C.-based nonpartisan policy institute, who is an expert on both Iran’s nuclear program and its threats throughout the region, went even further than Rand and argued that the U.S. should not re-enter that Accord or even a rewritten version at all.

Washington is home to a number of other experts and influencers concerning Iran. For example, Robin Wright, the USIP-Wilson Center Distinguished Fellow and contributor to The New Yorker, distinguishes process issues (initiation and length of time and possible intermediaries) from substantive issues themselves. The latter are divided into two buckets. First, there are the modifications wanted to the agreement itself with reference to existing terms, such as the sunset clauses referred to above, versus items not included in the deal that many are pressing Biden to include – primarily missile development and Iranian meddling in other countries in the region – but also the far more remote possibility of including human rights issues.

Jarrett Blanc, Senior Fellow at the Carnegie Endowment of International Peace and former head of the State Department coordinator for the Iran nuclear deal, focuses on the performances and limitations of the various actors, three primarily: Iran, the U.S. and the outliers, Russia and China. From his analysis, it has already been established that both Russia and China have little room to manoeuvre when America imposes sanctions. What is surprising is the little attention Blanc pays to Israel or Saudi Arabia as key actors in the Iran nuclear deal even though he clearly recognizes the importance of each.

Given the very short time frame and the various complexities, it is very unlikely that a renewed or especially a revised deal can be in place. Could some momentum be created? Possibly since both sides want to make progress in the face of complications not impossibilities. After all, Iran could be back in compliance in a few weeks and the U.S. even faster. But do not keep your hopes up.

Part XII: U.S. Foreign Policy on Iran

America is facing a pandemic crisis that is predicted to get worse before it starts to improve. America is facing a communication crisis in a post-truth world in which a considerable majority of Republican Party supporters still believe that Joe Biden was not elected in a fair election, thus undermining his legitimacy. America faces a fiscal crisis in which government revenues are dropping, GDP is dropping, deficits are increasing, yet a much bigger stimulus package is required at this time to give the economy a boost while helping the unemployed and small businesses get over the financial slump as a direct result of the pandemic and which will also allow states to deliver the vaccines to get past the pandemic. We also have a worldwide climate crisis in which the years left to reverse the drift are shrinking rapidly.

Facing all these challenges, the American polity is split between activists who want to attack these problems directly at a time when the other almost half still favours less regulation and less government just at a time when more and better governance and government regulation are needed. And I have not even mentioned an immigration and refugee crisis, unfinished health care policy, protections needed for homeowners and renters, policies that are necessary to improve education, and on and on.

Where is there any room for attention to foreign policy? It is quite clear that the Biden administration is concentrating and must concentrate on domestic policy. Yet foreign policy, defense policy, intelligence, trade policy and the international banking and health systems all need urgent attention. And then there is the ever-present looming nuclear issue. This is particularly acute with respect to Iran, not only because Donald Trump withdrew the United States from the Joint Comprehensive Plan of Action (JCPOA) dealing with Iran’s nuclear program, but because Iran’s nuclear program is complicated by domestic human rights abuses, Iranian foreign policy meddling in its neighbours as it tries to become a leading power in the Middle East, and its technical developments in acquiring mid-range and even intercontinental missiles capable of carrying a nuclear warhead.

In his memoir, Barack Obama describes his initial immersion into foreign policy with Russia, dealing with the G-20, attending a major NATO meeting and then with a Somalia pirate crisis eventually made into a film starring Tom Hanks in Captain Phillips. His Saudi Arabia visit was not primarily intended to be about the Saudi main rival, Iran, but about an effort to reset America’s relations with the whole Muslim world in the aftermath of Iraq and the rise of radical Islam. On 3 June 2009, Air Force One landed in Riyadh, Saudi Arabia. Obama planned to deliver what became known as the “Muslim speech” in an effort to redress media portrayals of Muslims as either terrorists or rich self-indulgent sheikhs and to correct the image of America as exclusively interested in combating terrorism, defending the oil supplies to the West (even though, because of fracking, America was now independent of the need for Middle East oil) and America’s guardian role over the security of Israel.

Iranian policy not only suffered from historical hangovers – the American CIA sponsored coup against the Iranian elected leader, Mohammad Mosaddegh in 1951, the hostage crisis that ended Jimmy Carter’s presidency in 1980 – but was further complicated by Iran’s relations with Russia and China. Vladimir Putin in Obama’s meeting with him in July 2009 dismissed Obama’s “concerns about Iran’s nuclear program and bristled at my suggestion that he suspend a pending sale of the powerful Russian-designed S-300 surface-to-air missile system to the regime.” (465) Putin insisted that it was just a defensive system. In any case, Russia could not afford either in money terms ($800 million) or in reputation canceling the arms deal.

“Since rejecting my offer of bilateral talks, Iran had shown no signs of scaling back its nuclear program. Its negotiators continued to stall and bluster in [UN] sessions with P5 +1 members [the permanent members of the UN Security Council + Germany], insisting that Iran’s centrifuges and enriched uranium stockpiles had entirely civilian purposes. These claims of innocence were spurious, but they provided Russia and China with enough of an excuse to keep blocking the Security Council from considering tougher sanctions against the regime.” (470)

In the case of China, America had a whole set of problems beside his seeking support for new sanctions on Iran. In addition to American complaints about artificial Chinese interventions to keep their currency at a low international value, U.S. priorities included, “managing the economic crisis and North Korea’s nuclear program; the need to peacefully resolve maritime disputes in the South China Sea; the treatment of Chinese dissidents.” The alleged genocide against the Uyghurs and the status of Hong Kong and Taiwan had not yet reached the top of the pile.  

On Iran, Obama on his visit to Beijing in November of 2009, “appealed to Chinese self-interest, warning that without meaningful diplomatic action, either we or the Israelis might be forced to strike Iran’s nuclear facilities, with far worse consequences for Chinese oil supplies.” As expected, “Hu [President Hu Jintao] was noncommittal on sanctions, but judging by his shift in body language and the furious notetaking by his ministers, the seriousness of our message on Iran got his attention.” (481)

By June 2010, Obama’s efforts, begun a year earlier with Putin, bore their first fruits with respect to Iran. The UN Security Council, “passed Resolution 1920 imposing new sanctions on Iran, including a ban on weapons sales, a suspension of new international financial activities by Iranian banks, and a broad mandate to bar any commerce that could help Iran expand its nuclear weapons program.” As Obama wrote, the U.S. “now had the tools we needed to bring Iran’s economy to a halt unless and until it agreed to negotiate. It also gave me a powerful rationale for counselling patience in conversations with Israelis and others [presumably American hawks] who saw the nuclear issue as a handy excuse for a U.S.-Iran military confrontation.” (484)

Nuclear weapons in the hands of Iran alongside intercontinental missiles capable of carrying a nuclear warhead were strategic threats against America. But nuclear weapons owned and developed by Iran and capable of being delivered by intermediate range missiles were an existential threat to Israel. Iran had vowed to wipe Israel off the map. Preventing Israel from launching an attack on Iran that could lead to a wider Middle East war, and one that might inevitably draw the U.S. in on one side, was a major objective of getting the sanctions as the precondition of a new agreement.

The result was not only a product of multilateralism but was a multi-personnel affair requiring the depth of knowledge and breadth of diplomatic skills of Hilary Clinton and Susan Rice, and the technical and strategic support of Michael McFaul, Obama’s campaign adviser of Russia and the Director at the Freeman Spogli Institute for International Studies. He is the Ken Olivier and Angela Nomellini Professor of International Studies in the Department of Political Science at Stanford University, and the Peter and Helen Bing Senior Fellow at the Hoover Institution. In addition, there were Bill Burns, a career diplomat, former ambassador to Russia under George W. Bush and the National Security Council senior director for Russian and Eurasian affairs, and the U.S. nonproliferation expert, Gary Samore.  Of course, as Obama acknowledged, it had to be topped off by Barack Obama’s personal diplomacy, especially with Dimitri Medvedev, president of Russia from 2008 to 2012.

What a contrast with the unilateralism, UN-bashing, singular and amateurish grandstanding of Obama’s successor. Donald Trump dashing off hither and yon without expert support or any in-depth study of an issue. With Joe Biden, there will be a return to professionalism in foreign affairs. However, Trump’s off-the-cuff unilateral diplomacy did prove how effective American sanctions could be and were, but at what cost in contrast to the internationally legal and multilaterally-based efforts of the Obama administration?

