Wednesday, June 29, 2016

A Better National To-Do List

What problems can we actually solve?

By Kevin D. Williamson 
The National Review
June 29, 2016

In 2014, Islamic terrorists had a banner year, nearly doubling their annual body count to 32,658, according to the Institute for Economics and Peace. Last year probably wasn’t any less bloody, and this year probably will be just as bad.

But, as always, it is important to keep such numbers in perspective. That horrifying Islamist death toll is about 1/227 the combined global kill count of respiratory cancer, HIV, diarrhea, diabetes, and road injuries, which each account for about 1.5 million deaths a year. We should not downplay the horrors of Islamist terrorism or fail to take measures against it, no more than it would be wise to go swimming where you know there to be sharks, even though you are, statistically speaking, about 300,000 times more likely to die of a mosquito bite. The current hysteria surrounding the Zika virus may be excessive, but the attention paid to mosquito-borne diseases is entirely appropriate.

Not all dangers are equally responsive to public policy and public action, and the line between political acts and public results isn’t always straight or clear. For instance, our states derive tremendous revenues from the sale of tobacco products, and only a tiny share of that (less than 3 percent) is used for purposes such as educating people about the dangers of smoking. But it does seem that the past 40-plus years of anti-smoking propaganda has had some effect: New cases of lung and bronchial cancers have declined steadily for decades. And that is an excellent thing, inasmuch as respiratory cancers are a particularly nasty sort: Almost the same number of Americans are diagnosed with lung and bronchus cancers every year as breast cancer (225,000 vs. 247,000), but while lung cancer lags a little bit in incidence, it far exceeds breast cancer in deaths, 158,000 to 40,000. Fewer than one in five lung-cancer patients will survive for five years or more.

Is there any obvious public-policy takeaway from that? Some people will look at those figures and say: We should do even more to discourage people from smoking. It seems obvious, but it isn’t. Most people who smoke never get lung cancer. Men die of lung cancer more often than women, and blacks more often than whites, with black men having a dramatically higher death rate than white men.

Men in Kentucky get lung cancer at five times the rate of men in Utah. Those numbers parallel the prevalence of smoking. Perhaps the U.S. Department of Health and Human Services should be consulting the Church of Jesus Christ of Latter-day Saints on the question of tobacco use and its prevention.

Smoking prevention gets a lot more attention than does lung-cancer treatment, for a couple of reasons. One is that people get moralistic about lung cancer: It’s one of those diseases, like HIV, that bring a special joy to a certain kind of person, a very common type, who likes to say: “You brought that on yourself.” These are the sort of people who tell people suffering from depression that they should just think of how much worse off the poor kids in China are. There isn’t really very much to say about these people. But on the question of smoking, their puritanism is amplified by the fact that the people who create public policy are in the main people who disapprove of smoking, which they see as a vice characteristic of dirty people without liberal-arts degrees.

And that produces some strange consequences. The American Heart Association has compiled a fair amount of research suggesting that vaping — the inhalation of nicotine vapor produced by an electronic device, which looks a lot like smoking but isn’t — is in fact less destructive to one’s health than is smoking cigarettes, and that it might be a useful tool in smoking cessation. The American Heart Association is practically alone in taking a sober, evidence-driven approach to the question. For the rest of the world, vaping means nicotine (which isn’t the thing in tobacco that kills you) and looks like smoking — it feels like smoking, culturally — and, therefore, it is treated like smoking. The city fathers of New York banned vaping in public spaces simply because it too closely resembles smoking, an act that has produced inevitable litigation. The FDA just issued 499 pages of vaping regulation, which will impose ruinous costs on many vaping-oriented businesses, which does not displease the tobacco barons with whom they compete.

That is something to keep in mind the next time you hear from the so-called party of science, when their favorite “experts” produce policy prescriptions that are only loosely coordinated, if that, with any meaningful evidence.

Politicians tend to pay the most attention to issues that command public fascination. And the public’s attention is most easily commanded when the public is given someone to hate: Try explaining the integration of global supply chains to your average American college student and he will be beyond even Adderall’s reach, but talk about “inequality” — which is to say, give him a rich-guy villain to hate — and he’s rapt. People who make lots of money in finance or as entrepreneurs are “those people.” Smokers and vapers are, for members of the policy-making class, “those people,” the same way that people with HIV or heroin addictions are “those people” for others. The NRA is “those people” for the gun-control gang, even though the people who do most of the shootings in these United States are not very much like the people who belong to the NRA.

It is easy to substitute an enemies list for careful thinking.

One of the most interesting projects of recent years is the Copenhagen Consensus, the Bjørn Lomborg–led project to apply welfare economics to deep-seated global problems, inviting economists and issue scholars to do some rigorous number-crunching and come up with some projects to maximize the bang/buck ratio. The recommendations have been surprisingly unsexy: micronutrient-supplement programs, bigger and better-structured subsidies for malaria prevention (those damned mosquitos, again), immunization, the spread of better agricultural practices, water projects.

Straight-up policy questions, notably barriers to trade, also are on the radar. While foreign aid accounts for only a tiny share of U.S. government spending, in absolute dollars the sums are considerable. It is spent better than you might expect: Thanks in no small part to President George W. Bush, the United States has made large investments in HIV prevention, especially in Africa, which actually seems to do some good. A great deal of money is spent on infrastructure projects and capacity-building for foreign states such as Afghanistan, which, even with the inevitable graft and waste, is probably the right approach.

What’s needed is a similar approach to domestic questions, and to a few foreign-relations questions closer to home. It’s a hard sell when a non-trivial share of the population has adopted “Eek! A Mexican!” as the main principle governing relations with our southern neighbor, but it is inarguable that the United States would be much, much better off if Mexico were a lot more like Canada and a lot less like Venezuela (Mexico is only two steps ahead of the late Boss Hugo’s socialist heap on the GDP/capita rankings) and if it had stronger institutions that were more capable of dealing with things like drug cartels and internal economic refugees. But who is going to help Mexico build that capacity? Guatemala?

In a sane world, U.S. political debate would be less about how rich men live in Greenwich and San Mateo Park and more about how the schools are run in Cleveland and Philadelphia, and we’d acknowledge that Mohammed al-Kaboom isn’t going to kill nearly as many Americans this year — or any year — as diabetes and prescription-drug addiction. We’d acknowledge that what is hurting the U.S. economy is mainly decisions made in Washington (and, Albany, Sacramento, Columbus, Lansing . . . ) and not schemes hatched in Beijing or Mexico City. The headlines would be about mosquitos, not about sharks. This isn’t a call for post-ideological “pragmatism,” which is almost always just 20th-century progressivism dressed up with a few dodgy charts, but rather for a genuine effort at discerning what actually can be done, at what cost, and establishing priorities among those things.

But that would require some hard work, maturity, literacy, tolerance, forbearance, and delayed gratification — and nobody ever made a career in Washington selling that basket of goods.