Other than the methods utilized, there was the central issue of substance. Obama in negotiations agreed to focus singularly on the nuclear issue and leave the issues of domestic human rights abuses, developments of missiles and missile technology and meddling in the affairs of other states in the region – Iraq and even Afghanistan, Syria, Lebanon which had by then for a longtime been a satrap of Iran, Yemen on behalf of the Houthis, and whatever support the regime could offer to Gaza in its conflict with Israel.

Obama summarized the American position as follows: “By the time I took office, conservative hard-liners were firmly back in charge in Tehran, led by a new president, Mahmoud Ahmadinejad, whose many anti-Western outbursts, Holocaust denial and persecution of gays and others he considered a threat made him a perfect distillation of the regime’s most hateful aspects. Iranian weapons were still being sent to militants intent on killing American soldiers in Iraq and Afghanistan. The U.S. invasion of Iraq had greatly strengthened Iran’s strategic position in the region by replacing its sworn enemy, Saddam Hussein, with a Shiite-led government subject to Iranian influence. [AN UNDERSTATEMENT!] Hezbollah, Iran’s proxy, had emerged as the most powerful faction in Lebanon, with Iranian-supplied missiles that could now reach Tel Aviv. The Saudis and Israelis spoke in alarming tones of an expanding “’Shiite Crescent’ of Iranian influence and made no secret of their interest in the possibility of a U.S.-initiated regime change.”

“Under any circumstances, then, Iran would have been a Grade A headache for my administration. But it was the country’s accelerating nuclear program that threatened to turn a bad situation into a full-blown crisis.” Obama determined to roll the crisis away from a full-blown catastrophe into a very serious international political and security annoyance. Why did he not go much further, and push the Iranians away from being a direct existential threat to both Israel and Saudi Arabia even without nuclear weapons? Certainly, this is what both Israel and Saudi Arabia wanted. And it need not have involved regime change.

Part of the answer is the seriousness of the nuclear threat. As Obama described it, “The regime had inherited nuclear facilities built during the time of the shah, and under the U.N.’s Nuclear Non-Proliferation Treaty – to which Ian had been a signatory since its ratification in 1970 – it had the right to use nuclear energy for peaceful means. Unfortunately, the same centrifuge technology used to spin and enrich low enriched uranium (I.E.U.) that fueled nuclear power plants could be modified to produce weapons grade highly enriched uranium (HEU). As one of our experts put it, ‘With enough HEU, a smart high school physics student with access to the internet can produce a bomb.’”

In 1953, I did not have access to the internet. There was no internet. Nor did I have access to enriched uranium. But on parents night at Harbord Collegiate, I could offer a brief 15-minute talk – repeated four times during the evening – instructing parents on how to build a nuclear bomb. That is why the Nuclear Non-proliferation Treaty was so important. That is why Iranian compliance was so important.

Ironically, the Israelis who were most under threat from such a possibility were no less afraid of Iran’s conventional technology and its meddling in the domestic situation of neighbours that provided a more direct and real threat to Israel. Israel wanted to use the lever of restricting Iran’s nuclear program to also restrict Iran’s developments in missile technology and its deployment of surrogates and equipment to fortify Israel’s many enemies in the region.

Obama who had promised to consult and involve Israel on American initiatives involving Israel security, made two bets. It saw an opportunity to pursue a nuclear treaty with Iran under international law and the Nuclear Non-proliferation Treaty and with the very difficult to get political support of both Russia and China (in the end, Russia even cancelled its S-800 sales to Iran (300)), get what would end up at the Joint Comprehensive Plan of Action (JCPOA) between Iran and the P5 +1 and the EU based on an April 2015 framework deal on 14 July 2015. Obama won that bet, in spite of enormous political interference run by Netanyahu that broke with the Israeli practice of a continued Republican and Democratic united policy. Netanyahu totally aligned himself with the Republican Party and denounced the deal.

Obama made another bet. Netanyahu in accepting a two-state solution and Abbas in insisting he would not negotiate with Israel while Israel continued its settlement program in the West Bank and Jerusalem, took advantage of the situation and got Netanyahu to agree to a ten-month freeze, at least on new settlements in the West Bank, but not Jerusalem, in order to explore the possibility of restarting peace talks. By the time Abbas came around, the ten-month period was almost over and Netanyahu refused to extend the freeze. As a result, Obama spent enormous political capital pursuing an Israeli-Palestinian peace agreement when the prospects were very slim to begin with.

As a result, Netanyahu and the President of the United States had, to say the least, a political falling out. One of the results is that Netanyahu would become one of the most vocal critics of the Iran Nuclear deal claiming that both in what it included – weak inspection provisions, very short timelines for compliance before they expired, etc. – and even more importantly at what the agreement excluded with respect to missile development and sponsorship of proxy enemies against Israel. This critique formed one of the foundation stones for the rise of Donald Trump and his explicitly one-sided support for the Israeli position on both Iran and the absence of a real prospect of peace with the Palestinians.

I had become a strong supporter of the nuclear deal with Iran. Like Obama and his advisers, I recognized both its internal weaknesses and its narrow focus. However, I believed strongly that that imperfect deal was better than none as long as it worked to keep nuclear weapons out of the hands of the Iranians. The deal proved to be even weaker than I thought even without Trump undermining it. Further, the Trump regime proved that unilateral American sanctions without the endorsement of China, Russia, the UN or even the P-4 +1, could be very effective in pushing Iran against the economic wall. However, though that resulted is some curtailment of Iranian interference in Iraq, Syria, Yemen, Lebanon and Hamas, the programs still remained robust and were pursued with even more determination on behalf of Iran.

Given this inheritance on the Iranian portfolio, what can Joe Biden be expected to do based on lessons learned from both Obama and Trump policies?

Tomorrow: Part XIII: Biden’s Iran Foreign Policy

In Shakespeare’s play, Romeo and Juliet, written a century after Columbus set sail for what he called “the new world,” the old world of Verona was still being torn apart by family feuds, in this case between the Montagues and the Capulets. A Capulet fashionista fop sought to find Romeo, a Montague, and challenge him for showering his affections on Juliet, a Capulet. In the scuffle that ensued, the witty punster and Romeo’s best friend, Mercurio, was killed. As he lay dying, he cries out, “A plague on both your houses.”

In the Torah story, a plague is visited only on one house, that of the Pharaoh. And there is not only one, but ten plagues. The Hebrew God orders those plagues against the Egyptians; the Hebrews are spared. “Ten poxes on the house of Pharaoh” seems to be the slogan. Unlike Mercurio’s assessment, only one party is said to be in the wrong. The tale has elicited an enormous amount of commentary. Why was God intent in visiting the plagues on Pharaoh, his people, their livestock and the land? What did each plague mean? What did each accomplish? Why that specific plague in that order? What kind of threat did each plague pose?

Last week I referred to Chapter 7 of Exodus and God’s promise to the Israelites that He would “harden Pharaoh’s heart and multiply my signs and My wonders in the land of Egypt.” (7:3) “But Pharaoh will not hearken unto you, and I will lay My hand upon Egypt, and bring forth My hosts, My people the children of Israel, out of the land of Egypt, by great judgment.” (7:4) The Hebrew word for judgment here is גְּדֹלִים, gedolim, which is translated more mildly as chastisement (God will slap Pharaoh on the wrist) or as punishment, an outcome more severe even than judgement as it is often translated. But as we read the tales of the plagues that God inflicts on Pharaoh and the Egyptians, it seems clear that not only do chastising and even judgement seem too weak as descriptors, but so does punishment. For there is no trial. And Pharaoh himself does not suffer from his obstinance. In fact, as the plagues are each let loose in turn, Pharaoh’s heart hardens.

Why ten? One frequent answer is that God had to up the ante each time given Pharaoh’s resistance. God is like a torturer who makes each kind of torture worse than the one before in order to elicit compliance. As Jonathan Sacks wrote in his commentary “Parshat Bo: The True Meaning of the Plague of Darkness, “Thus far there have been eight plagues, and they have become steadily and inexorably more serious.” But a review of the plagues quickly falsifies such a notion. Allowing the Nile River to turn into blood and spread into the wooden and stone idols of Egypt (the first plague) seems far worse than the 7^th or 8^th plagues which are natural phenomena frequently experienced by Egyptians – hail and locusts. So too with the second – frogs everywhere and dying slimy amphibians piled high and rotting on beds and hearths of Egyptians. Surely this is much worse than hail. Though certainly the tenth plague – slaying of the first-born – seems the worst

The ten plagues are:

Let us take a step back. Why does God say he is inflicting the plagues on Pharaoh, on his servants, on his people, on their livestock and on his land?  In the segue from one plague to the next, in the transition from locusts to darkness, the text declares that, “the LORD hardened Pharaoh’s heart, and he did not let the children of Israel go.” (10:20) In the transition from hail to locusts, God instructs Moses to, “Go in unto Pharaoh; for I have hardened his heart, and the heart of his servants, that I might show these My signs in the midst of them.” (10:1) In the transition from boils to hail, the text concludes, “the LORD hardened the heart of Pharaoh, and he hearkened not unto them.” (9:12) The same is true from blight to boils (9:7), flies to blight (8:28), lice to flies (8:15), frogs to lice (8:11), blood to frogs (7:22-23), and even before the plague of blood after the first request before inflicting a plague. In each case, God hardens the heart of Pharaoh before inflicting a plague.