Article Link to The National Review:

Wednesday, June 29, Morning Global Market Roundup: Asia Stocks Bounce, Bonds Benefit From The Unknown

By Wayne Cole
June 29, 2016

Asian shares were swept up in a global relief rally on Wednesday as the immediate drag from the Brexit vote began to ebb and investors wagered central banks would ultimately ride to the rescue with more stimulus measures.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 1.0 percent to recoup around one-third of Friday's stinging loss. Japan's Nikkei .N225 climbed 1.6 percent, while Australian stocks added 0.8 percent.

In Europe, both the FTSE and DAX were seen starting around 1 percent higher, with the CAC up 1.2 percent. EMINI futures for the S&P 500 ESc1 added 0.2 percent.

Any bounce was welcome, given global equity markets shed $3 trillion in value in the two days following Britain's shock vote, according to S&P Dow Jones Indices. Investors also pointed to solid U.S. economic data as helping to steady the ship.

Yet Britain's course out of the EU remains unknown, leaving the future of the entire bloc and its currency an open question.

"The only certainty in Europe is uncertainty," analysts at ANZ said in a note.

"European leaders appear to want to move forward with Brexit plans as quickly as possible, but political turmoil within Britain suggests a quick turnaround is unlikely," they wrote.

The unease was evident in sterling, which slipped a third of a U.S. cent over the session to huddle at $1.3332 GBP=, not far from the recent 31-year low of $1.3122.

The euro regained only a little ground to $1.1064 EUR=, while the safe-haven yen steadied at 102.33 per dollar JPY=.

For now, investors are counting on central banks to step in with fresh stimulus to support markets over time.

Japanese Prime Minister Shinzo Abe urged the Bank of Japan to provide ample funds to ensure market liquidity.

In the first of Federal Reserve policymakers to comment since the vote, Governor Jerome Powell said it had shifted global risks "to the downside".

That only reinforced market expectations the Fed will no longer be able to hike U.S. rates this year, and could even be forced to cut if the domestic economy falters.

Yielding Less Than Nothing

On Wall Street, the Dow .DJI ended Tuesday up 1.57 percent, while the S&P 500 .SPX gained 1.78 percent and the Nasdaq .IXIC 2.12 percent. Badly beaten financials .SPSY and tech stocks .SPLRCT were among the top gaining sectors.

The calmer mood was reflected in the CBOE Volatility Index .VIX which fell about 21 percent on Tuesday to near where it was before the vote. It was its largest one-day percentage decline since August 2011.

Aiding sentiment was data showing the U.S. economy grew at a 1.1 percent annualized rate in the first quarter, rather than the 0.8 percent pace reported last month.

Yet concerns about the impact of Brexit on global growth, plus all the talk central banks might have to ease anew to offset it, kept sovereign bonds well supported.

Yields on U.S. 10-year notes US10YT=RR held at 1.47 percent, just above a near four-year low of 1.406 percent hit on Friday. Comparable German DE10YT=RR and Japanese bonds JP10YT=RR are into record territory and pay negative yields.

Indeed, all Japanese bonds out to 40 years now offer less than 0.1 percent, a nightmare for pension funds and insurers desperate for a "decent" return.

In commodity markets, gold was firmer XAU= around $1,319.00 an ounce, off a low of $1,305.23 touched Tuesday.

Oil prices gained as a looming strike by Norwegian oil and gas field workers threatened to cut output. There were also reports oil producers and refiners in crisis-struck Venezuela were struggling to keep output up.

U.S. crude oil futures CLc1 were up 27 cents at $48.12, while Brent crude LCOc1 rose 21 cents to $48.79.

Article Link to Reuters:

Asia Stocks Bounce, Bonds Benefit From The Unknown

European Market Update:

European shares rose on Wednesday, with higher oil prices and the chance of more monetary stimulus helping markets in their bid to recover from the hit from Britain's vote to exit the European Union.

The pan-European STOXX 600 index, which had slumped 11 percent over the course of Friday and Monday, rose 1.2 percent, building on a 2.6 percent gain in the previous session.

The FTSEurofirst 300 also stood 1.2 percent higher.

The shares of European oil majors rose as the impact from a potential strike in Norway lifted oil prices.

European stocks were further supported from a drop in sovereign bond yields, with France's 10-year bond yield hitting a new record low amid expectations for further monetary stimulus to offset the negative impact of last week's 'Brexit' vote on the euro zone economy.

Article Link to Reuters:

Oil Prices Rise On Norway Strike Threat; Brexit Shock Fades

By Henning Gloystein
June 29, 2016

Oil rose on Wednesday as financial traders poured money back into commodities following the initial shock of Britain's vote to leave the European Union, and as a potential strike in Norway and crisis in Venezuela threatened to cut supply.

Brent crude futures were trading at $48.95 per barrel at 0948 GMT, up 37 cents from their last settlement. U.S. crude was had climbed 44 cents to $48.29 a barrel.

Both oil benchmarks gained on Tuesday after markets shook off some of the shock from the referendum in Britain in which most voters chose to exit the EU.

"The risk-on tone should see commodities continue to push higher," ANZ Bank said.

"Oil led the (commodities) sector as the shock of the UK voting to leave the EU wore off. Oil gains were solidified by news that the decline in Venezuela's oil output appears to be accelerating, while a strike in Norway also looked like it would impact production," it added.

Standard Chartered said that it expected oil prices to return to $50 per barrel rapidly after the Brexit-related fall as the referendum's impact on demand was limited.

On the supply side, a looming strike by Norwegian oil workers threatened to cut output from the biggest North Sea producer.

In crisis-struck Venezuela, oil producers and refiners were struggling to keep output up due to power outages and equipment shortages, also supporting prices, traders said.

Additionally, the American Petroleum Institute (API) indicated in a report on Tuesday that U.S. crude inventories fell nearly 4 million barrels for the week to June 24, some two-thirds more than the 2.4 million barrels expected by analysts.

The U.S. Energy Information Administration will issue official stockpile data on Wednesday.

Despite the tightening supply-side, there are concerns that a looming refined products glut especially in Asia, which has halved benchmark Singapore production margins since January, might spill back into the crude market as refiners cut output and orders of their main feedstock, crude.

"Refining margins ... have averaged lower than the same period last year, which should be supportive of lower fuels production," said analysts at BMI Research.

Bankers also said that knock-on effects from Britain's EU exit vote would continue to impact oil.

Citi said that Brexit's "uncertainty and volatility ... are both likely to be persistent for a long time to come."

And investment bank Jefferies said: "Brexit ... has brought currency considerations to the fore ... Near-term, a strengthening U.S. dollar makes a barrel of oil more expensive in local emerging market currencies and so likely weighs on demand."

Article Link to Reuters:

Syrian Rebels Battle ISIS At Iraqi Border, Aiming To Cut 'Caliphate' In Two

By Suleiman Al-Khalidi  and Tom Perry
June 29, 2016

Syrian rebels advanced into an Islamic State-held town at the border with Iraq on Wednesday, a rebel commander told Reuters, in a new U.S.-backed offensive aimed at cutting the jihadists' self-declared caliphate in two.

The operation aiming to capture the eastern Syrian town of Al-Bukamal, which began on Tuesday, adds to the pressure facing Islamic State as it faces a separate, U.S.-backed offensive in northern Syria aimed at driving it away from the Turkish border.

The offensive is being waged by rebels of the "New Syria Army" formed some 18 months ago from insurgents driven from eastern Syria at the height of Islamic State's rapid expansion in 2014. Rebel sources say it has been trained with U.S. support.

"The clashes are inside the (town) and matters are not yet settled," said the rebel commander of the Asala wa-al-Tanmiya Front, one of the main elements of the New Syria Army. The rebel forces entered the town at dawn, he said.

The Syrian Observatory for Human Rights said the offensive was being mounted with backing of Western special forces and U.S.-led air strikes.

Islamic State's capture of Al-Bukamal in 2014 effectively erased the border between Syria and Iraq. Losing it would be a huge symbolic and strategic blow to the cross-border "caliphate" led by Abu Bakr al-Baghdadi.

The town is just a few kilometers (miles) from the Iraqi frontier in Deir al-Zor province, nearly all of which is under Islamic State control.

The U.S.-led campaign against Islamic State has gone up a gear this month, with an alliance of militias including the Kurdish YPG launching a major offensive against IS in the city of Manbij in northern Syria. In Iraq, the government this week declared victory over Islamic State in Fallujah.

Rebels Hit By Russians

Syrian rebel sources say the rebel force has received military training in U.S.-run camps in Jordan, but most of their training was now being conducted in a main base at al-Tanf, a Syrian town southwest of Al-Bukamal at the border with Iraq.

The New Syria Army's base in al-Tanf was hit twice earlier this month by Russian air strikes, even after the U.S. military used emergency channels to ask Moscow to stop after the first strike, U.S. officials say.

The rebel commander and the Observatory said the rebels had also captured an air base from Islamic State militants near Al-Bukamal. Heavy clashes were underway, with militants dug in at the Hamadan air base, 5 km (3 miles) northwest of Al-Bukamal.

The rebels also announced the capture of nearby Hamadan village. U.S.-led coalition air strikes had hit militant hideouts in the town, the Observatory said.

Islamic State militants have cut power and communications in Al-Bukamal and dug trenches around the town, rebel sources say.

The rebel force, numbering several hundred, had secured the desert approaches to Al-Bukamal after a rapid advance across sparsely inhabited desert from al Tanf.

A U.S. Defense Department spokesman, Major Adrian J.T. Rankine-Galloway declined on Tuesday to comment on the latest campaign but said Washington was assisting unnamed Syrian rebel groups.

Article Link to Reuters:

‘Never Trump’ Republicans Are Plotting Against Democracy Itself

By Betsy McCaughey
The New York Post
June 29, 2016

The knives are out for Donald Trump, as “Never Trump” Republicans now seek to torpedo his nomination at the Republican National Convention, defying voters who chose him in record numbers.

Pols who backed losing candidate Ted Cruz are mounting a sour-grapes campaign to rig the convention rules.

Meanwhile, in Virginia, a state where Trump came in first in the primary, a lawsuit filed Friday by a local anti-Trump politician claims he and fellow delegates should be free to ignore the will of the voters and follow their own “conscience” when they choose a nominee at the convention.

Be prepared for more whining and skulduggery ahead, as an embittered minority of Republican insiders tries to derail Trump’s unorthodox candidacy.

This unsavory drama will play out between now and the convention’s start on July 18.

The sour-grapes contingent is quietly trying to persuade convention rule-makers to turn the balloting for presidential nominee into a free-for-all, never mind the desire of the voters who actually chose Trump. The plotters hope to dump Trump and slip in another candidate. It could be distant second-place finisher Cruz — who still refuses to endorse Trump — or also-ran John Kasich, not to mention a warmed-over Mitt Romney.

Though unlikely to succeed, these wily efforts to subvert Trump are helping Hillary Clinton. The plotters are sowing disunity and discontent just when Republicans need to capitalize on the electric enthusiasm that draws huge crowds to Trump’s rallies.

The intrigue isn’t confined to stacking the convention rules against Trump. The saboteurs have gone to court to stop him. Carroll Correll Jr., a long-time Virginia party regular chosen to be a delegate, is suing to avoid any obligation to vote for Trump in Cleveland. That’s even though he signed a pledge to abide by the results of his state’s primary.

Serving as a delegate is a juicy perk for party insiders and big donors. It’s not the College of Cardinals choosing a pope. Delegates are customarily rubber stamps for the primary voters.

Correll is trying to weasel out, claiming his “conscience” bars him from voting for a man he says is “unfit to serve as president.” But hold on. Why should Correll’s opinion override the decisions of Virginia voters?

Correll is twisting the First Amendment, claiming it protects his “right” to follow his whim.

Nonsense. If he wants to exercise his conscience, he should just resign as a delegate, stay home and watch Trump accept the nomination on TV. As for Correll’s right to express his own “conscience,” he can yell all he wants at the screen.

Worse than Correll’s lawsuit is the mealy-mouthed “support” for Trump offered by Republican big shots like Senate Majority Leader Mitch McConnell, Wisconsin Gov. Scott Walker and House Speaker Paul Ryan. Don’t they realize their waffling risks handing the presidency to Hillary on a silver platter?

On Sunday, McConnell refused to say whether Donald Trump is “qualified to be president.” The senator quickly conceded that “our primary voters have made their decision as to who they want to be the nominee.”

But he has so little respect for those voters that he’s withholding his own support. That’s precisely the arrogance that drove so many Trump voters to the polls in the first place.

McConnell’s only praise for Trump is that he’s started using a teleprompter. Few Americans think we need another totally scripted politician. Trump’s spontaneous style knocked his 16 GOP competitors out of the race. Americans are fed up with canned speeches and political correctness.

They want real change. The nation’s economy has been slogging along at under 2 percent growth for nearly a decade. It’s depressing our standard of living and destroying our young people’s dreams of success. Hillary will make it worse, with more regulations, higher taxes and a war on fossil fuels.

Trump offers a radical vision for economic resurgence. Don’t let the insiders snatch this chance away from us.

Article Link to the New York Post:

Britain’s Very European Act

Brexit vote is merely continuation of a long trend of voter dissatisfaction with the European Union.

By Brian M. Carney
Politico EU
June 29, 2016

Britain’s vote last week to leave the European Union confirms what many on the Continent have long thought: that the U.K. never really belonged in the club in the first place. The feeling can be mutual; Britons speak of going “to Europe” when they visit the Continent.