Rabbi Daniel Zucker has argued that as Pharaoh’s heart grew heavier, it was a sign of increased guilt since in ancient Egyptian belief, a person’s heart was weighed after death to determine whether the individual was righteous or wicked. As interesting as the exposition is of prayers and post-death proceedings in Egyptian religious practices, Zucker does not explain the weight threshold or the heart to body mass over which degrees of guilt were ascribed. Instead, it is a matter of absolute mass rather than relative weight. “If the heart was found to be lighter than maʾat, the judged was shown to be righteous and would be allowed into the afterlife, and would be referred to as ‘vindicated.’” But exploring why such a system would discriminate against large men and favour small women is beside the point. For one reason: the issue of weight for Rabbis Zucker and Sacks was not physical, but a matter of guilt over the degree to which a lie was told when the person was interrogated at death.

However, calculating brain weight ratios to body weight is not necessary for a more fundamental reason. There is no indication at all that Pharaoh felt guiltier as each plague passed. Further, in English, having a heavy heart suggests sadness rather than guilt, ranging to overwhelming melancholy. That sadness is related to increasing skepticism that there is a way out of a quandary the person believes himself to be in. Each event stiffens his heart. The person grows another layer of armour around his heart and is more resistant to any external influence. The person’s resistance grows and his woe deepens.

There is no indication that God would buy into an Egyptian cosmology and ontology by saying that God made Pharaoh’s heart heavy “akin to saying that he (Pharaoh) was not ‘worthy’ of an afterlife, a terrible curse for an Egyptian.” (Rabbi Jonathan Sacks) Rather, the evidence suggests the phrase is used to invert its meaning from any suggestion that a weightier heart is a guiltier heart to a weightier heart as one with increasing defences against outside influences, the same pattern as Donald Trump revealed as his term in office progressed. Stubborn. Resistant, Defensive. And in increasing amounts. Not guilt.

To understand what is happening, the character of each plague has to be revealed. As I indicated in my last blog, the plague of blood was a direct assault on the wood and stone statues of Egyptology, on the idols of the kingdom, and a demonstration that only the God of the Hebrews could bring things to life by controlling blood, the core to the life force. After that ontological assault, the plague of frogs was an existential one on Egyptian everyday life, contaminating the hearth, the beds and the stoves of the Egyptians who practically worshipped hygiene. The God of the Hebrews was demonstrating the enormous extent of His power. This is said explicitly when Pharaoh, his courtiers and the Egyptians were to be struck with the plague of hail. “I could have stretched forth My Hand and stricken you and your people with pestilence, and you would have been effaced from the earth. Nevertheless, I have spared you for this purpose: in order to show you My power, and in order that my fame may resound throughout the world.” (9:15-16)

But why? If the only effect was to make Pharaoh even more resistant to letting the Hebrews go? After all, in the first stages, when Pharaoh’s heart grew heavy in response to the plagues of the blood and the frogs, Pharaoh is still capable of bending even if resistant. He bargains with Moses. You and your people can go into the wilderness to worship your God, but you must return to slavery, so you cannot go very far. But Pharaoh still resists caving in and goes back on his word. He reveals himself as lacking any integrity. No sooner does Moses get God to cancel the plagues of the lice and the flies than Pharaoh reneges on his promise to just let the people go a little way for the sake of freedom of religion while still denying freedom altogether.  

I suggest something else is happening rather than Pharaoh being weighed down with greater guilt after each pair of plagues. It does have to do with the journey towards death. Elisabeth Kubler-Ross enunciated five stages of resistance as death approaches:

• Denial and trying to ignore death.
• Anger when faced with what is obvious
• Bargaining in an attempt to forestall what you begin to see is inevitable
• Depression when faced with the reality of imminent death
• Acceptance of death, which may be half-hearted and, therefore, a reversion to personal resistance.

Before confronting the plagues, Pharaoh resists any consideration of letting the Hebrews go. After God demonstrates His enormous power with an all-out assault on the ontological and existential foundations of Egyptian existence, Pharaoh is enraged. After the assault of the plagues of lice and flies, Pharaoh resorts to bargaining. After the plagues of blight on the livestock and boils on his Egyptian subjects, Pharaoh goes into a total funk. He is stirred out of his depression by the plagues of hail and locusts, but instead of moving on to acceptance of the final result, his mood becomes totally bleak and black. He goes into total rejection. It is all a fraud. He insists that he will emerge victorious. He flails about and God must resort to a final extreme measure – killing of the first-born to get Pharaoh to let the Hebrews go, even though once again Pharaoh will change his mind immediately after the Hebrews leave.

I suggest that what is taking place is a metaphysical war between God and the Egyptian belief system. The goal is not Pharaoh’s conversion, but his destruction – the collapse of the whole basis of his faith beginning with the revelation of the impotence of the Egyptian gods, the idols, and the extreme vulnerability of the everyday dedication to hygiene. But that is not enough to destroy the system. Such acts only undermine the foundation. The structure and, finally, the superstructure must be brought down. God does not want Pharaoh to give in. God increasingly hardens his heart, gets him to resist to the very last, a resistance which will lead to total, not only absolute humiliation, but actual destruction.

Why lice and flies to propel the movement from anger to bargaining? God is conducting cosmic warfare. He had shown up Osiris, the top dog in Egyptology, the god of the Nile and the life force of that river. But blood was the life force within humans and God turned the waters of Egypt into blood to swamp the wood and stone idols of the kingdom.  Hekyt, the wife of the creator of the world and the sacred saint of midwives in the Egyptian pantheon, was portrayed as having the head and body of a frog. When all those frogs multiplied endlessly and then all died and became rotting corpses, and then had to be cleaned up, both Osiris and Hekyt had been reduced to impotent figures in fairy tales. It is not hard to imagine how enraged Pharaoh must have become.

Then the Egyptians were plagued with lice – really likely sand flies that burrowed under the skin like lice and planted eggs. In effect, the god of the earth (geb – to dig), instead of being worshipped for producing the annual bounty of grain was resented for producing insects that get under one’s skin. This was followed by swarms (which is normally translated as swarms of flies), masses of dung beetles in motion that suddenly emerged from under the earth to turn dead matter into balls; Amon-Ra, the king of the gods, had the head of a beetle. Then God destroyed the beetles. In other words, the disaster for the Egyptians was not the plague itself, but the aftermath, the piles of dead dung beetles, the red skin with rashes, the contamination of the homes and the deconsecration of the wooden and stone idols.

Then murrain, the contagious disease that infected the Egyptian cattle and their subsequent slaughter. (Obviously, the lesson for the Hebrews was insufficient because they easily reverted and sought to imitate the Egyptian worship in creating a golden calf in the wilderness – Apis, the bull god, and Hathor, the cow-headed goddess of the desert.) Then the boils on humans, or was it something much more serious like leprosy? Again, the gods protecting Egyptians against the infection of cattle and humans with fatal diseases proved flawed; Pharaoh and his gods were once again proven not to be up to the task. Starting with the major divine figures, God was working His way down through the rest of the world of the gods, knocking them over like pins in a bowling alley.

Then the air filled with hail, frozen ice balls falling from the sky, and and locusts so that one could no longer breathe. The whole process had become suffocating. Pharaoh’s mood totally blackened; he went into a deep depression and increased his resistance. Then the killing of the first-born. But who did the killing? Abraham was sent to sacrifice his first-born but was saved from doing so at the last minute. The Egyptians were not. They were desperate. They retreated to their last resort, sacrificing their first-born child to the gods. It was still not enough to save the Egyptians and they were forced to let the Israelites go. No sooner did they do so, than they were full of regret. The Egyptian military forces went after the Hebrews only to be drowned in the Sea of Reeds when a tsunami wave washed over them.