But all those Leave voters have a lot more in common with other Europeans than they probably realize.

A little over a decade ago, the French were asked to vote on Europe too — on a proposed EU Constitution in that case. In the run-up to that 2005 vote, a senior EU official told me the exercise was absurd: “They haven’t read the Constitution,” he said, referring to French voters. “If they had read it, they wouldn’t understand it. And if they understood it, they wouldn’t like it. But,” he concluded, “they should vote for it anyway.”

They didn’t. Neither did the Dutch, who also rejected the Constitution. So the EU’s leadership repackaged their Constitution into the Lisbon Treaty — functionally identical, but structurally different enough for governments of every country but Ireland to decide they could avoid another popular vote on the matter.

"In a club of democracies, democratic dissatisfaction can only be suppressed up to a point. Brexit may prove to be that point."

In 2008, the Irish voted down the Lisbon Treaty. They were simply made to vote again. Article 50 of that treaty — imposed over the objections of the voters of at least three countries, and likely more if they’d been given a say — provided the mechanism for Thursday’s Brexit vote.

This referendum, then, was a very European act, consistent with the preferences of voters across the Continent.

In that sense, the U.K.’s Brexit vote is merely the continuation of a long trend of voter dissatisfaction with the European Union. Put another way, the vote was the EU’s longstanding democratic deficit coming home to roost. The real difference between Perfidious Albion and the Continent is that Britain finally gave voters an unambiguous choice. Similar votes in many continental countries might be even more lopsided if they were ever allowed.

Indeed Brussels and other capitals have expressed fear that the British vote may lead to referenda elsewhere, and with similar results. EU citizens love their free movement of people (as it applies to themselves) and access to goods from across the trading bloc. They are less enamored with the EU’s permanent and ever-expanding bureaucracy, and its sometimes open contempt for democracy — as when Jean-Claude Juncker told Greece “there can be no democratic choice against the European Union treaties,” or Germany’s Wolfgang Schäuble said, about the birthplace of democracy, “Elections change nothing.”

"In the long run, a more democratic and more accountable EU would also be a more stable and inclusive one."

In a club of democracies, democratic dissatisfaction can only be suppressed up to a point. Brexit may prove to be that point.

Britain’s vote is an opportunity for introspection in Brussels. In the long run, a more democratic and more accountable EU would also be a more stable and inclusive one.

If democracy is the worst form of government except all the others, it’s because the natural ebb and flow of political power gives large swathes of society a sense that they have a say, that they are not the vassals of a permanent power structure. Theorists can debate endlessly to what extent this reflects reality or, rather, an illusion. But even if it’s illusion, it’s a powerful one — and useful for political stability.

Brexit is a teachable moment for Brussels. A populace that doesn’t understand, and wouldn’t like, what Europe does is one that sooner or later will revolt. The way to avoid a repeat is not to punish Britons for their insolence, but to correct what fed the Brexit movement in the first place— the democratic deficit, the arrogance and the lack of transparency. Otherwise, Brexit won’t be the last time the people of a European nation vote to take their country back.

Article Link to Politico EU:

Britain’s Very European Act

Oil Is Still Heading To $10 A Barrel

By Gary A. Shilling
The Bloomberg View
June 29, 2016

Back in February 2015, the price of West Texas Intermediate stood at about $52 per barrel, half of its 2014 peak. I argued then that a renewed decline was coming that could drive it below $20, a scenario regarded by oil bulls as unthinkable. But prices did fall further, dropping all the way to a low of $26 in February. Since then, crude rallied to spend several weeks flirting with $50 per barrel, a level not seen since last year. But it won't last; I’m sticking to my call for prices to decline anew to $10 to $20 per barrel.

Recent gains have little to do with the fundamentals that led to the collapse in the first place.Wildfires in the oil-sands region in Canada, output cuts in Nigeria and Venezuela due to political unrest, and hopes that American hydraulic fracturing would run out of steam are the primary causes of the recent spurt.

But the world continues to be awash in crude, and American frackers have replaced the Organization of Petroleum Exporting Countries as the world’s swing producers. The once-feared oil cartel is, to my mind, pretty much finished as an effective price enforcer. Even OPEC’s leader, Saudi Arabia, is acknowledging the new reality by quashing recent attempts to freeze output, borrowing from banks and preparing to sell a stake in its Aramco oil company as it tries to find new sources of non-oil revenue.

The Saudis and their Persian Gulf allies continue to play a desperate game of chicken with other major oil producers. Cartels exist to keep prices above equilibrium, which encourages cheating as cartel members exceed their allotted output and other producers take advantage of inflated prices. So the role of the cartel leader, in this case Saudi Arabia, is to cut its own output, neutralizing the cheaters to keep prices up. But the Saudis suffered market-share losses from their previous production cuts. OPEC has effectively abandoned restraints, with total output soaring to as high as 33 million barrels per day at the end of last year:

Iran, freed of Western sanctions, plans to double output to 6 million barrels a day by 2020, which would make it the second-largest OPEC producer behind Saudi Arabia. Russia continues pumping to support its economy after the collapse in oil prices devastated government revenue and export earnings. War-torn Libya is also ramping up production as best it can.

The International Energy Agency predicts that even with a successful OPEC production freeze, if U.S. frackers cut production by 600,000 barrels a day this year and a further 200,000 barrels per day in 2017, excess supply would run at 1.5 million barrels a day until 2017. That’s a continuation of the recent oversupply of 1 to 2 million barrels a day.

The price at which major producers chicken out and slash production isn’t determined by the prices needed to balance the budgets of oil producing nations, which are as high as $208 per barrel in Libya and as low as $52 per barrel in Kuwait. Nor is it the "full cycle" or average cost of production that includes drilling costs, overheads, pipelines, etc.

In a price war, the chicken-out point is the price that equals the marginal cost of producing oil from an established well. Once fracking operations are set up and staffed, leases paid for, drilling underway and pipelines laid, the marginal cost of shale oil for efficient producers in the Permian Basin in Texas is about $10 to $20 per barrel and even lower in the Persian Gulf.

Furthermore, fracking costs continue to fall as productivity improves. The number of drilling rigs operating in the U.S. continues to drop. But the rigs taken offline are mostly old vertical drillers that drill only one hole per platform, while horizontal rigs -- able to drill 20 to 30 wells per platform like the spokes of a wheel -- increasingly dominate. So output per working rig is accelerating.

At the same time, global economic growth, and therefore demand for oil, is weak. China, that giant consumer of oil and other commodities, is shifting to services from manufacturing and infrastructure spending. Energy conservation measures in the West are curbing oil demand. And technological advances in fracking, horizontal drilling, deep-water and Arctic drilling will boost non-OPEC supplies to as high as 58.6 million barrels per day this year from 58.1 million in 2015.