This is a tale of a cosmic battle. This is a tale of absolute resistance and the heavy heart that grows in such a battle as one sinks into depression and then, at the last minute, rises from one’s lair to launch a final, and futile, attack on The Capitol and the Constitution of a nation trying to fulfill the promise of a united free people.

“The new dawn balloons as we free it.

For there is always light, if only we’re brave enough to see it.

If only we’re brave enough to be it”  – Amanda Gorman, “The Hill We Climb”

Part XI: An Economic Alternative

There are various fields of economic policy that I have not examined (healthcare, energy, labour law, immigration, trade, etc.) and some I barely touched (tax policy and education), but I want to offer an overall alternative view. Obama said when he took office, unemployment had reached 8.5% and would go higher; employment was probably the most important segment of economic policy. However, I will not be analyzing how to reduce the rate as much as use it as an indicator of failed policies.

When Obama left office, unemployment had dipped to the lowest level in decades, 4.7% in the last quarter. Obama had inherited a disaster and, not only turned the economy around, but sent if forward on an upward projection. In Donald Trump’s last quarter, the unemployment rate was 8.4%. But in 2019, it had dropped to 3.5%, 1.2% lower than when Obama left office. However, Donald Trump’s totally calamitous handling of the COVID-19 pandemic sent unemployment back up to 8.3% and required a tremendous federal financial economic injection to save the economy.

But what about Trump’s few signature economic accomplishments? He is credited with lowering corporate tax rates – which he did – and which resulted in less not more funds available for the treasury and greater discrepancies between the wealthy and the poor. He is credited with eliminating regulations which had been burdensome to business so that their removal contributed to a more robust economy. But the laxity in regulations during the Bush administration and the ignoring of regulations during the Trump administration, especially the use of regulations to control and minimize a pandemic, meant a terrible tsunami of deaths – over 400,000 thus far. Systems of testing, providing safety equipment, monitoring etc. were ignored and even discarded.

Trump is credited with forging a new trade pact with Mexico and Canada. He also got Congressional support to approve it. But the improvements over the North American Free Trade Agreement (NAFTA) were very modest. The route to getting there was very destructive to U.S.-Canada and U,S.- Mexico relations. And, in any case, the best parts were simply plagiarized from the Trans-Pacific Partnership from which Trump had withdrawn America. The latter was very destructive to a growing international economic order. What was even worse was the absence of any initiatives in this sphere. International organizations need legal and economic frameworks to facilitate more trade that benefits more and more countries so that more people can participate in the global economy.  Trump sent this trend line into a downward spiral.

Obama left the country in far better economic shape than the situation that he inherited. Trump left a disaster contrary to a reputation of at least being an economic president. No decent minimum wages, increased poverty and a resumption of high levels of mortgage foreclosures without adequate protections and remedies, were just part of his destructive legacy.

Obama from his very first reforms also kept his eye on improving the international economic system. As he wrote, increasing the “GDP would have important implications for global-governance arrangements.” Obama saved the market system on which the international economy was based. “First and foremost, we needed to restore some semblance of market confidence so that investors who’d fled to safety pulling millions of dollars in private capital out of the financial sector, would return from the sidelines and reinvest.” (276) While Trump promoted nationalism, unilateralism, and isolationism, Obama defended and tried to reinforce and strengthen internationalism, multilateralism and engagement with overseas partners.

However, both GDP and the rate of productivity improvement, both domestically and internationally, had been falling over the last two decades. To reverse low productivity and slow growth required much more fundamental changes to the structure of the American economy. Neither Obama’s promotion of globalization nor Trump’s stress on protectionism and nationalism dinted this overall pattern.

In this blog, I want to concentrate like a laser beam on the financial sector. In doing so, I want to try to answer several questions that should bother any close reader of Obama’s memoir. Why did he not use his leverage over the banks to better effect when they were really on the ropes? Though he was put off by the sense of entitlement and the disdain of the bankers (296-297), and he suspected that they did not know what they were talking about, why did he not strong arm them when he had the chance? Why was he really not able to do anything about banker and insurance executive huge bonuses (on top of enormous salaries) at the very same time that they were being bailed out by the government? If I can answer these questions, I believe I might get closer to understanding why Obama allowed 1 of 6 homeowners under financial stress to lose their homes.

On a personal level, in financial matters, one should follow the 5M’s of prudence:

• Money, money, money makes the world go ‘round
• Math – keep track of the numbers
• Manage the money – budget
• Mind your habits – differentiate between needs and wants
• Measure the benefits.

For the system as a whole, all those elements apply, but one must understand each conceptually and how they work together. Take money. Aristotle, as did the early Christians and the Muslims, viewed money as simply an instrument to facilitate exchange. What you had difficulty doing directly, you did indirectly using money. Therefore, the amount of money circulating should be restricted to the inherent value of things in the economy. However, that meant that things or property had value but social capital (e.g. past reputation) or human capital (future potential of individuals) or even inherent value in a new technology, were not given a monetary value. Further, lending money bearing interest was immoral because that attributed value to money itself. (What else can you expect from philosophers who imagined themselves as aristocrats and disdained the value of labour.) Instead of seeing the fault in this conceptualization, moralism was projected onto money and the economy was seen as a circulatory system with a fixed amount of blood to make and distribute goods and services. Excess was dangerous, and perhaps more so, than an insufficient supply.

Adam Smith, the father of laissez-faire economic theory in opposition to mercantilism, a theory of self-regulation versus external manipulation, offered a “reflux” theory of money. The demand for money was fixed at a nominal value. In contrast to Aristotle, although agreeing that the total amount was fixed, he proposed that, instead of being based on substantial essential value, the quantity of money in circulation was based on a nominal quantity. Excess was impossible and, therefore, the value of money could not influence employment rates, salaries or prices of goods and services.

I remember when, as a student, I first read Adam Smith’s 1776 white covered thick volume, An Inquiry into the Nature and Causes of the Wealth of Nations. Just when I was finishing the book, there was a bulletin given out by the Royal Bank branch at the north-east corner of Harbord Street and Spadina Avenue in Toronto. In that printed bulletin, the head of the bank had a long article on Adam Smith’s espousal of competition determined by supply and demand and unfettered by regulation. I wrote the president of the bank a six-page letter citing Smith and his earlier work, The Theory of Moral Sentiments, and suggested that he hire a better hack to write his essays, someone who actually read Smith. Two weeks later, I received a call from my bank manager asking if I could come to see him. “I’d be delighted,” I replied.

I went to his office and learned that he had not called me to discuss my loan. The president of the bank had called to inquire about the “radical” customer who had written him a letter. The manager wanted to warn me not to do anything to jeopardize my credit. I said that I was not worried. Since he looked very worried, I suggested he look at the bright side. If not for my letter, the president would probably never know he existed. “Take advantage of the opportunity and endear yourself to him.” I left his office with the glee of self-satisfaction of a very minor enfant terrible.

I tell this story that I believe is amusing because it illustrates how much Smith is used as a caricature to misrepresent capitalist theory. This is not the place to even tip a toe into the thesis, but Adam Smith’s conception of capitalism is supposedly not interested in the well-being of individuals, but only the satisfaction of their needs and wants. Demand determines supply and price; money is simply the nominal means of representing the exchange value of labour, goods, services and even capital – hence the justification for interest. What is omitted in this caricature of capitalism is regulation, something that should have been suspected simply by reading his earlier work on the importance of moral sentiment. The invisible hand is not a given as a natural law, but a balanced system of demand and supply, a system that must be protected (rather than individuals in high places) by institutional laws, regulations and guides, ones that not only ensure the smooth working of the system, but facilitates the expression of moral sentiments for the benefit of those who are deprived.

However, in Adam Smith’s theory of money, we can see how both he and Aristotle were fixated on fixidity, though Smith broke away from Aristotle’s essentialism. It would take later writers and thinkers, especially John Maynard Keynes, to break through the idea of fixidity itself altogether.

Keynes’ 1936 masterpiece, The General Theory of Employment, Interest and Money focussed on the growth of an economy as central. Stability was not the goal; economics studied a dynamic system. Demand determines supply; there is no system of simply matching a given demand to a limited supply. That means that money theory must necessarily be expansionary. In times of weak demand, government investment in infrastructure, unemployment and other social benefits was meritorious, but even in the demand for consumer necessities, such as a roof over one’s head. Government intervention did not need to be restricted to collective goods and services.

How does it work? The government borrows money and infuses it into the economy. A depression was the result of inadequate demand and loss of confidence in the value of things. Debt itself was a vote of confidence in the future. Money, rather than representing the values placed on an exchange, was more fundamentally a positive vote on the future, namely that the future would be better than the past. Hence, more debt and greater collective wealth in the future. Hence, theoretical support for government spending in general, and for budgetary deficits and monetary intervention.

Though the 16th-century price revolution and profit inflation against the previous mercantilist system played a crucial role in the primitive accumulation of capital and in the birth of capitalism, following the second industrial revolution of the first three decades of the twentieth century, the Keynesian revolution with its stress on the sophisticated growth of capital and the preservation of capitalism was perhaps of even greater importance than the factors influencing capitalism’s origins. The third industrial revolution, the digital age, absolutely requires and is developing a very different conception of the economy, and once again more specifically of money.

The following guidelines need to be followed based on the following 5 C’s:

• Complexity must be translated for clarity in communications (in contrast to what happened in the sub-prime mortgage crisis of 2008-2009)
• Costs, all costs, including the resupply of fresh air and water and the depletion of the earth, increasing risks of forest fires, must be included in pricing and price should not be based simply on demand, at the same time as reductions in pricing must be continuous using modern technology
• Charges for fees and services, including differential interest rates, must be readily apparent and transparent – that is, nothing can be hidden
• Conversability is a requirement – transferability to different currencies and debt instruments must be accessible and easy
• Candor entails complete honesty based on both a fair and forthright system that is guileless and impartial, disinterested and dispassionate, without any insertion of moralism or sentimentalism.

Fortunately, new online banks are directly addressing this challenge. With transparency, accessibility, simplicity and cost reductions, the new online banks are mounting a real challenge to the old-line banks which are desperately trying to change and adapt to remain competitive. Obama ran for the presidency to restore the people’s trust – trust in its civic and political institutions and in its financial ones. (276) With respect to the latter, the above strictures are a necessity, but ones never imposed by the Obama (and certainly not by the Trump) administration. Instead, most environmental and social costs remain unaccounted for. Instead of transparency, one finds only opaqueness. Instead of ensuring that technology is translated into cost cuts derived from that technology, often created because of government investment, enhanced value is accumulated to foster monopolies and control pricing. Conversability on all levels becomes more difficult rather than easier. And candor is totally discarded along with the moderating role of moral sentiment.

In the third digital age industrial revolution based on the internet, networking, shared use of many more assets than just sidewalks and roads, in an age where renewable energy is replacing the depletion and destructiveness of fossil fuels, mobility both vertically and horizontally must be enhanced. The communications, transportation and energy sectors must be coordinated by government to foster the growth of the new economy.

The potential was presented to Obama to facilitate the beginning of such an evolution creating a distributed and networked system in which, literally, no one is left out or left behind. Obama failed to do so. Not only did millions of homeowners pay the cost, but so did the advance of the economy as a whole. Instead of a neoliberalism which promotes privatization, but where that benefit goes to a smaller and smaller percentage of the population which can afford to own a home, instead of promoting austerity, beneficence for all should be viewed as the goal. Instead of deregulation, what is required is the correct and constant regulation and certainly not the crisis interventions of the Obama years. Instead of government withdrawal from the economy, a much more activist presence of the government in the governance of the economy is required. Instead of reduced government spending, we need increased government investment, including partnerships with homeowners in their personal and most important asset, their homes if and when they get into trouble.

An opportunity missed must be used at the very least as an opportunity to understand.

Next week: Obama’s Foreign Policy

Part X: Salvation by Larry and Tim

“Through Palin, it seemed as if the dark spirits that had long been lurking on the edges of the modern Republican Party – xenophobia, anti-intellectualism, paranoid conspiracy theories, and antipathy to Black and brown folks – were finding their way to centre stage.” (195) By the end of Obama’s second term, they took over centre stage with the election of Donald Trump, culminating in the highly theatrical, but foolish and dangerous tilting at windmills during the final days of the deplorable Donald Trump presidency. The insurrection ignored the enormous power of the investigative and security services of the state and left the legislative powers in place after a very destructive interruption. The insurrectionists, posing for the TV cameras and taking selfies to allow their own criminality to be documented, ended up turning protest into a demonstration of impotent mob violence, but also political farce on a most dangerous scale on the largest theatrical stage.

Twelve years earlier, instead of the COVID-19 crisis, in the economic recession and the political fiasco on the federal level – all interconnected – the economic drama was far worse, but at least a peaceful political transition had been underway and one in a thousand Americans were not dying. “With over half of America’s twenty-five financial institutions having either failed, merged, or restructured to avoid bankruptcy during the previous year, what had begun as a crisis on Wall Street had now thoroughly infected the broader economy.” (235) The infection was not a virus but a collapse of faith in the future.

“The stock market had lost 40 percent of its value. There were foreclosure filings on 2.3 million homes. Household wealth had dropped 16 percent…more than five times the percentage loss that occurred in the aftermath of the 1920 market crash. All this on top of an economy that was already suffering from persistently high levels of poverty, a decline in the share of the working-age men who were actually working, a fall in productivity growth and lagging median wages.” (238)

Obama asked, “what would happen when change didn’t come fast enough?” He should have asked what would happen if there was no real change at all, especially in the fundamentals? When he did ask that question, this was his answer. “The thought nags at me. And yet even if it were possible for me to go back in time and get a do over, I can’t say that I would have made different choices.” (305) Why not? Because, as he himself says, he “was a reformer, conservative in temperament if not in vision.”

Why did not a person of such enormous intelligence, charm, sociability, deep concern for the wellbeing of Americans, and highly skilled in both prose and rhetoric, not wrestle with the fractured foundations of the American polity in a far more effective way? Why, whatever the enormous successes on the surface, did the forty-fourth president of the United States fail in dealing with the enormous foreign affairs crises, the international economic crisis, and the climate change crisis in a way that would re-establish America on new stronger foundations rather than lead to a backlash and victory of the Restorationists who wanted America to travel backwards and make America Great Again instead of traveling forwards to make America even greater?

Hence, the even larger irony than the one implied when he quoted his predecessor. “The good news, Barack, is that by the time you take office, we’ll have taken care of the really tough stuff for you. You’ll be able to start with a clean slate.” (207) He not only inherited a filthy slate, he also inherited a dirty rag to rub it clean. This propelled Obama into a course of action that would indeed save the economy, but at far too great a cost to the society and politics of the country.

“When it came to assembling my economic team, I decided to favor experience over fresh talent. The circumstances, I felt demanded it.” (211) My smart-alecky mental thought was to add – “you should have thought more and felt less and recognized that the circumstances did not demand reinforcing the existing system but using the opportunity of the crisis to reset its foundations.”

“I loved the various up-and-comers who’d advised me throughout the campaign and felt a kinship with left-leaning economists and activists who saw the current crisis as the result of a bloated and out-of-control financial system in dire need of reform. But with the world economy in free fall, my number one task wasn’t remaking the economic order. It was preventing further disaster.” (211) In fact, it only postponed further disaster. Caught up in the false dichotomy between corrective surgery and a total transplant, he did not see that much simpler solutions were on offer which would have enhanced the positions of both the poor and the middle class while strengthening the financial system by saving the lives and livelihoods of their customers.

Obama appointed Larry Summers Secretary of the National Economic Council, a surprise since the job required coordination, and diplomacy, not exactly Larry’s forté. An American economist and the Charles W. Eliot University Professor and President Emeritus of Harvard University, he was the former Vice President of Development Economics and Chief Economist of the World Bank (1991–93), became senior U.S. Treasury Department official and eventually Treasury Secretary (1999-2001) under President Clinton and became director of the National Economic Council for President Obama (2009–2010). America was facing a financial crisis.

Larry back in the nineties led an international response to the currency crises in Mexico and Russia, Brazil and Japan. A brilliant, talented and accomplished guy, no? Yes. He was an economic star on both the domestic and international scene. President Obama had once declared, “I will always be grateful that at a time of great peril for our country, a man of Larry’s brilliance, experience and judgment was willing to answer the call and lead our economic team.” But immediately after the announcement, Obama learned that, “Larry had  been a strong advocate of deregulation of financial markets.”

Larry was basically a neo-liberal on the ground level in economics, fusing a microeconomic “laissez faire” approach to macroeconomic activism. “Markets should allocate capital, labour and ideas without interference, but sometimes markets go haywire, and must be counteracted forcefully by government.” In other words, do not interfere unless you have to intervene. While I agree on the ground game, I believe in the government intervening very actively on the grand level as a continuous and tough regulator, the activities of which are not restricted to crises, and as an active investor in human and technical capital rather than as a subsidizing agency. In fact, when Summers was president at Harvard, he used Harvard’s wealth precisely in this way to foster equity. Why did he not do this in 2009 for the American economy? The problem was not just his lack of tact and restraint or his obliviousness to other persons, but his contradictory economic philosophies.