And don’t forget the crucial influence of inventories on prices. After all, with global output exceeding demand, the extra crude goes into storage. And when the storage facilities are full, the surplus will be dumped on the market to the detriment of prices. Cushing, Oklahoma, the delivery point for determining the price of West Texas Intermediate, is nearing full storage capacity; the same is true for the Amsterdam-Rotterdam-Antwerp region, the oil gateway to Europe. China is running out of capacity for commercial and strategic reserves. Globally, crude oil inventories have jumped to record levels, with a leap of 370 million barrels since January 2014.

Surplus oil is also being stored on ships, even though so-called floating storage costs $1.13 per barrel per month compared with 40 cents in Cushing and 25 cents per month in underground salt caverns, like those used for the U.S. Strategic Petroleum Reserve. Furthermore, as low oil prices have made shipping by train unprofitable, rail tank cars are being utilized, with so-called rolling storage costing about 50 cents per barrel per month.

So what will trigger renewed price declines? Excess production will end up being dumped onto the market. Pressure from lenders on financially-weak energy borrowers will force them to produce as much oil and gas as possible to service their debts. The likely continuing rise of the safe-haven dollar against the currencies of developing economies will hype the cost of imported oil -- universally priced in the U.S. currency -- further curbing demand. Finally, the likely slowing of global economic growth and oil demand in reaction to the U.K. decision to leave the European Union reinforces my pessimism.

An oil price drop to below $20 per barrel would be a shock reminiscent of the dotcom collapse in the late 1990s and the subprime mortgage debacle that produced the 2008 financial crisis -- both of which triggered recessions. Of course, oil prices would not stay in the $10 to $20 barrel range indefinitely; recession would squeeze out excess energy production and prices would recover, likely to the average cost of new production. But the deflation that might accompany a worldwide economic downturn might mean the new equilibrium price for oil is between $40 and $50 a barrel -- well below the $82 average in the first half of this decade, and lower than the assumptions in the business plans of energy producers.

Article Link to The Bloomberg View:

Oil Is Still Heading To $10 A Barrel

Istanbul Airport Attack Was Highly Sophisticated

The assault on Istanbul’s airport showed Special Forces-level sophistication—ominous news for security agencies in Europe and the U.S.

By Clive Irving
The Daily Beast
June 29, 2016

Three months after attacking Brussels airport, terrorists have shown in the attack on Istanbul’s international airport an alarming ability to stay one move ahead of the defenses put in place to stop them—an agility in planning that could present a new and serious threat to airports in the U.S.

Most experts agree that the Istanbul atrocity has the hallmarks of ISIS. Even then, the sophistication of how the attack was carried out has surprised them.

It was carried out in a way that suggests the kind of advance intelligence, careful study of a target and cool execution that would normally be practised by western special forces.

There were three phases. It began with an attack in a car park adjacent to the international arrivals terminal. The purpose was to draw security staff away from the terminal.

The attackers obviously knew that security at the terminal itself had recently been hardened, as a response to the Brussels attack, where the bombers had exploited the fact that, as in many airports, there was no security threshold before the check-in desks.

In Istanbul anyone entering the arrivals terminal faced screening and checks at the doors. The car park diversion achieved its aim of drawing police and security staff from the building’s first line of defense—and left vulnerable scores of people at the taxi and drop-off area waiting to go through security.

This was where the second attack was carried out, causing heavy casualties. The blast effect of this attack breached the doors and security cordon, allowing a third attacker to get inside the building. As seen in a chilling video from a security camera this attacker, wearing a suicide belt, was tackled by a guard who forced him to the floor. From the video it seems that the guard died while trying to prevent the attacker from detonating the suicide belt—an act of supreme bravery.

Even though the Turks moved the security perimeter outward to reinforce what is called landside defenses (as opposed to airside, where the gates and airplanes are) the body advising European airports, Airports Council International (ACI) Europe was amazingly complacent after the Brussels attack.

They said, “The possible adoption of additional security measures such as checks on persons and goods entering airport landside spaces could be disruptive and actually create new security vulnerabilities.” They added that it would amount to “moving the target” rather than securing it. They also said—revealing their deepest concern—that such changes would cost money.

In Europe (excepting Germany) the airport authorities have to fund their own security. In the U.S., of course, the Transport Security Administration, TSA, is responsible for all airport security as part of Homeland Security.

And it is here, in the U.S., where there must be renewed concerns about the vulnerability of the arrivals and departure areas of airports. Although there are invisible protections like closely monitored surveillance cameras and some random visible protections like armed security guards and sniffer dogs the first line of defense remains beyond the check-in counters, not ahead of them.

Airside security at U.S. airports has also been found wanting. For years there have been worrying breaches including a notorious case where guns were smuggled from Atlanta to New York by a criminal ring and where the screening of personnel with access to baggage and airplanes has been found to be lax.

And hardening the perimeter on the landside raises the question of how far outward it can go. If attackers are to be intercepted successfully before reaching the terminal buildings that means new checkpoints and screening on access roads that would, in turn, create the kind of bottlenecks that make tempting targets.

It may always be true that once terrorists get to an airport it is already too late to stop an attack, even if it can be disrupted. The most effective last line of defense is intelligence that identifies and thwarts an attack before it can be executed.

Commercial aviation remains the most effective target for ISIS. This year it seems that their attention has turned more and more to attacking airports as an easier option than airplanes. This produces huge short-term results in publicity and terror and serious long-term economic damage to tourism and to freedom of movement. Istanbul shows that whatever the defeats of ISIS on the battlefield in Iraq and Syria it remains devoted to finding soft targets in the west wherever they are detected.

Article Link to The Daily Beast:

Trump’s ‘Improved’ Muslim Ban Still Won’t Stop Terrorists

Trump’s proposed ban would do little to stop Islamic terror in the States—because the biggest threat is from homegrown converts or extremists.

By Michael Weiss
The Daily Beast
June 29, 2016

If Donald Trump believes that banning immigrants from countries with a history of terrorism will improve U.S. national security, then he faces a tough sell with the Federal Bureau of Investigation.

Stephen Miller, Trump’s policy director, told the Wall Street Journal on Monday that the presumptive GOP nominee believes that the “best way to prevent continued radicalization from developing inside America is to suspend temporarily immigration from regions that have been a major source for terrorists and their supporters coming to the U.S.”

Delivered a fortnight after the Orlando nightclub massacre — perpetrated by New York-born closet case and/or ISIS-inspired extremist Omar Mateen—this was meant to contextualize Trump’s earlier comment, made last December after the terror atrocity in San Bernardino, that as president he would implement “a total and complete shutdown of Muslims entering the U.S. until our country’s representatives can figure out what the hell is going on.” It’s a policy prescription his surrogates in the press, notably campaign spokeswoman Katrina Pierson, insisted he never made.