He enunciated this economic philosophy in a speech in 2009. (Cf. The Baseline Scenario https://baselinescenario.com/2009/04/27/larry-summers-new-model/)

1. All crises must end.  The “self-equilibrating” nature of the economy will ultimately prevail, although that may take massive one-off government actions.  Such a crisis happens only “three or four times” per century, so taking on huge amounts of government debt is fine; implicitly, we will grow out of that debt burden.
2. We will get out of the crisis by encouraging exactly the kind of behaviors that “previously we wanted to discourage” two years ago.  It is “this insight, this view” particularly with regard to leverage (overborrowing, to you and me) that “undergirds the policy program in the United States.”
3. There is a critical need to support financial intermediation and to ensure it is adequately capitalized, with a view to the risks inherent in the current situation. 
4. Growth in the 1990s and more recently was based too much on finance. (Hence, Obama’s comment about the over-bloated economy.)  The high and rising share of finance in corporate profits “should have been a warning”.  The next expansion should be based less on asset bubbles and more on investment in key public services.
5. The financial regulatory system “in fundamental respects has been a failure”.  There have been too many serious crises in the past 20 years (this statement was somewhat at odds with the low frequency of major crises statement in point 1).

I call this Crisis Capitalism Economic Theory. Instead of seeing the need to expand credit availability in an expanding universe, the premise is a self-equilibrating universe. Instead of the problem focused on “overpowering,” the expansion of credit should be applauded, but it has to be partnered with regulation so that the expansion does not run amuck. The first and primary focus should not have been on providing support for the financial intermediaries but for the end users which would in turn have reinforced the stability of the financial intermediaries. “Asset bubble” in this case is a reference to too much credit being available to those who should not have it believing it detracts from the amount available in public services. But public services should be regarded as an absolutely necessary capital investment along with intellectual and technological capital which all require a steadily increasing expansion of credit. Sommers basis his work on a steady state instead of an expanding universe. The real issue is to ensure that the expansion is steady and neither explosive on the one hand nor stalled on the other hand.  

Tim Geithner was Obama’s other key economic appointee, his Treasury Secretary and known as “the indispensable one” and opposite to Larry Summers with his poise, and soft-spoken equanimity, but a critical complement who added “quiet confidence and intellectual rigour,” “a basic integrity, a steadiness of temperament and an ability to problem solve” to Larry’s economic leadership. It is clear from Obama’s account that he chose both men based on an economic ideology that he failed to probe, but even more for the personalities of both men.

When Geithner was still President of the Federal Reserve Bank of New York, he helped manage restructure Bear Stearns and the AIG as well as wind up Lehman Brothers, As Treasury Secretary, he oversaw the distribution of $350 billion under TARP, the Troubled Asset Relief Program created by the Bush administration. He helped restructure the regulation of the country’s financial system and reinvigorate the mortgage market as well as rescue the auto industry. However, he totally neglected the small homeowners who lost their homes. The following sums it up: “In his book Bailout: How Washington Abandoned Main Street While Rescuing Wall Street, Neil Barofsky[1] argues that Geithner never had the intention to utilize the Home Affordable Modification Program as intended by Congress. Instead of providing relief for homeowners to avoid foreclosures, it was Geithner’s plan that the bank should proceed with these foreclosures. Geithner said that he ‘estimates’ that the banks ‘can handle ten million foreclosures, over time’, and that HAMP ‘will help foam the runway for them’ by ‘keeping the full flush of foreclosures from hitting the financial system all at the same time.’ As such, ‘banks participating in the program have rejected four million borrowers’ requests for help, or 72 percent of their applications[2], since the process began.’ Citimortgage  and JPMorgan Chase were among the banks that refused the most HAMP claims. As such, the program only helped 887,001 people out of the over 4 Million people that were originally estimated to be able to benefit from the program.” In fact, the estimated number of households affected in the end was about six million and less that 1 in 5 were helped.

Why? Because you get the economic philosophies of those you hire or appoint, especially when you lack even an acquaintance with economic theory.

Next: XI: An Economic Alternative

[1] Barofsky, Neil M. (2012). Bailout: an inside account of how Washington abandoned Main Street while rescuing Wall Street. New York: Free Press. 

2 “Banks reject 72% of applicants under HAMP program,”.The Real Deal Miami. 2015-08-09.

Part IX: The Obama Analysis of the Financial Crisis

As Obama wrote, “nobody – not the public, not Congress, not the press, and (I’d soon discover) not even the experts – really understood just how much worse things were about to get.” (240) Who were his own experts?

Obama was sold on men like Hank Paulson and the economic managers Obama continued or put in his place (e.g. Ben Bernanke, Larry Summers and Tim Geithner) who were cut from the same cloth. They were almost singularly focused on rescuing the banks, insurance companies, and the mortgage holders rather than the homeowners, even when they sympathized with the plight of those homeowners. If they had focused on the latter, it would have been much cheaper to rescue financial institutions and even make significant profits for the government in the process. As it is, when the government bailed out Freddie Mac and Fannie Mae, which between them held or guaranteed 90% of the residential mortgage debt in America, with $200 billion – only $187 was actually used in the end – the government made money on its investment. It could have made a lot more, but most of the increased value of the properties when the market recovered went to speculators. instead of the government and homeowners, if the latter had been induced to hold on.

The longer-term result was both more rapid increases in residential house prices and an expanding distrust in the financial system. As the Nobel-prize winning economist, Michael Spence, noted, “There are many reasons for declining confidence and trust in key institutions, both inside and outside government. Complexity is one of them. (my italics) Over the last several decades, as economies and financial systems have become increasingly interconnected, they have also become increasingly complex. Today, not even the most educated and experienced experts can pretend to comprehend fully these systems’ workings. Amid such complexity – and, indeed, opacity – questions about whose interests are really being represented abound, fueling mistrust and creating fertile ground for misinformation and conspiracy theories.”

In rescuing the economy, the rescuers punished the financial institutions but low-income homeowners much more. If they had recognized that the problem was complexity and ignorance, a key element would have been in place to recognize how both the private owners and the financial institutions could have benefitted by a rescue plan.

Instead, the focus was on the stock market rather than homeowners. For the mortgage financial crisis had sent a tsunami towards Wall Street. On 15 September, Lehman Brothers, a $649 billion company, filed for bankruptcy protection. The government determined it was both too weak to prop up or induce others to buy the company at fire sale prices. Further, the government was busy protecting AIG, the largest mortgage insurance company, with an $85 billion rescue package.

It did not help that everything began falling apart during an election in the Fall of 2008 and political shenanigans helped gum up the works temporarily for a rescue package. Obama in his analysis paid more attention to McCain’s playing games at the time than in understanding why the package might save Wall Street but sacrifice the homeowners who were underwater – that is, who owed more on property than its current worth on the market precisely at a time when it was only possible to sell at fire-sale prices and when the homeowner had been laid off and no longer had the funds to pay his. her or their mortgage. Instead, the focus was on ideological Republicans opposed to government intervention in capital markets. Can you imagine the opposition to a scheme that could be easily labeled socialist?

The alternative scheme that was proposed, and that Hank Paulson deemed unworkable, was a government insurance program against losses to banks. A government capital investment rather than insurance program was neither proposed nor investigated. That would have involved expanding the liquid capital available to the federal government by as much as two trillion dollars, but money that could easily be foreseen as bringing in a very large return on the investment. By 2020, most legislators had overcome their mindblindness to the government finding two trillion dollars in this way. However, in the memoir covering 2008, Obama concentrated on how the financial crisis had benefited him politically – and it certainly did, given the way McCain had responded.

But the solution could have been presented as an investment opportunity rather than a package of subsidies for business and homeowners. Projections could easily have been produced showing how the government as well as the people would have profited. The anti-socialists would have screamed louder than even the neo-liberal crowd, even though the package would have saved many more businesses and kept the little guy in the capital market as a homeowner and the best system for providing for his old age security. The socialist believers in more state-owned rental subsidized housing might have screamed even louder.

In the meanwhile, problems were piling up. “Despite the eventual passage of the Temporary Asset Relief Program (TARP) eventually passed by the Bush administration, with most of the support coming from the Democrats, “the financial system remained paralyzed. The housing market was in a nosedive. The economy was shedding jobs at an accelerating rate, and there was speculation that the Big Three automakers would soon be in jeopardy.” (196) (I will not be writing about the Obama rescue of the auto industry because I believe it was accomplished with aplomb and justifiably motivated by the need to retain tens of thousands of jobs of voters in Michigan, Illinois and Ohio.)