Leaving aside the fact that Miller’s elaborated definition of an immigration moratorium would, in theory, affect all citizens from Ireland, France, Germany, Spain and a host of other countries with a history of non-Islamic terrorism—not to mention also snare those Western countries that have for decades suffered from Islamist radicalization problems of their own—what, exactly, would such a controversial policy do for mitigating the ISIS menace to the American homeland?

Not much, as it turns out.

Three FBI agents specializing in counterterrorism, speaking on background to The Daily Beast, all shook their heads “no” when asked if a temporary immigration band would make their jobs any easier. Most of the credible ISIS cases the bureau has investigated, or the plots it’s been able to disrupt, have come from American-born suspects, one special agent told me.

A study of aspirational or successful ISIS attacks in the West between 2014 and 2015, most of them in the United States, certainly bears out this assessment.

Terrorism specialist Robin Simcox, formerly at the London-based Henry Jackson Society (where I also used to work) and now at the Washington, D.C.-based Heritage Foundation,counted a dozen ISIS plots in the United States between 2014 and 2015 (albeit before San Bernardino), some of them involving multiple suspects and all of them “inspired” by the jihadist organization rather than directly coordinated by it.

In only one instance, Simcox found, was a suspected terrorist not born in America, and in that instance she was longtime a U.S. citizen. Many of the alleged terrorists weren’t even born Muslim, much less did they have Arab or Middle Eastern ancestry. Rather, they were white converts to Islam.

Zale Thompson, for instance, a 32 year-old American convert, attacked four NYPD officers with a hatchet, injuring two, in October 2014 before he was shot and killed. He had a history of criminality allegedly connected to domestic disputes and had been dishonorably discharged from the U.S. Navy in 2003. As best authorities can tell, all he ever knew of jihad came from the Internet; he’d never gone to Syria or Iraq, nor had he ever expressed a desire to do so.

In January 2015, Christopher Lee Cornell, another American-born convert from Cincinnati, had no prior scrapes with the law but was arrested on suspicion of plotting to blow up the Capitol Building in Washington, D.C. and shoot people inside. He was only caught because his would be co-conspirator, whom he met via Twitter, turned out to be an FBI informant.

In March 2015, two cousins, Hasan and Jonas Edmonds, were nabbed while attempting to send the former from Chicago to Egypt, where he’d then smuggle himself into Syria. Their contact was an undercover FBI agent masquerading as an ISIS fixer. Unlike most suspects in Simcox’s database, Hasan Edmonds did indeed have combat training: he was a Specialist in the Illinois Army National Guard, and Jonas was apparently going to attack the facility at which he trained, using his cousin’s military uniform. Jonas was also an ex-con; he served five years for armed robbery in Atlanta.

In April 2015, former roommates Asia Siddiqui and Noelle Velentzas were arrested in Queens for plotting to convert propane gas tanks into bombs, following the instructions of The Anarchist Cookbook, al-Qaeda’s Inspire magazine and YouTube. Velentzas was from Florida and of Greek and Puerto Rican descent; she was also homeless and may have begun her flirtation with Islam while sheltered at the Islamic Circle of North America. Siddiqui, however, was born in Saudi Arabia but was a longtime U.S. citizen.

Tennessee-born John T. Booker, another convert, enlisted in the U.S. Army in February 2014. A month later, he started posting scary messages to Facebook indicating his desire to be “to be killed in jihad.” He was interviewed by the FBI and confessed that he joined the army to wage holy war against the United States. He lost his military clearance but there wasn’t enough evidence to indict him with any crime; instead, federal informants later approached him and he expressed an interest in blowing up Fort Riley in Kansas. He rented a storage locker and kept bomb-making supplies there. He was arrested on April 10, 2015. He’d wanted to travel to Syria and Iraq but never got that far.

How about the guys who tried to shoot up that Mohammed cartoon event in Garland, Texas in May 2015 but were killed by police not long after getting their first rounds off?

Thirty year-old Elton Simpson was born in Illinois; 34 year-old Nadir Soofi was born in Garland. They were at one point roommates in Phoenix, Arizona. Simpson, who had been under FBI surveillance for almost a decade owing to his ties to another famously pledged loyalty to ISIS “caliph” Abu Bakr al-Baghdadi using Trump’s favorite medium Twitter, under the hashtag “texasattack”.

Usaamah Rahim, his nephew David Wright and Nicholas Rovinski, whom Wright met on Facebook, all conspired to behead anti-Islam activist Pamela Geller. Rahim, who was shot by police he’d allegedly approached wielding in a knife in Roslindale, Massachusetts on June 2, 2015, was originally from Brookline. Rovinski grew up in Rhode Island.

Munther Omar Saleh and Fareed Mumuni, both American-born New Yorkers, were arrested in June 2015, along with a third unnamed coconspirator, for trying to build a pressure cooker bomb. All three tried to stab their surveilling or arresting officer or FBI agent with knives. Saleh was enrolled in the Vaughn College of Aeronautics and Technology, in Queens. Mumuni was studying to be a social worker at the College of Staten Island.

That same month, Justin Nojan Sullivan, from Morganton, North Carolina, had lots of ambitious schemes, including conducting “minor assassinations” before waging a “big attack.” He was contacted by an undercover FBI agent who offered to send him a homemade silencer for the assault rifle Sullivan intended to buy at a gun show, which weapon he intended to use to shoot up a bar or concert. When the silencer arrived in the mail, Sullivan was collared.

Sheffield Lake, Ohio resident Amir Said Abdul Rahman al-Ghazi converted to Islam in prison, where he did time for drug-related offenses. He claimed to have been inspired by the Boston Marathon bombers and purchased an AK-47 from an undercover FBI agent.

Alexander Ciccolo, the mentally unbalanced son of a Boston police captain, was also inspired by the marathon attackers, so much so that he intended to detonate pressure cooker bombs at local colleges. When he was arrested in July 2015, he’d kept Molotov cocktails and knives at his apartment.

Finally, 23 year-old Harlem Suarez told an FBI informant that he was going to bury a bomb in the sands of Key West and kill beachgoers. The bomb he received was a dud constructed by the FBI. He was arrested in July 2015.

True, the San Bernardino attack was perpetrated in part by the Pakistani-born Tashfeen Malik, but she came to California on an H1-B visa, pegged to her marriage to her Chicago-born husband and co-assailant Syed Rizwan Farook. Moreover, Enrique Marquez, Jr., the man accused of supplying the rifles used by the Bonnie-and-Clyde of American jihad to shoot up 14 people at the Inland Regional Center on December 2, 2015, was also a natural-born citizen of the United States. He is thought to have been introduced to radical Islam by his fellow American and former neighbor, Farook.

Article Link to The Daily Beast:

Benghazi Lies Were Just Standard Procedure Under Obama

By John Podhoretz
The New York Post
June 29, 2016

The Benghazi report released Tuesday makes clear that one dreadful constant of President Obama’s foreign policy is simply this: Deflect. Muddy the picture. Question the motivation.