“In 2008, the US experienced the traumatic chaos of a financial downturn, whose effects rippled throughout Europe and Asia. Many economists consider it the worst crisis since the Great Depression…The causes are manifold, but can be found substantially rooted in illogical investments and greedy schemes [my bold and italics]…The banks then created a new idea—linking investors to homeowners through mortgages. Ordinarily, a mortgage broker would connect a house-buying family to a mortgage lender, who would then supply them with a mortgage. In this system, everyone is happy—the mortgage broker earns a handsome commission, the mortgage lender earns a new mortgage, and the family is now a homeowner in a market of increasing housing prices.”

“In the new system, an investment banker buys the mortgage from the lender, borrowing millions of dollars to buy thousands of mortgages, and every month he gets payments from homeowners for each of the mortgages. The banker then consolidates all the mortgages and splits the final product into three sections: safe, okay, and risky mortgages, which make up a collateralized debt obligation (CDO). As homeowners pay their mortgages, money flows into each of the sections, with the safe filling first and the risky filling last, contributing to their respective names. Credit agencies stamp the top two safer mortgages with a triple A or triple B rating, which are then sold to investors who want a safe mortgage, while the risky slice is sold to hedge funds who want a risky investment.”

The basic problem was not moral turpitude but complexity. Briefly put, a PhD student in Waterloo University in Ontario at the end of the twentieth century invented an algorithm for both combining mortgages and slicing them into tranches for investors where a package could have a mixture of risks that balanced out. The effect was to create a new source of capital for the residential housing market. In the early part of this century, Wall Street and the big firms adopted this innovative way of increasing the amount of capital available for the real estate market. The problem is that, because it was an algorithm, that is a set of instructions and computer rules to facilitate this activity, brokers, who were generally computer illiterate, never understood the system. The response was not to increase understanding but to bail out the system in a way that dried up rather than expanded the source of monies to finance residential home building.

By 2006, acute observers had begun to notice that the algorithm was being used just to combine and sell mortgage debt with insufficient and often no appraisal of the underlying value. It did not help that rating agencies, such as Moody’s, employed staff that were equally computer illiterate. Complexity bedazzled the implementors. Complexity also induced them to turn their backs on the system that created more capital and less upward pressure while providing monies for lower income individuals to get into home ownership. This was not a bad thing. This was good. What was bad was the misuse of the system largely as a result of ignorance rather than malfeasance. What was really bad was closing down the system altogether because of that ignorance.

Though moral turpitude was indeed involved, though the normal quest for earnings and profits were clearly at work providing incentives, the major problem was systemic. And once things began to fall apart, no one knew where to go to fix it. Hence Obama’s summary that in complex systems you cannot tell the bad guys from the good guys. But moral assessments were largely irrelevant. The issue was understanding the system and how it could be used to benefit homeowners and the government, and then indirectly save some skin for banks and investors.

Obama proposed what became the American Recovery and Reinvestment Act (ARRA). (244) $800 billion would be “divided into three buckets of roughly equal size. In bucket one, emergency payments like supplementary unemployment insurance and direct aid to states to slow further mass layoffs of teachers, police officers and other public workers. In bucket two, tax cuts targeted at the middle class, as well as various business tax breaks that gave companies a big incentive to invest in new plants or equipment now instead of late.” The third bucket took longer to both design and implement and was designed for long-term impact – not only the usual infrastructure projects, but high-speed rail, solar and wind power, broadband internet services for rural areas and educational reform incentives.

It is quite clear that bucket three could have absolutely no immediate impact on the financial crisis. Rather, the crisis provided an opportunity to include laudable plans for infrastructure investment. In bucket two, Obama argues that, “The Tax cuts had the added benefit of potentially attracting Republican support,” (244) but to get any support, the Democrats even had to extend the cuts to the top 2%. 

There is no question that bucket one was invaluable and required in an emergency like this. But tax cuts? At the time (15 April 2009), Obama had claimed that the tax cuts were targeted at Americans who needed them while also “jump starting growth and job creation in the process.” “Across America, families like the folks who have joined me here today have had tough choices forced upon them,” Obama said. “Many have lost a job or are fighting to keep their business open. Many more are struggling to make payments, to stay in their home, or to pursue a college education. These Americans are the backbone of our economy, the backbone of our middle class… They need a government that is working to create jobs and opportunity for them, rather than simply giving more and more to those at the very top in the false hope that wealth automatically trickles down.”

The cuts eliminated $288 billion not only in taxes but in the annual income to the federal government. Did they also restore confidence and help end the Great Recession? At the time, Obama claimed that his tax cut was the most progressive in modern history” and “will affect some 120 million families and put $120 billion directly into their pockets.” And in their bank accounts. And used to reduce their debt. The other half of the one-third in bucket two went to business incentives.

Though the benefits outweighed the costs, though the tax deductions and incentives appeared to help reduce unemployment, the question remained whether there were alternative uses of the money that would have had an impact that was both greater, more targeted to those who needed it most and with a more immediate affect. Further, the political costs were enormous. As Obama said, in spite of his concessions, not one Republican voted for ARRA. “The next day the Recovery Act passed the House 244 to 188 with precisely zero Republican votes.” (258) Further, it spurred the rise of The Tea Party, the predecessor to Trumpism. Finally, the Democrats lost control of Congress in the 2010 elections.

The Nobel prize winning economist, Paul Krugman, in his usual fashion put it bluntly – too little with the effects too late, and he could have added that those most in need of help did not get a significant enough share. $45 billion went to extend unemployment benefits and increase them by $25 a week. As well, assistance went to various forms of charity – $19.9 billion to the Food Stamp Program, $14.2 billion for supplementary $250 Social Security payments, $3.45 billion for job training, $3.2 billion in supplementary welfare payments plus a smattering of other smaller amounts to worthwhile causes.

However, virtually none had a direct impact on the housing crash at the centre of the economic crisis. Obama would justly argue that it was not intended to do any such thing. After ARRA was passed in February, he turned his attention to the collapsing housing market. By the end of 2008, home prices on average had fallen 20% and, in some areas, by as much as 50%. As Obama put it, “Other than job loss, no aspect of the economic crisis had a more direct impact on ordinary people. With more than three million homes having gone into some stage of foreclosure in 2008, another eight million were now at risk. Over the final three months of the year, home prices fell almost 20 percent, meaning that even families who could manage their payments suddenly found themselves ‘underwater’ – their house worth less than they owed, their primary investment and nest egg now a millstone around their necks.” (269-270) Progressives were pushing mortgage relief by forgiving a portion of the debt and subsidizing mortgage payments. The costs were considered prohibitive.

Instead, two much more modest programs were introduced, “the Home Affordable Modification Program (HAMP) designed to reduce the monthly mortgage payments of eligible homeowners to no more that 31 percent of their income, and the Home Affordable Refinance Program (HARP) which would help borrower refinance their mortgages at lower rates even if their homes were underwater.” (271)  These programs would not help “those who through subprime loans had bought way more home than their income could support.” Nor flippers. Did the programs help those whose homes were “underwater”?

Next: Part X: The Impact of HAMP and HARP

Part VIII: The Mortgage Crisis

The overall picture of the economy over the dozen years from 2007 to 2019 before the latest crash last year is very clear. It has been clear for decades. As Michael Spence, the Nobel-winning economist has written about the current situation, “the results of congressional and state elections were driven by different factors. Among them were most likely fast-rising income and wealth inequality – undoubtedly a major contributor to today’s economic, social, and political polarization – and distrust of elites on both sides.”  

Obama recognized that inequality and that it kept growing. “To this day, I survey reports of America’s escalating inequality, its reduced upward mobility and still-stagnant wages, with all the consequent anger and distortions such trends stir in our democracy, and I wonder whether I should have been bolder in those early months, willing to exact more economic pain in the short term in pursuit of a permanently altered and more just economic order.” (305)

Obama also recognized that the causes were structural (176):

• Shifting jobs overseas to take advantage of lower cost labour
• Automation
• The new digital economy requiring extensive training to use and improve
• Those controlling financial and human capital (those with highly specialized skills) “could leverage their assets, market globally and amass more wealth than any group in human history”
• The compounding effect because of commanding services to improve the human capital of one’s children through accessing the best schools, obtaining tutoring, attending special classes, test preparations, unpaid internships
• The steady diet of tax cuts for the wealthy since the Reagan era (which Obama perpetuated in the need to get Congressional votes as documented in a previous blog in spite of promising the opposite) (177)

But Obama read the economic crisis as fundamentally a moral failure much more than a product of structural distortions. One of the results of the misreading of the crisis – viewing it as a problem of moral turpitude on the part of both residential purchasers, real estate agents, mortgage brokers and financial gurus – was to limit the options available in tackling the crisis. The risky mortgage imbroglio should have been viewed as a very beneficial system of increasing capital available, lowering residential costs and making access to home ownership easier, but one misunderstood and undermined by a combination of complexity, ignorance and an inability to recognize and evaluate assets.

The consequences were politically catastrophic. The Republicans won big in the midterm 2010 elections even as economic inequality continued to grow. To reverse this trend over time, government could employ many instruments, including more progressive income taxes, low-cost delivery of high-quality public services (such as education and health care), a higher minimum wage, and greater wage-setting power for labor.” One omission – greater access for more people at lower cost to home ownership.

If, “A more equitable distribution of income between capital and labor is needed,” if “value creation is heavily skewed toward intangible capital” (algorithms not only for faster and much better information storage and exchanges, but ones that enhance the capital available for the residential real estate market), if this enhancement of intangible capital “is supported by public investment in science and technology, government could retain an equity interest in the value that is created.”

Again, quoting Spence, “Over the last several decades, as economies and financial systems have become increasingly interconnected, they have also become increasingly complex. Today, not even the most educated and experienced experts can pretend to comprehend fully these systems’ workings. Amid such complexity – and, indeed, opacity – questions about whose interests are really being represented abound, fueling mistrust and creating fertile ground for misinformation and conspiracy theories.” In other words, the result is a political crisis that led to the catastrophe of Donald Trump piled on top of a chronic and increasing economic crisis.

Let me examine the economic crisis at a deeper level that looks at increasing income disparities, mortgage debt and defaults, and student debt. (I will not examine credit card debt.)  The first indicator to look at is the percentage of people in America that live in poverty. Poverty status is determined by comparing annual income to a set of poverty thresholds that vary by family size, number of children, and the age of the householder. If a family’s before-tax money income is less than the dollar value of its threshold, then that family and every individual in it is considered to be in poverty. The Annual Poverty Rate (APR) averaged 21.3% between 2005-2009, 27.7 from 2010-2014 following the Great Recession, and 21.1% between 2015 and 2019 just before COVID-19 hit. In 2020, it is estimated that the poverty rate jumped back up to 28% or so. In sum, as far as poverty is concerned, the U.S. no sooner showed signs of progress than it was plummeted back again to a state where over one in four households would live in poverty without government assistance. After each economic cycle, the differentiation seemed to worsen.

When the Supplementary Poverty Measure (SPM) of government programs designed to lift low-income families out of poverty status (social security, refundable tax credits, etc.) are taken into account, we get the net effective poverty rate. In the 5-year period between 2005–2009, it was 13.5%. In the years following the Great Recession from 2010–2014, it rose to 15.6%. For the years from 2015–2019, it fell back to 13.4%. In other words, the differences between the period 20005-2009 and 2015-2019 were statistically insignificant.

What about another economic indicator, this one more applicable to the middle class, namely missed mortgage payments. On 1 August 2020, 32% of Americans carried outstanding mortgage payments, up from 30% in June. Further, the percentage of mortgages considered to be delinquent jumped from 3.8% in July 2019 to 6.6% in July 2020. Mortgages in default (over 90 days) rose to 4.1% on 2020 from 1.3% a year earlier. This relatively low figure given the circumstances was a consequence of the government legal measures to pause payments and legalize delays for up to 180 days. By September, 7.1% had missed mortgage payments. Note that in 2008, the percentage of mortgages that were delinquent over 30 days was over 4%. That had declined steadily until 2019 when it was less than 1%.

Compare this current situation to the 2008-2010 economic crisis. There are three classifications of foreclosure filings: default notices, scheduled foreclosure auctions and bank repossessions (called repos). The figures here cluster all three and do not differentiate between homeowner foreclosures and those against contractors or builders. On 15 January 2009, data showed that a total of 861,664 families lost their homes to foreclosure the previous year according to RealtyTrac, In 2009, the total number of foreclosure filings was 3,957,643, involving 2,824,674 properties. 2010 was an even worse and record year; 2.9 million properties received foreclosure filings — an increase of 2 percent from 2009 and 23 percent from 2008.

This suggests that the COVID-19 crisis compared to the Great Recession has hit the Middle Class with even greater force than the Great Recession, but its effects has been over a much shorter period and, therefore, affected a smaller percentage of the population and of homeowners. It is estimated that at least six million homeowners lost their homes from 2008-2010 affecting about twenty million Americans, or about 1 in 7 Americans who owned their own homes. The catastrophe was massive. The victims of the subprime mortgage crisis of 2008-2010 came largely from the lower middle working class attempting to climb into the middle class via home ownership.

Look at one of two other economic indicators – student loan totals. (I will not deal with credit card debt, a very important, but also very large issue in its own right.) By 2020, American student loan debt by 45 million borrowers, almost 1 in 7 Americans, had reached $1.6 trillion dollars. 3 million borrowers owed more than $100,000 each, 800,000 of them with debt exceeding $200,000. When Barack Obama was first elected to the Senate of the United States, he and Michele, two highly educated professionals, were still burdened with large student debts.

In 1964, the Canadian Universities Foundation in Canada set up a commission headed by Dean Vincent Bladen of the University of Toronto to estimate the financial requirements of Canadian universities and to recommend means of supplying them. One source was increased student fees. Another source was enhanced government grants if the quantity and quality of university graduates were to be increased, an increase that would be absolutely critical to the digital revolution that was then just in its infancy. In 1966, the Education Support Branch of the Department of the Secretary of State was established to coordinate assistance given to universities. Even before the Bladen Commission tabled its report, the Canada Student Loan Program (CSLP) was established.

In 1963-64, I was the Finance Commissioner for the Student Administrative Council (SAC) at the University of Toronto. I had been recruited to represent the graduate students and was elected Finance Commissioner because the SAC wanted to raise student fees from $8 to $12 per student to provide funds for students to engage in social activism. My recruitment was motivated by my social activism in the sixties as well as a seeming acquaintance with large scale financing because of my involvement in expanding student housing. I reviewed the budget and found ways to shift the cost of The Varsity, the student newspaper, to which students contributed $2 of their fees, to enhanced advertising income to make The Varsity a self-sufficient publication.

This was simply an early version of what became the American legislated PAYGO system whereby new expenditures had to be matched by cuts elsewhere. (Of course, this Republican conservative, both policy and principle, was simply set aside when it suited them.) In another application of this conservative economic approach, I also shifted the costs of the Blue and White Society of $2 per student for social activities, that largely seemed to benefit sororities and fraternities, to those who attended such events. As a result, we were able to avoid a student fee increase and shift half of the use of student fees to a budget for social activism.

As a result, I had gained enormous credit from very different ideological political camps so that when I proposed that we go before the Bladen Commission and propose raising student fees 400%, the student council went along and supported the proposal. Who had ever heard of students proposing to raise their own fees? What I had proposed was funding university educational (not research) costs entirely through student fees instead of by direct subsidies to universities. University education was an investment in human capital; higher education was not a consumer commodity. I, thus, also recommended that fees be recognized not as an expense but as a capital investment. Students would be enabled to borrow monies to invest in their own human capital and would repay the monies borrowed. That part of the proposal was eventually adopted far and wide and the proposal was greeted with front page headlines in the Toronto newspapers at the time, if only because of the shock value of students proposing to raise their own fees by 400%. The Bladen Commission also received our proposal with accolades and the statement that it was the most original proposal they had received.

However, they had ignored the second part of the proposal in which the debt incurred was to be repaid based on the return on investment. The higher the subsequent earnings of the student, the more they would repay. After all, if it was a capital investment and not an expense, the investor had to expect a return on the investment beyond the cost of the monies and sufficient to cover those cases where the student’s income fell below a certain level. Thus, if a student chose to become a Christian medical missionary in Africa, effectively his debt would be written off over time while students who went on to become CEOs or hedge fund managers would return much more than 100% over the initial investment.

I point this out to show how conventional Barack Obama’s economic thinking was, and not just about the financial system. He never recognized the huge importance of either human capital investment or the importance of supporting rather than undermining new complex financial instruments rooted in algorithms, the use of which needed to be recognized and regulated rather than perceived as a witch’s brew endangering the whole economy. Further, this failure also led to developments that eventually endangered the political system as well.