Blame the wrong culprit when naming the right culprit might interfere with your narrative, or if doing so might oblige you to act when you do not wish to act.

In an addendum to the report, Reps. Jim Jordan and Mike Pompeo detail the fact that the administration knew perfectly well in the immediate aftermath of the attack on the American consulate in Benghazi that it had been planned and directed by Islamist radicals as an evil commemoration of 9/11.

For example, at 11:23 p.m. on the night of the attack, Hillary Clinton e-mailed her daughter Chelsea to say, “Two of our officers were killed in Benghazi by an Al Quedalike [sic] group”.

The next morning, she said, “We are working to determine the precise motivations and methods of those who carried out this assault.”

Sound familiar? Of course it does. After the attacks in San Bernardino and Orlando by home-grown terrorists, administration officials made a point of refusing to name the enemy publicly — in this case, ISIS, which had not yet come into existence at the time of Benghazi.

On the day following Orlando, the president himself said we had yet to discern “the precise motivations of the killer,” even though everyone knew by that point he had called 911 to swear his allegiance to ISIS while he was killing people.

Two weeks after the Orlando shooting — two weeks — Attorney General Loretta Lynch said, “I cannot tell you definitively that we will ever narrow it down to one motivation. We will look at all motivations.”

With Benghazi, as with Orlando, the reason for these evasions is to make mystery and ambiguity a part of the narrative in order to buy the White House and the administration time and space — the time to control the story and the space to impress upon its supporters the impracticality and uselessness of responding to these acts of war.

That’s why the first administration statement on the Benghazi attacks, made by Hillary Clinton, specifically made reference to the anti-Islamic video “Innocence of Muslims,” which had just created an international scandal — but did not make reference to the Islamic terrorists who perpetrated it. It came only an hour before Hillary e-mailed Chelsea and assigned blame to al Qaeda elements.

At this point, a familiar face pops up in Section 2 of the Benghazi report, which lays out the administration’s actions in the wake of the attack.

Yes, it’s none other than our buddy Ben Rhodes, the man who bragged to The New York Times Magazine about manipulating the press to adopt the administration’s line on the Iran deal.

The report makes clear he was helping to design the administration’s response as he began the work of setting up the echo chamber in which the media would provide Obama exactly the time and space he wanted and needed.

Rhodes did something odd in his testimony before the Benghazi committee. He claimed that the sentence about the anti-Islam video in the “Statement on the Attack on Benghazi” wasn’t really about Benghazi but was about “the region.”

“It’s not intended to assign responsibility for what happened in Benghazi,” Rhodes testified. “It’s meant to describe the context of what happened, what’s happening in the region.” There had been protests in Cairo centering on the video that same day.

His questioner responds incredulously: “So everything in this document is about Libya and Benghazi except you’re saying this sentence doesn’t apply to Libya and Benghazi?”

Rhodes responds with gobbledygook about protecting Americans elsewhere. His strange claim here is telling, because it makes clear the administration seemed to want above all to mention the video in its first words on the attack to direct attention away from it or to include it in a larger list of troubles stemming from a reaction to “Innocence of Muslims.”

All these misdirections and prevarications have taken their toll.

An unambiguous response to a terrorist attack on an American facility in 2012 would have prevented the creation of the Benghazi committee in the first place.

Due to the Benghazi committee’s efforts to secure the facts of the case, the world came to learn about Hillary Clinton’s mishandling of public e-mail — an irresponsible and reckless act that more than anything else jeopardizes her presidential ambitions.

But when it comes to radical Islam and the Obama administration, the truth is always the first casualty. Hillary is hoping her presidential bid isn’t its last.

Article Link to The New York Post:

Who’s The Xenophobe Now?

The anti-Trump and anti-Brexit forces share a snobbery toward ordinary voters.

By William McGurn
The Wall Street Journal
June 29, 2016

Post-Brexit, the blind are leading the bigoted.

The blind are the legions of politicos, celebrities, pollsters and opinion leaders certain Britain would vote to remain inside the European Union. Notwithstanding their utter shock that the results went the other way, they are now equally certain they know the reason: The bigoted British people.

On air, in print and across social media, the Remain camp continues to slur all who disagree. It seems not to have occurred to them that their preference for slander over argument may have backfired.

Nor do any seem to have access to a thesaurus. Not only do they all offer the same tired explanation, they all invoke the same word: xenophobia.

At such moments it’s always illuminating to step back and take in the reaction of the New York Times. It does not disappoint. A search of “Brexit” and “xenophobia” on the Times online turns up nearly a dozen stories since the vote.

In fairness, the Times is hardly an outlier here and is not even among the most ridiculous. The Independent didn’t even wait for the vote. The day before it carried a headline declaring that “Xenophobia is the new normal.”

Over at CNN, meanwhile, Christiane Amanpour reported as the voting took place that “a lot of the Leave movements are led by the hard-right, very, very xenophobic, anti-immigrant, very populist, nationalist, white identity politics.”

On Monday, the Guardian offered up a twofer pegged to a vow from soon-to-be-ex-Prime Minister David Cameron vowing he will not tolerate intolerance. “Cameron condemns post-Brexit xenophobic and racist abuse” ran the headline, over a story that later quoted the Muslim mayor of London as saying it’s crucial not to “demonise” those who voted for Brexit as “xenophobic or racist.”

Perhaps in recognition of the contradiction, a later version deleted the mayor’s call not to demonize the anti-Brexit voters or call them xenophobic.

Finally, in the sign that the word has probably lost its punch, Joe Biden reached for it in a speech in Ireland on Friday in which the vice president reproached “reactionary politicians and demagogues peddling xenophobia, nationalism, and isolationism.” It’s “un-American,” Mr. Biden said, meaning xenophobia rather than the British vote, which of course by definition would be un-American.

It’s a fascinating exercise, and it continues unabated. As this column is being written it appears that every newsman in Britain has been assigned to go out and record every anti-Muslim insult, every call for some foreigner to go back whence he came, every hate crime in which, for example, a customer in a restaurant demands he be served by a British waiter instead of a European one.

But xenophobia works both ways. Without gainsaying that some pro-Brexit voters may have been motivated by an ugly jingoism, what does it say about the tolerant class that so much of its argument is based on the proposition that most British voters are unregenerate troglodytes who had no legitimate reason to vote as they did?

Xenophobia, of course, comes from the Greek for “stranger” and “fear.” The idea here is that the British—in particular, the older, more rural and working-class voters—rejected an enlightened arrangement with Europe because they are either too stupid or too blinded by their own ignorance and prejudice to understand how good a deal this is for them.

A question: How does this view of the majority of the British people—as a form of alien life with disgusting beliefs unfit for polite society—differ in substance from the view a bigoted British bricklayer might have toward the immigrants living in his midst?

Another question: How different is this portrait of the British as xenophobes from the picture of working-class Pennsylvanians presented by Barack Obama back when he was first running for president?

Speaking to his wealthy California patrons at a fundraiser in uber-chic Marin County, the president in 2008 characterized them as folks who “get bitter, they cling to guns or religion or antipathy to people who aren’t like them.” What could be more xenophobic?

Right now, most of the reporting on the American parallels to Brexit has focused on Donald Trump. It’s a fair comparison, especially given how the presumptive Republican nominee’s calls to rewrite U.S. trade agreements, reassess U.S. foreign alliances and revise U.S. immigration policies echo some of the arguments advanced by the anti-EU side in Britain.

But it’s not the only Trump parallel. Another is the undisguised snobbery toward ordinary voters the anti-Brexit and anti-Trump sides have in common. In Britain at least, the people appear to have picked up on it, and this helped push Brexit over the top. Maybe there’s a warning there for the anti-Trump crowd about the price of condescension in a society where the people are still sovereign.

Article Link to the Wall Street Journal:

Out of the Brexit Turmoil: Opportunity

Europe should not treat Britain as a prison escapee but as a potential compatriot. And the U.S. has a vital role to play.

By Henry A. Kissinger
The Wall Street Journal
June 29, 2016

The cascade of commentary on Britain’s decision to leave institutional Europe has described the epochal event primarily in the vocabulary of calamity. However, the coin of the realm for statesmen is not anguish or recrimination; it should be to transform setback into opportunity.

The impact of the British vote is so profound because the emotions it reflects are not confined to Britain or even Europe. The popular reaction to European Union institutions (as reflected in public-opinion polls) is comparable in most major countries, especially France and Spain. The multilateral approach based on open borders for trade and the movement of peoples is increasingly being challenged, and now an act of direct democracy intended to reaffirm the status quo has rendered a damning verdict. However challenging this expression of popular sentiment, ignoring the concerns it manifests is a path to greater disillusionment.

Brexit is a classic illustration of the law of unintended consequences. The British government sought a Remain vote to end, once and for all, domestic disputes about Europe in a minority of the Conservative Party and among fringe populist groups. Many backers of the Leave campaign were surprised by their success, having understood their political mission initially in much less sweeping terms.

All these elements have been overwhelmed because the European vision elaborated over decades has been developing a sclerotic character. Internal debates of Europe have increasingly concentrated on structural contradictions. In the process, the vision that motivates sacrifice is weakening.

The founders of European unity understood the ultimate scope of their project. It was, on one level, a rejection of the worst consequences of European divisions, especially the traumatic wars that had killed tens of millions of Europeans in the 20th century alone. But it was also an affirmation of the values by which Europe had become great.

The Europe of the founders’ youth had thrived by the elaboration of the nation-state, which on one hand competed for pre-eminence, but at the same time evolved a common culture. Its principles of democracy and constitutionalism were spread around the world, even while respect for the dignity of the individual had been violated under colonialism. The European vision sought to maintain the dynamism reflected in Europe’s historical achievements while tempering the competition which had, by 1945, nearly led to their destruction.

Too much of the Europe of today is absorbed in management of structural problems rather than the elaboration of its purposes. From globalization to migration, the willingness to sacrifice is weakening. But a better future cannot be reached without some sacrifice of the present. A society reluctant to accept this verity stagnates and, over the decades, consumes its substance.

Inevitably a gap arises between the institutions and their responsibilities, which accounts for increasing populist pressures. The deepest challenge to the EU is not its management but its ultimate goals. In a world in which upheavals based on conflicting values span the continents, a common act of imagination by Europe and its Atlantic partners is badly needed.

Instead, European leadership is now faced with an unexpected challenge. Under the terms of its charter, the EU is obliged to negotiate with a principal member over the terms of withdrawal. Britain will want to maintain extensive ties with Europe while lifting or easing the constraints of its many legislative and bureaucratic requirements. The EU leadership has almost the opposite incentive. It will not wish to reward Britain’s Leave majority by granting Britain better terms than it enjoyed as a full member. Hence a punitive element is likely to be inherent in the EU bargaining position.

Many of us who have grown up with and admired the vision of European unity hope that the EU will transcend itself, by seeking its vocation not in penalizing the recalcitrant but by negotiating in a manner that restores the prospects of unity. The EU should not treat Britain as an escapee from prison but as a potential compatriot.

Punishing the U.K. will not solve the question of how to operate a common currency in the absence of a common fiscal policy among countries with disparate economic capacities, or of how to define a union whose ability to achieve common political strategies lags fundamentally behind its economic and administrative capacities.

By the same token, Britain needs to put forward the concept of autonomy for which its people voted in a manner that embraces ultimate cooperation. Britain and Europe together must consider how they might return, at least partially, to their historical role as shapers of international order.

In recent decades, Europe has retreated to the conduct of soft power. But besieged as it is on almost all frontiers by upheavals and migration, Europe, including Britain, can avoid turning into a victim of circumstance only by assuming a more active role. These vistas cannot yet be discussed at a geopolitical level, but the EU’s leaders should be able to form discrete and discreet panels for exploring them. In this manner, the Leave vote can serve as a catharsis.

The United States has encouraged the European Union from its beginning but has had difficulty adjusting to the achievement that followed. When the EU idea was first put forward by Jean Monnet at the end of World War II and advanced by the Marshall Plan, the U.S. was the indispensable contributor for international security and economic progress. Given the recovery of contemporary Europe, the American role needs to be redefined to a new kind of leadership, moving from dominance to persuasion.

The manner in which the U.S. administration and other advocates of Remain sought to influence the Brexit vote illustrates the point. The threat that without the support of Europe, a solitary Britain would move to the end of the line in negotiations with Washington reversed the historical sequence of that relationship. The “special relationship” is founded in the origins of America, in a common language and in a comparable system of political values reinforced by fighting together in common wars. The idea of the special relationship was enunciated by Winston Churchill not as a refutation of a multilateral world, but as the guarantor of its values in the hard times sure to follow World War II.

That special relationship is needed for the Atlantic world to traverse the present crisis. A disintegrating Europe could subside into an impotent passivity that will shrivel the entire Atlantic partnership, which represents one of the greatest achievements of the past century. Britain, in whatever mutually respectful legal status it arranges with Europe, is an essential element in this design. Its history and emotion are Atlantic; its current necessity requires as well a link to Europe. Today’s established international order was founded upon conceptions that emerged from the British Isles, were carried by Europe around the world, and ultimately took deep root in North America. American leadership in reinvigorating the contemporary order is imperative.

The Brexit vote has unleashed the anxieties of two continents and of all those who rely upon the stability that their union of purpose provides. The needed restoration of faith will not come through recriminations. To inspire the confidence of the world, Europe and America must demonstrate confidence in themselves.

Article Link to the Wall Street Journal: