Thursday, September 1, 2016

Angela Merkel’s Soft Offensive

Fourth and final term would focus on securing her place in history — by ‘fixing’ Europe.

Politico EU
September 1, 2016

BERLIN — Berlin’s government quarter was hot with speculation this week about the “K-Frage,” a long-running political parlor game over whether Angela Merkel will pursue another run for Germany’s chancellery.

Though few seriously doubt Merkel wants a chance at an era-crowning fourth term as Kanzlerin, behind-the-scenes squabbling in her conservative alliance over the timing of an announcement has fed theories of a Plan B.

Even as her allies and adversaries parse her public statements and body language for clues of her plans, Merkel has quietly begun laying the groundwork for another four-year term, her political allies say. A familiar question is already dominating those deliberations: How to fix Europe?

If Merkel has spent most of her time in office putting out fires across the Continent, from the financial crisis and Greece to the refugee influx, her next and likely final term would focus on a subject close to any longtime leader’s heart — legacy. Securing that place in history will depend in large part on whether Merkel succeeds in putting Europe on steadier ground.

“Time is not on the side of integration but of regression” — Josef Janning, ECFR

A combination of economic weakness and the widespread impression that Brussels and/or Berlin are to blame for national ills has eroded confidence in the bloc, fueling populist movements from Spain to Sweden. If the EU continues to unravel in the coming years, Merkel, the Continent’s preeminent political figure, will be remembered as the leader who lost Europe.

While Berlin believes Europe has made strides in improving its regulatory framework and preparing for shocks like the debt crisis, Merkel’s camp also acknowledges that much more needs to be done to restore trust in the EU. Brexit, they say, could be the catalyst to turn the tide.

“In Berlin people realize it’s important to seize the moment because it may not come back,” said Josef Janning, head of the European Council on Foreign Relations in Berlin. “Time is not on the side of integration but of regression.”

That Merkel recognizes she has a limited time frame for action was evident last week when she met 15 national European leaders in an effort to begin building consensus in key areas. The shuttle diplomacy, which took the chancellor from the deck of an Italian aircraft carrier to Tallin and points between, was partly a confidence building exercise ahead of this month’s informal summit in Bratislava. Her message: Berlin listens.

Wild Ones

A common complaint among Europe’s smaller members is that large countries, led by Berlin, bigfoot them in the EU decision-making process. That fear has strengthened the various regional blocs within the EU, such as Scandinavia, the Baltics or the so-called Visegrád group of Central European states.

Indeed, it was a common rejection of Merkel’s refugee policy that led to the often-fractious Visegrád group’s recent renaissance.

In Germany, Merkel’s swing through Eastern Europe was widely seen as a failure because she didn’t convince countries to accept any refugees. Yet that was never her plan. Recognizing that countries like Poland and Hungary wouldn’t back down, the German leader focused the talks on areas of common ground, in particular how to improve security with more intelligence sharing, securing the EU’s borders and preserving the bloc’s refugee pact with Turkey.

Another area of agreement: Brexit. Like Germany, Eastern European countries have little interest in pursuing a punitive approach with the U.K. during the Brexit talks and reject calls from France and other western countries for a hard line. While Berlin wants to safeguard the massive investments German companies such as Siemens and BMW have made in the U.K., Eastern European states like Poland and Romania want to protect the status of their citizens there and the remittances they send home.

“Merkel’s aim here was to repair Berlin’s ties with Eastern Europe that have been strained by the refugee crisis,” said Joerg Forbrig, an analyst with the German Marshall Fund of the U.S. in Berlin. “That’s important for the atmosphere within the EU.”

"With the U.K. essentially out of the EU decision-making, she will try to build broader coalitions on important questions."

Merkel’s diplomatic offensive was also a sign that with the U.K. essentially out of the EU decision-making, she will try to build broader coalitions on important questions. She no longer believes Germany and France, even together with Italy which has joined their recent meetings, can act as a motor for the EU, analysts say. In addition to the loss of economic muscle in both France and Italy in recent years, Merkel’s position in key areas, in particular economic and fiscal policy, is often far removed from those in Paris and Rome.

For Merkel, meetings between the three are as much as about reining in French and Italian hopes for freer spending as they are about setting the EU’s agenda.

“She’s not trying to win them over to her course but trying to prevent them from running wild,” Janning said.

For the German leader, the Bratislava summit marks the start of what promises to the arduous task of restoring confidence in an EU plagued by weak leadership and competing national agendas. While even her critics say she is the only leader with the stature to tackle the bloc’s catalog of ills, they also complain that Germany’s political and economic dominance is at the root of many of the EU’s problems.

Even with the clock ticking, Merkel — ever the physicist — insists Europe study the problem before taking action.

“What we need to do is take stock of where we are,” she said this week in an interview the German television. “Instead of rushing into action, one should calmly deliberate.”

Article Link To Politico EU:

Obama Is Outmaneuvered In ISIS War

Switching partners: Ankara’s intervention, with tacit Russian backing, has raised tensions with Washington.

The Daily Beast
September 1, 2016

Turkey’s week-old intervention into northern Syria, which began with the successful expulsion of the Islamic State terror group from the border town of Jarablus, could be the beginning of the end for the Islamic State terror group’s haven in northern Syria.

But it may also be the beginning of the demise of the People’s Protection Units or YPG, the Kurdish militia that has been fighting ISIS with U.S. military support.

The Turkish intervention revealed the outlines of a dramatic shift in the international landscape surrounding the world’s most deadly conflict.

The picture now emerging was inconceivable just weeks ago: Russia, which has taken severe criticism for bombing civilian targets, has gained the initiative at U.S. expense.

Faced with the passivity of the lame duck Obama administration, Turkish President Recep Tayyip Erdogan has emerged as the prime mover in the drama.

Before sending troops into Syria last Thursday, a move he has been weighing for more than one year, Erdogan swallowed his pride and issued his regrets to Russia for shooting down a Russian aircraft that crossed into Turkish territory last November. Then he flew to Moscow for talks with President Vladimir Putin. Erdogan’s top aides also had intense exchanges with Iran, the other major outside backer to the Assad regime.

To all appearances Russia has now changed sides, dragging its Syrian client with it. It’s also taking a direct role in the fight against the so-called Islamic State, even claiming credit for this week’s airstrike in al-Bab, Syria, that killed Abl Mulhammad al Adnani, the Islamic State “attack dog” who was responsible for exporting the group’s terror attacks abroad. (One U.S. defense official called Russia’s claim “a joke.”)

You can’t tell the players without a scorecard, and the scorecard today is very different from that of a few weeks ago.

The old lineup: Russia and Iran vigorously opposed a Turkish intervention in Syria and threatened to counter it militarily. Following the Syrian regime’s playbook, they viewed the Syrian opposition forces, which have received covert U.S. military support, as terrorists on a par with ISIS and indeed have fought them while doing little to fight ISIS.

Russia, Iran and the Syrian government all allied with the Kurdish militia, the YPG. The Assad regime, for example, provided arms and paid the wages for its public employees. Russia supported the YPG last February as it advanced into areas near the Turkish border that had been controlled by the U.S.-backed rebels. Since the YPG is closely tied to the insurgents in Turkey of the Kurdistan Workers’ Party, or PKK, Ankara viewed the nexus in northern Syria as hostile.

But, meanwhile, the Obama Administration, fearful that a clash pitting NATO member Turkey against Russia or Iran could blow up into a much wider war, refused to support a Turkish intervention in Syria. Instead, it, too, teamed up with the YPG and provided air cover, intelligence and other support in attacking Islamic State targets.

This rankled Turkey still further. But Ankara agreed that the U.S. could support the YPG as it advanced deep into northern Syria to capture the ISIS-held town of Manbij, provided YPG forces then withdrew from the mainly Arab lands.

The new lineup: Russia and Iran have raised no serious objections to Turkey’s intervention. The Political Directorate of the Syrian Arab Army now speaks of the Kurdish guerrilla force as the “PKK.”

As Aron Lund of the Carnegie Endowment’s Middle East Center observes, “Over the past five years, Damascus has more often referred to the pro-PKK factions in Syria by simply using their official names (such as YPG, Asayish, and so on) or by some quaintly patriotic workaround, such as ‘loyal Kurdish citizens.’ It is rare for them to employ the ‘PKK’ term and even rarer to blast it across state media.” The shift is obviously meant as much for Turkish ears as for Syrian ones.

Also remarkable is how Russia’s English-language propaganda outlet Sputnik has unblinkingly about-faced on who’s who in this war.

This week, it took the unprecedented step of referring to Turkish-supported Free Syrian Army as having “liberated” villages in Aleppo from “terrorists,” citing the Turkish General Staff’s press release. As for the terrorists, Sputnik left it an open question as to whether or not these were ISIS militants or the YPG.

Washington, meanwhile, appears to have been outflanked. The Wall Street Journal reported Tuesday that the U.S. and Turkey had been discussing a joint intervention in Syria but that President Obama had delayed approving Pentagon plans.

So Turkey moved ahead on its own, with only limited U.S. air support, and after taking Jarablus quickly came into conflict with the YPG, which, far from withdrawing from Manbij, was also heading toward the border town, possibly to preempt Turkey.

Now, as Turkish relations with Russia are on the upswing, tensions are on the rise between Ankara and Washington.

Turkey’s ground assault has proved remarkably quick and successful. Moderate Arab fighters backed by Turkish troops pressed their offensive deeper into the province of Aleppo this week, seizing more territory from ISIS even as they continued their confrontation with the YPG.

At least 40 villages previously under Islamic State or YPG control, including all the southern suburbs of Jarablus, up to the al-Sajour river. They are now poised to move into al-Bab, a town ISIS still holds to the west, where it has based its foreign intelligence headquarters.

The number of forces involved in the fighting is actually quite modest on both sides, with Turkey providing about 400 ground troops and 40 tanks to support 2,000 rebels as they take on about 1,000 ISIS fighters, according to rebel commanders.

The White House, though, rebuked Turkey for clashes with its main Syrian asset, the YPG (which is the core of a broader cobbled-together group including some Arab fighters under the rubric of the Syrian Democratic Forces). “We do not support and would oppose Turkey’s efforts to move south and engage in activities against the Syrian Democratic Forces, which we support,” Ben Rhodes, a White House National Security Council official, told reporters Monday.

Turkey, however, insisted that after capturing the Syrian town of Manbij with U.S. air support, the YPG should now withdraw across the Euphrates River from traditionally Arab lands into largely Kurdish north Syria in line with explicit commitments reaffirmed in Turkey last week by U.S. Vice President Joe Biden.

Biden was echoing Turkish concerns about a creeping Kurdish statelet in northern Syria, built on the back of U.S. F-16 fighter jets and American commandos, as an undesirable consequence of routing ISIS from about 450 miles of terrain.

Turkey and most governments in the region view YPG as the Syrian affiliate of the Kurdistan Workers Party (PKK), an internationally listed terrorist organization, but the Obama administration has circumvented legal restrictions blocking support to listed terror groups by maintained the fiction that it is a separate organization.

The U.S. relationship with the YPG is a major security issue for Turkey, which is at war with the PKK in southern Turkey, with deadly clashes occurring almost daily. And now, those clashes have apparently extended into Syria.

One Turkish soldier was killed and several were wounded in a missile attack on a Turkish tank in Jarablus last Saturday, which was attributed to the YPG. A number of YPG fighters died following a retaliatory Turkish air strike in the town of al-Amarna, the origin of the missile, the Turkish military said.

Arab rebel commanders involved in the Turkish-led operation have put the onus squarely on the YPG. They told The Daily Beast that instead of withdrawing to their own territory east of the Euphrates River after liberating Manbij, the YPG had begun moving north towards Jarablus even as Turkish forces entered Syria and seized the border town.

Erdogan clearly shares this view. “The Jarablus operation was a reflection of our determination,” he said earlier this week. “Our operations will continue until terror organizations such as Daesh, the PKK and its Syrian arm, the YPG, cease to be a threat to our citizens.” (Daesh is a pejorative Arab acronym for the Islamic State.)

Washington initially endorsed Operation Euphrates Shield, as Turkey’s cross-border intervention is called, but, according to the Journal report Wall Street Journal, was surprised by the timing and trimmed back its plans for extensive air support, which would have involved U.S. Special Operations Forces entering Syria with Turkish troops.

Erdogan, now six weeks in from having survived an assassination attempt and a military coup against his government, dealt unilaterally with Russian Putin to allow for the Turkish ground incursion, but it isn’t clear whether he coordinated or consulted with President Barack Obama.

On Aug. 23, hours after the White House planned a “a high-level meeting the next day to consider the Pentagon’s proposal to insert U.S. Special Operations forces as part of the Turkish operation,” Ankara lunched its offensive without so much as informing Washington. The “proposal never reached President Barack Obama’s desk, according to a senior administration official,” the Journal stated.

The lame-duck Obama administration was thus put in an awkward and embarrassed position vis-a-vis its most important regional partner in the coalition war against ISIS, yet one growing increasingly and dangerously anti-American.

Turkey’s state media and political establishment have spent the last several weeks conspiratorially blaming the CIA, State Department and White House for orchestrating the failed coup against Erdogan, a coup which appears to have been plotted by loyalists of Islamist cleric Fethullah Gulen, domiciled in exile in the Poconos. (Turkey is seeking his extradition.)

Bilateral tensions are serious enough that Obama announced a one-on-one meeting next Sunday with Erdogan in Hangzhou, China, where major trading nations are holding the annual G20 summit.

Nevertheless, the U.S. can scarcely afford to sever relations with Turkey given the former’s reliance on Turkey’s Incirlik airbase for surveillance and bombing operations against Islamic extremists.

Moreover, at least part of Turkey’s offensive directly serves U.S. interests by removing ISIS from much of the northern Syrian border, depriving the jihadists of a major resupply route and a conduit for transporting foreign fighters back and forth into Europe.

On the back of Operation Euphrates Shield, moderate rebel forces in Al Rai’a, a town about 15 miles west of Jarablus, seized three villages from ISIS on Monday. These rebels are also supported by the Pentagon.

Curiously, there does not appear to be much of an international objection to Turkey’s campaign. Aside from the YPG, which has likened Turkey to ISIS and said that this intervention will culminate in a quagmire, no significant player in the conflict has raised much of a fuss.

Ankara notified the UN Security Council, that it had intervened in Syria in self-defense, which is authorized under Article 51 of the UN Charter. But neither of Syria’s main foreign patrons, Iran and Russia, has thus denounced the invasion as an illegal violation of sovereign soil. Turkish officials spoke of a very positive international atmosphere, of a sort that would have been unthinkable even a year ago. (Only François Hollande, the president of France, mildly chided his NATO ally for its “contradictory” intervention.)

The muted response to Euphrates Shield may owe to the fact that after more than two years of watching ISIS operate freely in Syria with little interference from the Assad regime, Damascus and Moscow are quietly hoping that Turkey not only pushes the extremists from its borders but also prevents the YPG from setting up an autonomous territory in the evacuated territory northern Syria.

Were the YPG to create that autonomous state, known to Kurds as “Rojava,” it would encourage the PKK to try to set up a similar zone in southern Turkey, further threatening Turkey’s territorial integrity.

Recently, the YPG clashed with Assad’s military in Hasakah city, the provincial capital of the eponymous province where much of Syria’s oil reserves are located. And the Syrian state media has taken to calling the YPG “PKK,” in an unusual shift in language where, previously, the same media boasted of arming and supporting the YPG in its efforts against ISIS and Islamist Syrian rebels.

Speculation that Erdogan may have cut a tactical agreement with Bashar al-Assad to facilitate mutually agreed deterrence against the PKK and YPG follows media suggestions that Putin gave Assad advance warning about Turkey’s plans.

The question therefore becomes: If a deal was struck, what did Assad and Putin get?

Many Syrians suspect that in exchange for gaining a sphere of influence in northern Syria, including Aleppo, Turkey will acquiesce in the regime and its proxies’ regaining control over more strategically vital areas of Damascus and Homs, which are the provinces that connect the national capital to the coastal region of Tartous and Latakia. Tartous is home to a decades-old Russian naval supply base and Latakia is home to Khmeimim military airbase, constructed a year ago in anticipation of Russia’s aerial intervention in Syria to bolster the regime.

Two recent episodes within this corridor seem to substantiate such a thesis.

After bombarding the Damascus suburb Daraya for months with barrel bombs and incendiary weapons akin to napalm, capturing farmland and destroying crops, the regime proclaimed victory last Friday as it expelled some 5,000 rebel fighters and their families following a negotiated truce. In an unprecedented development, the rebels were removed while still carrying their weapons, whereas in previous such “evacuations” they were forced to disarm first.

Then on Monday the regime declared a cease-fire in al-Waer, a neighborhood in Homs with a far bigger population—the Syrian Opposition Coalition estimated 80,000—and on Wednesday began talks on a similar deportation.

Local officials in Moadamiya, which is close to Darayya and which was hit by chemical weapons in August 2013, following a year-long starvation siege, also began talks with the regime Wednesday. A Moadamiya spokesman, Dani Qappani, said there are 45,000 civilians trapped in the town and possibly 2,800 fighters.

Article Link To The Daily Beast:

How Congress Makes Regular Taxpayers Foot The Bill For Oil Pipeline Fat Cats

A terrible law, a ‘phantom tax’ and a captured regulator mean that big businesses are forcing you to pay their taxes without even knowing it.

By David Cay Johnston
The Daily Beast
September 1, 2016

For years a regulation has forced Americans to pay the corporate income taxes of an industry that Congress exempted from that tax in 1986, an outrage I have chronicled for years.

Now a federal court has determined that this taxpayer abuse is worse than I reported. In fact, it’s twice as bad.

Yet despite the latest court ruling in a long-running case, this rip-off may continue.

The idea that any business could force you to pay its taxes may strike some readers as beyond belief. When I first heard about this more than a decade ago my skepticism meter hit high alert. Then I started reading the laws, regulations and official proceedings, none of which made the news. I’ve been writing about it ever since, hoping the public will demand an end to this abuse.

The way it works is simple: The Federal Energy Regulatory Commission (FERC) sets the rates that monopoly pipelines can charge. The rates are based on all of their costs—people, equipment, taxes and the corporate income tax. But that last expense is fake. The pipelines are exempt from that tax.

How Consumers End Up Paying Oil Pipeline Taxes

No industry benefits more from the forced payment of taxes for private gain than the pipelines that are the subject of the latest court ruling.

Pipelines are monopoly rights-of-way granted by government. The rates that oil pipelines charge shippers—oil companies, airlines, chemical companies—to move their product across the country are regulated under a law first enacted in 1887, the Interstate Commerce Act, which was designed to protect shippers from abuses by railroads—and was partly drafted by those railroads. Natural gas pipelines are regulated under updates to a 1938 law.

Congress created the Federal Energy Regulatory Commission to regulate everything from the rules of the so-called electricity markets to the level of water behind hydroelectric dams to pipeline rates. Not one major news organization assigns a reporter to cover FERC, which is cozy with those it regulates. That’s a major reason you have not heard about how the pipelines get to collect a tax that Congress does not require them to pay.

FERC chooses to set pipeline profits on an after-tax basis. This means that for every dollar of authorized after-tax profit, a monopoly pipeline adds 54 cents to cover the “grossed up” federal income tax of 35% of profits.

Thus, a monopoly pipeline authorized to earn $1 billion after tax actually collects $1.54 billion. If it actually owed the 35% income tax rate, it would be left with a net profit of $1 billion.

Even Investors Don’t Get the Tax Profits

Most monopoly pipelines are organized as master limited partnerships, or MLPs. Congress exempted MLPs from corporate income tax under the 1986 Tax Reform Act.

So collecting the tax that never gets paid, I reported previously, means the pipeline really earns an after-tax rate of return that is 154% of what is authorized.

What makes this outrage even worse is that MLP investors do not get the tax money. Management contracts, whose terms are obfuscated in disclosure reports, sweep the fake tax dollars away to the companies that oversee the MLPs and primarily enrich their executives, as Gordon Gooch, FERCs former general counsel, found by scrutinizing those documents.

Gooch first alerted me to this rip-off and his petitions to FERC to stop it years ago.

FERC dismisses his petitions, saying that, as a mere consumer, he has no standing to challenge its decisions. Gooch’s latest petition is labeled “prohibited” by FERC, yet it listens closely to everything the industry it regulates wants. It even holds “off the record” “technical conferences” with the industry’s lawyers and lobbyists.

What the Court Found

The new court ruling shows that the pipelines are ripping people off for not just 54% more than their profits, as I have reported, but for double that.

In the latest twist in a case known colloquially as United Airlines v. FERC, Senior Circuit Judge David B. Sentelle, who has been hearing appeals of FERC pipeline tax cases for a quarter century, came to this conclusion on July 1 in in the U.S. Court of Appeals, District of Columbia Circuit Court.

Judge Sentelle wrote that United Airlines and eight other pipeline customers, known as the Shippers, complain that they are being overcharged because the rates they pay include covering taxes that the pipelines do not owe. You end up paying the bill when they pass these costs on through higher fares or in reduced profits earned by shareholders.

The Shippers “claim that because FERC’s rate-making methodology already ensures a sufficient after-tax rate of return to attract investment capital, and partnership pipelines otherwise do not incur entity-level taxes, FERC’s tax allowance policy permits partners in a partnership pipeline to ‘double recover’ their taxes.”

Judge Sentelle concluded that the plaintiffs were right.

Unfortunately, he did not include the tax algebra in his decision so that we could calculate the amount of the overcharges.

Previously I calculated from disclosure reports that the pipeline industry tax rip-off totals about $3.4 billion annually. A Congressional study prompted by my reporting estimated the cost at $1.9 billion. Judge Sentelle’s decision suggests the rip-off costs Americans somewhere between $3.8 billion to $6.8 billion annually.

What the Court Did—and Didn’t Do

The problem is in what Judge Sentelle ordered. He could have blocked the fake tax, but did not. Instead he sent the issue back to FERC, giving it an opportunity to gin up another justification for letting pipelines collect twice on a tax they never have to pay.

“We agree that FERC has not adequately justified its tax allowance policy for partnership pipelines and grant the Shippers’ petition,” Sentelle ruled.

Sentelle in an earlier ruling had allowed the pipelines to collect the fake tax. In a ruling before that, in the late 1990s, he held that collecting the tax from shippers was improper because it was a nonexistent expense that he called a “phantom tax.” Judge Sentelle noted that once you start allowing imaginary expenses there is no end to the mischief.

FERC got around this by inventing a new regulatory approach called the “position paper” that allowed pipeline lobbyists to legally meet with commissioners in secret to craft the plan. Only then was it announced as a case, which ended the one-sided meetings. All sides were then given two weeks and allowed one 15-page filing with no rebuttals. The rate case was, to be polite, a sham.

The awful details are laid out in my 2012 book, “The Fine Print” and, in shorter form, in a 2010 column I wrote for the policy journal “Tax Notes”.

Why It Matters

By law FERC must balance the interests of pipeline owners and pipeline customers using the “just and reasonable” theory that owners are entitled to reasonable profits and customers to reasonable prices. Instead, it favors pipelines (and other monopolies it regulates) because most of the commissioners come from—and later go back to—the industries they regulate.

In Judge Sentelle’s most recent previous decision in the matter he allowed the fake tax to be imposed by the pipelines using reasoning I think is specious. Sentelle made clear that he was deeply vexed by the idea of making shippers pay a tax that is not imposed by Congress. However, he ruled that, since FERC had explained its rationale, it was beyond the court’s authority to challenge the regulatory decision.

That last part is nonsense. No matter how well FERC explains itself, no matter the absurd argument it came up with in its one-sided sham proceedings, a fake tax is a fake tax is a fake tax. No one should have to pay any tax that goes not to government but stays with the business. And whether seen as an obligation of the pipeline’s direct customers, like United Airlines, or the ultimate customer—you—no justification exists for imposing a tax unless Congress requires it and the money goes to Uncle Sam.

That’s why United Airlines and the other shippers sued again to reduce the price they were being charged for transporting airline fuel.

In his latest ruling Sentelle seems to recognize his error, but unfortunately he did not block the fake tax from being collected. Instead he told FERC to undertake yet another rule-making proceeding. Based on past history you will keep being dinged for this fake tax.

There is an easy solution to this and the man to solve it is Norman C. Bay, current FERC chairman. His background is as an enforcement staffer at FERC; he’s not the usual pro-industry regulator. Bay can ask commissioners to vote on ending the inclusion of the corporate income tax in the rates that pipelines charge customers like United Airlines. But I doubt he will unless the public demands action to make sure that pipelines charge only for actual expenses, which would not include the corporate income tax that Congress says does not apply to Master Limited Partnership pipelines.

You can do something about this. Tell your Congressperson and Senators you can’t believe they are doing nothing about a fake tax that you are forced to pay. Demand hearings. Demand an end to this tax abuse.

Article Link To The Daily Beast:

Rove: Team Clinton’s Pathetic Excuses

Mired in scandal, her campaign denies and rationalizes—but no one is convinced.

By Karl Rove
The Wall Street Journal
September 1, 2016

The emergence of nearly 15,000 more deleted emails and evidence of shady dealings by her family’s foundation have put Hillary Clinton back on the defensive. That’s a bad place to be as the presidential campaign kicks into high gear on Labor Day.

Team Clinton is offering excuses and misdirection, hoping the press tires of the controversies and that Donald Trump creates more of his own. But the unconvincing explanations being offered create more problems than they solve, raise more questions than they answer, and bring Mrs. Clinton’s credibility to a nearly total collapse.

First are the denials that anything is amiss. On Aug. 21, CNN’s Dana Bash asked Mrs. Clinton’s campaign manager, Robby Mook, if giving special treatment to Clinton Foundation donors was “the kind of back-scratching that has Americans just turned off.” Mr. Mook demurred: “There was no quid pro quo or anything like that.” But there was.

Questioned the same day by CBS’s John Dickerson about the private email account, Mr. Mook claimed that “Secretary Clinton wasn’t the first person to do this.” But she was. No other secretary of state had a private server, refused to use the department’s secure system, and then destroyed thousands of emails.

Mr. Mook also suggested on CBS that the rules governing such things were “very murky.” But they weren’t. The rules were clear: No State Department official should use personal email for official business, let alone set up a private server.

Mr. Mook’s comment goes to Mrs. Clinton’s intent. If she had felt that the rules were murky, she should have asked the State Department’s Office of the Legal Adviser to clarify, but apparently she didn’t. However, if her goal was to avoid disclosing her emails, then the last people she would have asked to weigh in would be the department’s impartial lawyers.

This is important now that the FBI plans to release the summary of its interrogation of Mrs. Clinton. Americans may soon find out whether she sought legal advice—and from whom—before carrying out her email scheme.

On CNN, Mr. Mook dismissed the continuing controversy as “another example of a right-wing group just trying to keep this, the questions coming and keep this issue alive.” But distinctly not-conservative outlets in the mainstream press have provided extensive coverage.

For instance, the AP reported last week that of the 154 nongovernmental persons who had meetings or phone calls scheduled with Secretary Clinton in the first half of her tenure, at least 85 were Clinton Foundation donors. Clintonistas complained that the AP’s report ignored her meetings with government officials. But that she met with plenty of diplomats and bureaucrats is irrelevant; that most of her meetings with people outside of government involved donors to her family foundation is prima facie evidence of special treatment.

Team Clinton also suggested that the ends justify the means. Mr. Mook told CBS that “the Clinton Foundation does incredible charitable work.” Longtime Clinton factotum James Carville argued on MSNBC that the foundation saves lives, denouncing attacks on it in religious terms: “Somebody is going to hell over this.”

It is a desperate argument to keep a slush fund running. Other charities—say, the Bill & Melinda Gates Foundation—could easily assume the Clinton Foundation’s humanitarian activities and do them better, without the stench of corruption.

Mr. Mook made his most ludicrous claim by telling CBS that on ethics rules Mrs. Clinton and the foundation “have actually gone above and beyond.” But they haven’t. Jonathan Swan of the Hill reports that the Clinton Foundation didn’t live up to pledges made when Mrs. Clinton became secretary of state to disclose all donors and submit prospective foreign donations for State Department review. It also didn’t report millions in speaking fees that the Clintons channeled to the foundation, or reveal the sources of donations funneled through a Canadian charity.

This despite the warning of then-Sen. Richard Lugar (R., Ind.) at Mrs. Clinton’s 2009 confirmation hearing: “The Clinton Foundation exists as a temptation for any foreign entity or government that believes it could curry favor through a donation.” That’s why no other secretary of state or president has had such a huge, multipurpose foundation operating while in office.

At that same hearing, John Kerry, then the chairman of the Foreign Relations Committee, confidently predicted that Mrs. Clinton had “articulated a sensitivity to this which is going to have to be judged by the practice.” Now the results are in: On Wednesday the ABC/Washington Post poll found Mrs. Clinton’s unfavorable rating had risen to 59%, only one point less than Donald Trump’s.

For good reason, too: If she didn’t keep her word to the Senate about avoiding conflicts of interest, why should Americans accept what she says now about doing so in the future?

Article Link To The Wall Street Journal:

Trump Reverts To His Xenophobic Self

By Dana Milbank
The Washington Post
September 1, 2016

Donald Trump has warned us about those Mexican rapists. Apparently the country also has body snatchers.

The Republican presidential nominee immigrated briefly to Mexico on Wednesday for a hastily arranged visit with the leader of the country he has made his No. 1 scapegoat. He spent all of an hour with President Enrique Peña Nieto — but when the two men emerged, whoever was occupying Trump’s body sounded nothing at all like the bombastic billionaire.

“In the United States, first-, second- and third-generation Mexicans are just beyond reproach — spectacular, spectacular, hard-working people. I have such great respect for them and their strong values of family, faith and community,” this Trump look-alike declared in Mexico City.

The impostor gushed about a “common interest in keeping our hemisphere safe, prosperous and free,” and waxed poetic about“joint operations between our two countries.” He pledged “cooperation” toward shared objectives, a “deep and sincere” bond, and a “close and honest relationship” between the two countries in pursuit of “mutual good.” Trump said the countries should be “working beautifully together, and that, I am sure, will happen.”

And the North American Free Trade Agreement, which Trump had called a “disaster” and promised to “rip up”? This Trump doppelganger spoke instead about “improving NAFTA” and making sure it’s “updated.” He voiced a wish for a “strong, prosperous and vibrant Mexico,” and he pronounced Peña Nieto “a friend.”

A reporter asked: Did they talk about his constant vow to get Mexico to pay for the border wall he wants to build?

“We didn’t discuss that,” warm-and-fuzzy Trump said.

What had they done with Trump?

Alas, within hours, he was back to his xenophobic self. The bickering began even before he cleared Mexican airspace, as Peña Nieto, contradicting Trump, said he had told Trump at the beginning of the meeting that Mexico would not pay for a wall.

But Trump, having completed his photo op with the Mexican president, discarded the “friend” he had apparently just used as a prop. Trump landed in Phoenix for what was supposed to be a detailed “policy address” on immigration but was a familiar, nativist rant. Preceded at the lectern by Joe Arpaio, the Arizona sheriff and anti-immigration hard-liner, Trump launched into a lament for the “countless Americans” who are “victims of violence” by illegal immigrants who are “dangerous, dangerous, dangerous criminals.”

“We will build a great wall along the southern border!” he said to an enormous cheer.

“And Mexico will pay for the wall! One-hundred percent. They don’t know it yet, but they’re going to pay for the wall.”

So much for working beautifully together.

This was the Trump we all knew, the Trump who questions the judicial independence of an American-born judge because of his Mexican heritage, who fights with Mexican American journalists, claims that Spanish-language broadcaster Univision “takes its marching orders” from Mexico, and asserts that Mexico is “killing us.”

Trump’s trip to Mexico was something of a Hail Maria, as polls show Democratic rival Hillary Clinton with a yuuge advantage and Democrats with a better than even chance of taking back the Senate. And from Arizona and Florida on Tuesday came new signs that Trump’s rebellion has fizzled.

In Arizona, Kelli Ward, a pro-Trump primary challenger, had been trying to oust Sen. John McCain, whose war heroism Trump famously belittled, with a “defeat the establishment” theme like Trump’s. She lost by 13 points. In Florida, Carlos Beruff said that he “supports Donald Trump 100 percent,” while his primary opponent, Sen. Marco Rubio, did not. Beruff lost by 54 points. Insurgent Democratic candidates in Florida did no better against their party’s establishment.

But Trump’s attempt at appearing diplomatic was only a feint. If his core supporters were worried — and if the rest of Americans were reassured — that he was softening his hard-line position, they had to wait only until he spoke in Phoenix on Wednesday night.

In Mexico City, Trump endured without complaint a lecture from the Mexican president, who said that NAFTA has been good for “the U.S. as well as Mexico” and that the U.S. Chamber of Commerce thinks that more than 6 million American jobs rely on trade with Mexico. Peña Nieto said that immigration from Mexico to the United States peaked 10 years ago and is now at a net negative. “Mexican nationals in the United States are honest people, working people,” he said. “Mexicans deserve everybody’s respect.”

Trump almost seemed to agree. “Illegal immigration is a problem for Mexico as well as for us,” he said. “We will work together and we will get those problems solved.”

But back on American soil, he returned to his familiar lines: “It’s called America First! . . . There will be no amnesty! . . . You cannot obtain legal status or become a citizen of the United States by illegally entering our country.”

After a trip to Mexico, it was the return of a nativist son.

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Where Obama’s Asia ‘Rebalance’ Went Wrong

The president may be remembered for presiding over a dramatic worsening in U.S. ties with China.

By Michael Auslin
The Wall Street Journal
September 1, 2016

As he heads to China and Laos next week for his 11th and final trip across the Pacific as president, Barack Obama will be focused on securing his legacy in Asia. Touting himself in 2009 as America’s first “Pacific president,” Mr. Obama made Asia a prominent part of his foreign policy, proclaiming a “rebalance” after the excesses of George W. Bush’s Middle East adventurism.

Yet Mr. Obama hasn’t followed through on his ambitious promises, leaving his foreign-policy legacy very much an open question. He will leave his successor with a far more difficult job in maintaining stability in the world’s most dynamic region.

Mr. Obama never fully articulated what the goals of his rebalance were, leading some allies to misinterpret how far America would get involved in Asian matters, while others like China warned about U.S. interventionism.

Seeking to allay some suspicions, Mr. Obama always claimed the rebalance wasn’t merely about security. At next week’s Group of 20 meeting of global leaders in Hangzhou, China, he will again call for “strong, sustainable, and balanced global economic growth,” according to the White House. Yet with the U.S. economy registering a moribund 1.1% growth last quarter, there is little he can do to provide a model of robust reform. This is in part due to his lack of enthusiasm for free trade.

The Trans-Pacific Partnership (TPP), one of the pillars of the rebalance, and Mr. Obama’s sole global trade agreement, languishes in Congress, and Hillary Clinton and Donald Trump have disavowed the pact. After years of asserting how important TPP was to America’s geopolitical position in Asia as a way to balance China, Mr. Obama’s failure to ensure its passage is a blow to U.S. credibility. Even notoriously free-trade-averse Japan is poised to ratify the agreement this autumn, leaving America out of step with some of its largest trade partners.

On the sidelines of the G-20, Mr. Obama will meet with his Chinese host, President Xi Jinping, who is undoubtedly pleased at the looming failure of TPP. For this final meeting between the leaders of the world’s two most powerful nations, the White House notes blandly that they will “discuss a wide-range of global, regional, and bilateral issues.” Long gone are the heady hopes that Washington and Beijing would settle their differences and begin shaping the global future together. Mr. Xi likely already is thinking about the next U.S. president, and his belligerence has increased at the end of Mr. Obama’s term.

Mr. Obama may well be remembered for presiding over a dramatic worsening in U.S.-China relations. Despite years of high-level summits, Washington and Beijing are at loggerheads, as China seeks to assert its regional primacy. Beijing has targeted U.S. allies, such as South Korea after Seoul announced it would accept a new U.S. missile-defense system to defend against North Korea’s continued nuclear and missile programs.

China continues to pressure Japan, provocatively entering waters near disputed islands controlled by the Japanese in the East China Sea. Its rhetoric against Taiwan has also increased since the return to power of the independence-minded Democratic Progressive Party.

In Laos, where he will attend the U.S.-Asean Summit and the East Asia Summit, Mr. Obama’s parlous relations with China will be most visible. The South China Sea has become one of the world’s most dangerous flashpoints. On July 12 an international tribunal in The Hague rejected China’s claims to sovereignty over much of the South China Sea. Beijing says the tribunal has no jurisdiction and continues to militarize its possessions in disputed waters.

Many in the region expect China to make an even more provocative move after it hosts the G-20, perhaps by reclaiming land and creating a base in the Scarborough Shoal, which it wrestled away from the Philippines in 2012. None of Mr. Obama’s repeated condemnations have slowed China’s base building, which has altered the balance of power in Southeast Asia.

Noble intentions aside, presidents are judged by results. Whereas Mr. Obama should be applauded for recognizing the importance of Asia to America’s prosperity, and for trying to deepen partnerships, Asia now is more unstable than it has been for decades. Sensing either U.S. distraction or weakness, China has felt emboldened enough to act on long-held grievances. Being forced to respond with military shows of force, such as U.S. Navy freedom of navigation operations, is an admission that diplomacy has failed.

Mr. Obama will bequeath to his successor fewer options for dealing with an Asia at increasing risk of accidental or premeditated conflict, and one in which America’s influence will be reduced by the failure to implement TPP. Neither Mrs. Clinton nor Mr. Trump will be able to undo what China has done in the South China Sea, and both will face a North Korea that has moved closer to an operational nuclear capability. More countries may emulate the Philippines’ mercurial new leader, Rodrigo Duterte, who swings between belligerence and seeking closer relations with Beijing.

If the next president is unable to moderate China’s behavior and unwilling to risk upsetting relations with Beijing to send a stronger message, then Mr. Obama’s legacy will be an ironic one as the president who made Asia a priority, only to have squandered his country’s position.

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The 5,000-Year Government Debt Bubble

Should investors buy the most expensive bonds in recorded history?

By James Freeman
The Wall Street Journal
September 1, 2016

Politicians playing by their own rules is an old story. But it should count as news that politicians have lately been rewriting a rule in place since 3,000 B.C.

This rule of history is that savers deserve to be compensated when they loan money. Not anymore. In much of the developed world lenders are the ones paying for the privilege of letting governments borrow their cash. Through the magic of modern central banking, countries in Europe and elsewhere have managed to drive their borrowing rates not just to historic lows but all the way into negative territory. As of Monday almost $16 trillion of government bonds world-wide were offering yields below zero.

Amazingly, governments have managed this feat even as they have become more indebted and even as slow economic growth undermines their ability to repay. Such conditions normally suggest a less creditworthy borrower and therefore a higher interest rate to compensate investors for the risk. But sovereign debt has become more expensive. Governments have succeeded in making their bonds more expensive in part by printing money and buying the bonds themselves via their central banks. Commercial banks are all but required to buy them too.

In the new political economy—or alchemy—the more unsustainable a government’s finances, the less it pays to borrow. Japan’s government debt amounts to more than 200% of its economy. The yield on Japan’s 10-year bonds recently clocked in at negative 0.06%.

What does history have to say about this? In the Swiss financial publication Finanz und Wirtschaft, James Grantnotes that as far as he can tell it’s never happened before. He cites the work of New York University Prof. Richard Sylla, who wrote “The History of Interest Rates” along with Sidney Homer. Mr. Sylla tells me there are “precious few minus signs before any rates” in his book. The only ones he can recall were on U.S. Treasury bills around 1941, just before Pearl Harbor. But “later research showed that anomaly might be explained by an option value embedded in bills then, so the negative yields may have been an artifact.” Mr. Sylla sums it up: “There were no negative bond yields in 5,000 years of recorded history.”

Put another way, government bonds have never been so expensive. Paul Singer, founder of hedge fund Elliott Management, isn’t expecting a happy ending. He believes that because of massive entitlement promises plus huge debt, “the entire developed world is insolvent.” He says that a negative rate on a government bond is “crazier than zero, and zero was crazy enough.”

Not everyone agrees. Ray Dalio, founder of Bridgewater Associates, the largest of the world’s hedge funds, sees diminishing returns from these monetary exertions. But with little inflation in sight he doesn’t see a strong case for lifting rates. He thinks central bankers will be able to manage the transition when the time comes to raise rates.

However it ends, the deflating of the sovereign debt bubble may have us longing for the carefree days of the 2008 mortgage crisis. Internationally tradable sovereign bonds amount to nearly $60 trillion, according to the Institute of International Finance. That’s about six times the mortgage-debt outstanding for American homeowners. But these sovereign bonds are a mere fraction of the liabilities carried by the world’s governments. If you count political promises to support retirees, patients and others, the obligations are hundreds of trillions of dollars higher.

Though the government debt market is significantly larger than the mortgage market, there are similarities. During the housing boom, we witnessed all kinds of innovations in the world of housing finance, such as “no-doc” loans in which the borrower’s income and assets weren’t documented. These were sometimes called “liar” loans.

The sovereign-debt boom certainly has its share of liar loans. European countries routinely violate pledges to limit budget deficits. As for documentation, has anyone found a thorough and comprehensible description of government accounting?

When it comes to income, governments have a great advantage over homeowners because politicians enjoy the power to tax. But who can verify that the Italian government, for example, will be able to collect the revenue to pay its bills?

It’s not as if the bond bubble is fun while it lasts. It’s painful for savers and corrosive for society to have governments systematically punishing thrift. It also encourages reckless governments to spend further beyond their means when they are rewarded for borrowing in this way. Perhaps it’s no surprise that the government-engineered bond bubble hasn’t delivered the promised economic growth. Who can confidently invest when the official price of credit appears to be so dishonest?

The U.S. is just a few steps behind Europe and Japan in its monetary experimentation. Federal Reserve Chair Janet Yellen didn’t advocate for negative rates when discussing her monetary “tool kit” in last week’s speech in Jackson Hole, Wyo., but Fed staff have been studying the issue. And the tool kit is already crowded, as Ms. Yellen described the various ways the Fed has intervened and will intervene in the future. She explained that she can’t predict future rates “because monetary policy will need to respond to whatever disturbances may buffet the economy.”

Historians may look back on this era and conclude that central bankers themselves were the primary disturbances buffeting the economy. George Gilder notes in his new book, “The Scandal of Money,” how much faster the economy grew in the postwar period before the Fed and other central banks employed such expansive tool kits.

Mr. Singer, the hedge-fund manager, wonders why the Fed still enjoys such power even after its “cluelessness” before the last crisis. Instead of monetary extremism he recommends reforms in tax, regulatory, education and trade policies to spur growth. Investors are left with the hope that today’s central bankers have achieved a wisdom that somehow eluded other policy makers for 5,000 years.

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Is Ending Poverty A Mission Impossible?

By Robert Samuelson
The Washington Post
September 1, 2016

Don't expect a second War on Poverty, regardless of who wins the election.

Picking up where Lyndon Johnson left off in the 1960s would seem a logical response to the campaign's relentless criticism of economic inequality. But appearances are deceiving. Most proposals to reduce inequality -- conspicuously from Hillary Clinton -- are aimed at the middle class. Spillovers for the very poor would be mostly incidental.

These proposals include: raising Social Security payments; increasing subsidies for early childhood care; reducing -- or eliminating -- college tuition at state colleges and universities; boosting the minimum wage. For his part, Donald Trump has pledged not to trim Social Security benefits and to cut taxes across the board. That automatically favors the rich and middle class because they pay most of the taxes.

There are two powerful reasons for slighting the poor.

First, the poor are not where the votes are. Almost half of non-voters (46%) have family incomes less than $30,000 a year, according to the Pew Research Center. Many of them are beneath the official government poverty line. (In 2014, the poverty line for a family of four was $24,230. The poverty rate -- the share of Americans below the poverty line -- was 14.8% in 2014, up from a recent low of 11.3% in 2000.)

The second reason is less recognized: There's no consensus in public opinion for launching a second War on Poverty. But neither is there a consensus for shrinking existing anti-poverty programs. Indeed, the only real consensus rests on a contradiction. Americans support continuing today's anti-poverty programs, even though they doubt these programs will succeed.

The latest evidence of this comes from a fascinating public opinion survey by The Los Angeles Times and the American Enterprise Institute, a right-of-center think tank. They repeated a poll of attitudes toward poverty that they first conducted in 1985. What they found was astonishing continuity.

The 1985 survey asked whether the poor are lazy or hardworking. The nationwide response was 50% hardworking, 25% lazy and 25% don't know or failed to answer. The responses to a similar question this year reflected the same pattern: 65% hardworking, 21% lazy and 13% don't know or failed to answer.

In both years, the survey asked who has "the greatest responsibility for helping the poor." Despite the passage of time, the responses were virtually identical. Government was cited by 34% of respondents in 1985 and 35% today, followed by "the poor themselves" (21% and 18%) and churches (17% and 13%). The remainder was spread between families, charities and non-responses.

But here's the contradiction: Government isn't judged up to the job. Both surveys asked whether government knew enough to eliminate poverty even if it could "spend whatever is necessary." In 1985, 70% said "no." In 2016, the negative response was 73%.

What emerges is an ambiguous consensus. Government can and should help, but it can do only so much. The poor themselves -- along with their families, churches and charities -- must play the starring role. None of this constitutes a powerful mandate for a vast new anti-poverty program. We know more now than we did in the 1960s. We are no longer so optimistic and confident of success. To many Americans, eliminating poverty has become a mission impossible.

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Why Obamacare Can't Be What Its Supporters Want

By Megan McArdle
The Bloomberg View
September 1, 2016

James Surowiecki of the New Yorker and I seem to have come to roughly the same conclusion about the Obamacare exchanges, which is that they’re in big trouble. Our diagnosis of the source of this problem is basically the same. As Surowiecki puts it, “Obamacare is being hobbled by the political compromises made to get it passed.”

Yet we differ as to the proper treatment; I think that when it became clear how crippled the bill was going to be, the administration and its backers in Congress should have retreated to a more modest goal. Surowiecki, on the other hand, argues, “In fact, government hasn’t mucked around enough: if we want to make universal health insurance a reality, the government needs to do more, not less.”

Which of us is right? You’ll be unsurprised to hear that I think the answer is, “Me.” I’d like to explain why, and why I think that Surowiecki’s argument, though reasonable, ultimately fails.

It’s not that we disagree that European systems that look kinda like Obamacare work better than ours. They do. We differ because he thinks it’s possible for the U.S. to construct something like those European systems, “if there were a shift in the political mood and it were given a shot.” I don’t think that the shift he wants will ever occur, and even if it did, any “shot” we gave a European-style system would end up much like the “shot” we gave it in 2010, which is to say, a wide miss.

In 2010, the problem with the U.S. health-care system was that we had a fragmented market that created regulatory headaches and all sorts of inefficiencies regarding the provision of care. We had four major government health care systems — Medicare, Medicaid/SCHIP, the Veterans Administration, and the military’s Tricare program — along with a bevy of smaller ones. We had both a large-group and a small-group market for employer-sponsored insurance, which operated very differently. We had an individual insurance market that didn’t work very well, and the patchwork of payment methods that the uninsured relied on. And all of it was regulated in 50 separate states. Since both patients and providers often participated in more than one of those systems at the same time, it’s not really surprising that it was hard to coordinate care and control costs, or even to find out how much care we were getting and what we were spending on it.

Unfortunately, while basically everyone in the country thought that the U.S. health care system was as messed up as a party-school group house on graduation day, most people actually liked whatever coverage they had. That created a political bind: No reform could pass if it seemed to shrink any of these major markets in any significant way. Expanding everything would cost a boatload of money and make taxpayers freak out, so the architects of Obamacare finessed this problem with a combination of:

-- Opaque rules.

-- Disingenuously optimistic promises such as, “If you like your plan you can keep it.”

-- Weak versions of unpopular measures needed to make the law work, such as paltry penalties for failing to buy health insurance.

-- Not touching the wildly inefficient profusion of programs.

All that stuff is what has left Obamacare where it is. The dishonesty was exposed. The weak versions of European measures failed to encourage the behavior changes needed to make the system work. And the fact that every other program was left in existence, largely untouched, created new ways for patients and consumers to game the rules to get maximum reimbursements for minimum expenditure.

Theoretically we could fix this, except that the political calculation hasn’t changed. Loss aversion is an incredibly strong phenomenon in politics, which is why even disastrously malfunctioning government programs are pretty much immortal; legislators are too afraid of their beneficiaries to touch them.

This is a problem everywhere, of course, but it is especially a problem here, because our legal system and our political structure create choke points that an angry interest group can use to block your law. The most obvious way to get around those choke points is to buy off the interest groups, often with concessions that weaken the structure of your program.

I’m sure that Surowiecki is not ignorant of these problems; he simply thinks they’re easier to overcome than I do. Undoubtedly the root of our disagreement is partly ideological. But I suspect it’s also partly geographical.

Moving to Washington, as I did from New York some years ago, gives you a ringside seat to the legislative process and a keen new appreciation of how much effort goes into passing a bill that affects just two or three poorly funded interest groups.

Passing a major bill requires a thousand concessions to public sentiment, to key congressional districts, to ideological holdouts and to well-organized interest groups (think of insurance lobbies, doctors, nurses, patient groups and retired people). Defying all of them is impossible.

The sheer weight of necessary concessions will deform the program, so beautiful in its clean white-paper form, into something you barely recognize. It was true in 2010. And now that we have yet another program on top of all the others, which also cannot be substantially altered, it is even more true in 2016.

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Fighting The Economic Power Of The Coastal Elite

By Justin Fox
The Bloomberg View
September 1, 2016

Back when it was home to a DHL shipping hub, Wilmington, Ohio (population: 12,449 and shrinking), seems like it was a lively little city. In 2007, a local bookstore, Books ‘N’ More, threw a release party for “Harry Potter and the Deathly Hallows” that drew 10,000 people downtown.

DHL left in 2008. Books ‘N’ More closed in 2014. But now is beginning to use Wilmington’s airport for its own delivery airplanes. In his Bloomberg Businessweek cover story this week about Amazon’s shipping offensive, Devin Leonard recounts a funny little exchange illustrating the mixed feelings that this generates. John Stanforth is Wilmington’s 71-year-old mayor. Marian Miller and Bret Dixon are local officials who are extremely enthusiastic about having Amazon in town.

“They are a feel-good company,” says Miller. “Who wouldn’t want a feel-good company like Amazon? Look at the way they treat their customers and their employees!”

The conversation turns to those Harry Potter events. Stanforth perks up. “Well, we had a local bookstore that really promoted it and took the initiative,” he says. “Sad to say, it’s closed up. Wonder who closed them up?”

Miller gives him a look. “Don’t say it.”

“Where does everybody get their books now?” Stanforth says, grinning.

“Don’t say that,” Miller warns him again.

“Amazon,” Stanforth says.

“I knew you were going to say it,” Dixon says, shaking his head.

The relationship between independent bookstores and Amazon is a little more complicated than that: Amazon’s rise has been hardest on big chains such as Barnes & Noble and Borders (RIP), and the chains’ decline has actually ushered in a modest indie resurgence.

Still, Mayor Stanforth is onto something: The rise of big national retailers has been devastating for many pillars of local communities such as Books ‘N’ More. This is a story that long predates Amazon, and one can make the case that the effects have been on balance positive. Here’s Jason Furman, now the chairman of the president’s Council of Economic Advisers, making a numbers-based defense of Wal-Mart in 2005:

There is little dispute that Wal-Mart’s price reductions have benefited the 120 million American workers employed outside of the retail sector. Plausible estimates of the magnitude of the savings from Wal-Mart are enormous -- a total of $263 billion in 2004, or $2,329 per household. Even if you grant that Wal-Mart hurts workers in the retail sector -- and the evidence for this is far from clear -- the magnitude of any potential harm is small in comparison.

What such an accounting leaves out, though, is the value of locally owned businesses, of local control. I don’t quite know how to quantify that value, but it isn’t nothing, and political leaders used to fight hard to preserve it. As the New America Foundation’s Phillip Longman wrote in the Washington Monthly last year:

Throughout most of the country’s history, American government at all levels has pursued policies designed to preserve local control of businesses and to check the tendency of a few dominant cities to monopolize power over the rest of the country. These efforts moved to the federal level beginning in the late nineteenth century and reached a climax of enforcement in the 1960s and ’70s.

Since the 1980s, economic activity and wealth in the U.S. have become increasingly concentrated in a few big metropolitan areas, mostly along the Atlantic and Pacific coasts. The standard explanation for this Great Divergence, as University of California at Berkeley economist Enrico Moretti has dubbed it, is that, as I wrote in February:

The most vibrant, important sector of the economy is what he calls the “innovation sector,” and its workers thrive in the presence of lots of others like them. So clusters of innovation such as the San Francisco Bay Area, New York, Boston and Austin, Texas, will keep creating good jobs, and most other places won’t.

If that’s the main force driving the divergence, then the policy response should probably involve (1) finding ways to build more housing in those innovation clusters so workers can afford to live there and (2) helping people from struggling towns and cities move there. Maybe we could also foster the development of a few more innovation clusters, but that’s really hard to get right.

Longman’s thesis, though, is that the divergence is mostly due to a shift in government policy that began in the late 1970s. Government went from fighting economic concentration to tolerating it (by cutting back on antitrust enforcement) and even egging it on (by deregulating transportation and finance, increasing protection for intellectual property, and other means).

This was all well before the dawn of the commercial internet, of course. Because the internet is a decentralized, distributed network, many boosters predicted during its rise in the 1990s and early 2000s that it would counter the trend toward economic concentration and bring a new age of decentralization and individual empowerment. In some areas (economics commentary, for example) this has arguably happened. But on the whole, U.S. economic activity has just been getting more concentrated in large companies. And when you read about Amazon’s bold plans to make it ever cheaper and more convenient to get everything you need delivered to you at home by Amazon, it seems clear that it’s only going to get more concentrated.

So here’s the question: Should Americans be fighting against this? My Bloomberg View colleague Conor Sen argued last week that we shouldn’t get too worked up about crazy housing prices in innovation clusters such as New York and San Francisco, because they are having the positive effect of driving talented people and economic activity to other cities. But what about taking things a step further, and actively legislating against economic concentration? Remember, doing so used to be the norm in the U.S. It seems terribly retro right now -- sort of like a locally owned bookstore on a small-town Ohio Main Street. But ideas do have a way of coming back into fashion.

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George Will: Team Obama’s Bank-Settlement Cash Grab Is Unconstitutional

By George F. Will
The New York Post
September 1, 2016

Because truth-in-labeling laws are among the laws from which Washington feels exempt, the titles of congressional legislation often take liberties with the facts (e.g., the Patient Protection and Affordable Care Act).

The Stop Settlement Slush Funds Act, however, precisely names the ailment for which it is the remedy.

The Justice Department has negotiated “bank settlement agreements” whereby banks make restitution to the government for the damage they allegedly did in connection with the creation and sale of residential mortgage-backed securities in the subprime-mortgage crisis.

Our subject here isn’t, however, whether the sums extracted from the banks (e.g., Citigroup $7 billion, Bank of America $16.65 billion, JPMorgan $13 billion) are proportionate to their alleged culpabilities. Rather, it’s what Justice does with millions of these dollars.

Justice allows banks to meet some of their settlement obligations by directing “donations” to various nongovernmental advocacy organizations that serve Democratic constituencies and objectives — organizations that were neither parties to the case nor victims of the banks’ behaviors.

These donations are from money owed to the government, money the disposition of which is properly Congress’ responsibility.

So the donations are, in effect, appropriations of public money. The pesky Constitution, however, says: “No money shall be drawn from the Treasury, but in consequence of appropriations made by law.”

Progressives, who favor expansive notions of executive discretion, and hence the marginalization of Congress, regard the “donations” as just another anodyne manifestation of inherent presidential discretion in enforcing laws. At a May congressional hearing, three constitutional scholars — Georgetown University law professor Nicholas Quinn Rosenkranz, The Heritage Foundation’s Paul Larkin and Boyden Gray, White House counsel to George H.W. Bush — disagreed.

Because everything government does costs money, the appropriation power, Rosenkranz testified, is Congress’ “most potent check on executive overreach” — “the ultimate backstop” against “a willful president.”

If presidents could disburse money without an appropriation, “the careful constitutional separation of powers would be thrown into disequilibrium.”

The current president relies on disbursements that circumvent the Appropriations Clause: The US District Court for the District of Columbia has held that his administration has, in supposedly enforcing the Affordable Care Act, illegally disbursed billions of dollars to insurance companies without a congressional appropriation.

“Congress,” Larkin reminded Congress, “does not give the president a credit card or a cashbox that he can use to purchase goods and services or disburse appropriations as he sees fit. Congress identifies precisely who may receive federal funds.”

With the “donations,” Justice rewards congenial groups without any direction from Congress or judicial oversight.

Although it is, Larkin said, “a federal offense for a government officer to spend money in excess of the sum that Congress has appropriated,” he noted that the donations represent executive lawlessness known at the state level: When Chris Christie headed the US Attorney’s Office for the District of New Jersey, he “negotiated a nonprosecution agreement with Bristol-Myers Squibb in which the company agreed, among other things, to make a $5 million gift to Seton Hall University’s law school — Christie’s alma mater — in order to avoid prosecution for securities fraud.”

Woodrow Wilson, a former New Jersey governor and the Democrats’ first progressive president, was the first president to criticize the American Founding. He was particularly hostile to the separation of powers, which he considered an anachronistic impediment to executive efficiency. The bank settlement donations are another step nullifying the Appropriations Clause’s 16 words, which buttress the separation of powers.

“In the end,” Gray testified, “every other constitutional power runs into the appropriations power.” This is why presidents have “consistently endeavored to seize the appropriations power from Congress.”

The Constitution was just 20 years old when, in 1809, Congress felt the need to enact “legislation designed to prevent the president from repurposing appropriated funds from one object to another.”

Subsequent presidents have obligated funds in excess of appropriations, thereby forcing Congress to choose between appropriating the funds or impairing the country’s credit. Congress often has been complicit in its own diminution, as when it empowered the Consumer Financial Protection Bureau to commandeer funding from the Federal Reserve System.

Base motives of self-aggrandizement have impelled many presidents to disregard the separation of powers. Progressive presidents do this as a matter of principle, which is worse.

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Brexit And The Future Of Europe

By Jean Pisani-Ferry
Project Syndicate
September 1, 2016

No one yet knows when the United Kingdom will present an agenda for negotiating its withdrawal from the European Union. But it is already clear that Brexit will reshape the map of Europe. And, especially given Britain’s stunning unpreparedness for the consequences of its own decision – its strategy, priorities, and even its timetable remain uncertain – that means that the EU must start figuring out how to make the best of it. Here’s how.

Let’s start with the only certainties: the Brexit negotiations will be long, complex, and acrimonious, and the divorce will have far-reaching geopolitical effects. The immediate impact is a halt to 60 years of integration momentum. Europe will suffer in the short and medium term as well, as considerable political energy is likely to be devoted to Brexit for the next five years, at a time when the EU needs the strength to confront internal and external dangers. Over the longer term, Brexit is likely to accelerate Europe’s exit from the top table of global decision-making.

Britain will not escape these consequences. Whereas it can leave the EU, it cannot relocate away from Europe.

That is why, though Britain’s European partners did not choose Brexit, they must manage its consequences successfully, which requires balancing two priorities. Their tactical goal must be to reach a deal with the UK that maintains the integrity of the EU. The strategic goal is to preserve Europe’s prosperity and influence.

It is with these ideas in mind that I, together with several European colleagues – all of us acting in an individual capacity – recently co-authored a paper proposing a concept for Europe in 10-20 years: a continental partnership that would create a new basis for continued economic, foreign policy, and security cooperation with the UK.

The basic economic idea is a template for a relationship that is considerably less deep than EU membership, but rather closer than a free-trade agreement. If adopted, Britain and the EU could not only preserve their economic ties, but also provide a new model for the future relationship between the EU and neighbors that will not join it anytime soon: Norway, Switzerland, Turkey, Ukraine, and eventually southern Mediterranean countries.

Any proposal regarding the future of the EU-UK relationship must start from an interpretation of the Brexit referendum’s meaning. Ours assumes that UK voters rejected both the legal impossibility of limiting inflows of workers from the EU and the principle of pooled sovereignty.

These two political constraints should be taken as a given. The first implies that a lasting arrangement between Britain and the EU cannot include free movement of labor. The second rules out participation in a common polity, and thus implies that any cooperation must be based on intergovernmental agreements.

The first constraint is a serious stumbling block, because the EU is based on the free movement of goods, services, capital, and workers. The UK’s European partners adamantly claim that these four freedoms are indivisible, and that if Britain wants to maintain free access to the continental market for its data processing and financial services, it must accept unlimited access to its labor market for Polish or Irish workers.

Freedom of movement of workers is undoubtedly integral to the EU. Indeed, the fundamental right to settle and earn one’s living in another country without asking for permission does not exist anywhere else in the world. For millions, this right most fully embodies what the EU stands for.

But Britain has made its choice, and the right question to ask now is whether strong economic links can be preserved without free movement of labor. From an economic standpoint, the answer is yes: a deeply integrated market for goods, services, and capital does not require full labor mobility. What is needed is only enough temporary mobility to accompany the integration of services markets.

In other words, freedom of movement of workers is politically essential within the EU, but economically dispensable when dealing with third countries. An economic agreement with Britain does not need to include it.

The second constraint is of a different nature. Unlike a market for nails or screws, a market for financial or information services must be based on detailed legislation that ensures fair competition and protects customers. A large part of the EU’s task is to prepare this legislation. So the question here is how British producers can retain access to the EU market (and vice versa) if they are no longer party to the legislation.

Solving this conundrum would be one of the main purposes of the continental partnership. Through it, Britain would participate in a multilateral process of consultation on draft EU legislation and would have the right to raise concerns and propose amendments, so that the outcome of the process would remain as far as possible consensual. Both sides would be politically committed to listening to the other. The EU, however, would have the final say, so that its laws would apply and be enforced.

To enjoy full access to the EU market, Britain would need to agree on a package of policies essential to the proper functioning of an integrated market: competition rules, consumer protection, and fundamental social rights, for example, and perhaps also minimum tax rules to avoid distortions of the type recently exemplified by Apple’s practices. Britain would also need to contribute to the EU budget, from which development funds (the counterpart to single-market access) are delivered.

Some object that the deal would be too harsh for Britain to accept. But would the UK be better off losing access to the market of its main trading partner?

Others worry that the EU would surrender its decision-making powers were it to consult with outsiders. But how would the few without a vote – Britain and others – dominate the many with a vote?

Still others claim that such an arrangement would concede too much to Britain, compelling other countries to aim at a similar status and causing the EU to unravel. But why would an EU member be better off abiding by rules and paying into the EU budget without having a vote on the design of policies? And, far from undermining European integration, a continental partnership could support the consolidation of the EU’s core.

True, there would be a price to pay for everyone. But it would be far lower than the price, in terms of lost prosperity and diminished global influence, of failing to create a continental partnership.

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There Is No More Syrian Government

War On The Rocks
September 1, 2016

In a recent interview conducted by Aaron David Miller for Foreign Policy, Robert Malley, one of the president’s most trusted advisors on the Middle East, once again enumerated the competing priorities of U.S. Syria policy: the need to balance humanitarian concerns with the desire to “preserve state institutions” and avoid a power vacuum so that the country does not slide into total anarchy.

Over the past three years in particular, this line of argument has not only been a mainstay those supporting a carefully calibrated, limited U.S. Syria policy in line with the current administration but also by a number of commentators writing both implicitly and explicitly in defense of Damascus. In two revisionist articles published recently at War on the Rocks, an author writing under a pseudonym presents the Assad regime as ruthless, but at least secular, pluralistic and — most importantly — as the final basion of civic, central authority in a tumultuous Middle East. Whereas the indefatigable Emile Hokayem already formulated an eloquent response regarding sectarian dynamics in the Levant, there is an equally important question raised in the piece warrants answering: What’s really left of the Syrian central state?

State of Denial

Following the swift collapse of its forces in the Battle for Idlib last year, President Bashar al-Assad had given a much publicized speech admitting the regime’s armed forces were suffering tremendous manpower shortages and would have to withdraw from certain fronts. Newspapers had been reporting for many months before of desperate conscription and recruitment efforts around the country. By late July, Assad appeared to crumble under the cumulative weight of years of slow attrition and defection, triggering a combined Russian and Iranian intervention seeking to reverse the regime’s fortunes. By February of this year, analysts inside as well as outside government agreed — they had largely succeeded in their attempt.

Having spent years researching and tracking the regime’s armed forces, I disagree. As far as attempts of estimating regime strengths go, observers suffer from analytical shortcomings. They overemphasize absolute number of soldiers fielded as well as square miles of territory held (less black, more red — less ISIL, more Syria Arab Army!) in favor of softer measures of government reach and control, from economic and governance issues to qualitative differentiation of forces. As the regime deteriorates, so does its force structure. Yet, if our state-building adventures in Iraq and Afghanistan taught us anything, it was not to fall for the formal trappings of weak state institutions and to ignore color-coded maps informed by faulty metrics. At its heart, a civil war is almost always a dispute over the basic premises of communal life and the institutions that structure it. As such, internal government dynamics are at least as important as battlefield successes and the movement of frontlines. So unless Syria is soon going to run out of fighting-age males, small arms, or pick-up trucks, we better start paying attention to structural dynamics underpinning a conflict that has now raged for more than five years.

Indeed, after five years of war, the regime’s force structure today is not entirely different from that of opposition militias. While much better supplied by the Syria Arab Army’s still-standing logistics skeleton, the government’s fighting force today consists of a dizzying array of hyper-local militias aligned with various factions, domestic and foreign sponsors, and local warlords. Aymenn al-Tamimi’s profiles of loyalist militias provide some insight into their diverse backgrounds. Among these groups, only a handful are still capable of anything close to offensive action. Much more so than sectarian or demographic limitations, this fragmentation is the direct result of the interaction between national and local economic and governance pressures. As the once totalitarian Syrian central state atrophies, its constituent parts — be they sectarian, rentierist, or simple brutes — have gained a stunning degree of political and economic independence from Damascus. Contrary to what others have claimed, Assad’s regime has not struck some grand bargain with a large section the Syria’s urban Sunni population. Instead, he has elevated to power the most brutish elements of the country and doubled down on the sectarian, tribal, and thuggish inclinations of its base.

Today, where briefing maps now show solid red across Syria’s western governorates, they ought to distinguish dozens and perhaps even hundreds of small fiefdoms only nominally loyal to Assad. Indeed, in much of the country, loyalist security forces function like a grand racketeering scheme: simultaneously a cause and consequence of state collapse at the local level.

Crime and Punishment: The Tiger Forces in Hama

Those following the Syrian Civil War closely will be familiar with two mobile formations responsible for most of the regime’s heavy lifting. They are the so-called “Tiger Forces” and the “Desert Hawks” (tracking regime militias has really become an exercise in taxonomy — mostly birds and big cats), currently operating in Aleppo and Latakia respectively. These units function as a kind of armed fire brigade: rushing across the country, putting out local conflagrations and rebel offensives, while on occasion leading their own offensives. In those cases, and much like the opposition, they assemble a curious collection of local warlords, regime remnants, and foreign support into temporary alliances and operations rooms.

As an introduction to the Tiger Forces, we can turn to Robert Fisk’s fawning account of his “audience with […] Bashar al-Assad’s favorite soldier,” Suheil Hassan, who leads the Tiger Forces. Hassan is an officer of the regime’s feared Air Force Intelligence Directorate. Besides leading what is said to be the government’s most elite fighting force, he is also thought to be one of the architects of Assad’s scorched earth and barrel-bombing campaign. Hassan enjoys almost cult-like popularity among regime supporters.

The real story of the Tiger Forces is far less glamourous, yet far more instructive to those trying to understand the regime. During the early days of the uprising against Assad, Hassan coordinated the suppression of protests in Hama, an effort that relied on a collection of ordinary thugs, air force officers, and area tribal leaders. His effectiveness was found in his ability to rally local support rather than depending on the already crumbling state institutions. In due time, this early network of enforcers would evolve into the so-called Tiger Forces. While the unit has since developed a more stable core of permanent quasi-soldiers, Tiger loyalists today still hail from a vast web of militias, criminals, and smugglers stretching across Syria’s central and arguably most strategic province of Hama. Many of his direct subordinates have become notorious throughout the country for brigandage, smuggling activity, and general lawlessness. Earlier this year, Ali Shelly, a powerful thug from the town of Tell Salhab who is directly responsible to Hassan, pushed his abuses to the point where the regime finally had him arrested and thrown in jail. However, within days, Shelly was released and returned to the frontline.

Such incidents should be seen as more than mere bureaucratic infighting over corruption. According to interviews I’ve conducted, Hassan loyalist warlords are widely known to smuggle guns, people, and oil to ISIL and opposition territory, directly undermining the regime’s war effort. But the central government has little choice but to look on helplessly. A report in my possession by the Syrian Arab Army’s provincial security council from last month details a recent instance where Shelly’s forces were caught with truckloads of smuggled weapons hidden underneath bags of wheat. They engaged in a prolonged gun-battle with state security forces. And they suffered no consequences. You might wonder why. The answer is fairly simple: There is no force loyal to Damascus today that is strong enough bring these brigands in line. A few days later, five military intelligence soldiers were killed in an ambush laid against them on the Shelly gang’s turf in the southern al-Ghab plain. A number of state institutions have been desperately trying to contain the Tiger Forces. There have been persistent rumors that at least one of the multiple assassination attempts against Hassan himself originated in the Military Intelligence headquarters.

The Oil Factor

Besides some residual agriculture, trafficking in fuel, guns, and people has become the dominant form of economic activity throughout much of Syria. And loyalist militias are cashing in. Armed groups purportedly under Assad’s banner have quickly learned to exploit bottlenecks in the local economy to emancipate themselves from Damascus’ tutelage — particularly when it comes to one of the most fungible of commodities: fuel. In another incident in Hama this summer, Syrian military forces discovered multiple tanker trucks of smuggled petroleum on their way to Islamic State territory. Fearing retaliation from Talal Dakkak, instead of confiscating and distributing the looted goods as proscribed, the officers quickly handed over the fuel to the local air force intelligence directorate. At that point, according to a local source in Hama, it disappeared once again.

While never a petro state, the sale of oil had accounted for more than 25 percent of pre-war government revenue and was responsible for a significant portion of the country’s foreign exchange reserves. After years of war, the regime’s formal command economy, especially its hydrocarbon sector, has all but collapsed. This summer, Islamic State militants blew up the last major gas facility still operating in the country, exacerbating the already tenuous situation in the country. Syria’s ever accelerating economic and fiscal tailspin has not only wiped out savings, diminished wages, and thus thrown millions into poverty, but also precipitated a dramatic currency collapse as I have seen from my own collection of black market exchange rates across Syria. Whereas the effect of inflation on military recruitment has been widely documented, currency depreciation has other secondary effects: At current rates, imports of basic goods have become prohibitively expensive. Meanwhile, the government price controls and producer monopolies have driven local producers into idleness and raised the incentive for smugglers to traffic what few goods enter the country right back across the border. The resulting price hikes, shortages, and rationing had a debilitating effect across the country, while making some men with the necessary know-how and muscle tremendously wealthy.

Consider for example the Desert Hawks, the regime’s second most important offensive formation and bitter rivals of the Tiger Forces. This unit was founded by the brothers Mohamed and Aymen Jaber, who personify the rise of smugglers to power. The two had made their first big money as ordinary criminals in the Iraqi oil-for-food smuggling bonanza of the late 1990s and then prudently invested their newfound wealth into state-granted monopolies on the Syrian coast during Bashar’s first privatization wave. In August 2013, under pressure from outside sanctions and rebel advances, Assad signed a decree allowing private businessmen to raise their own militias in defense of their capital assets. With the stroke of a pen, the regime thus armed its own kleptocrats. Over the next three years, the brothers would run oil convoys and money laundering operations through Iraq and Lebanon, protect oil facilities, and, in the process, build one of the regime’s most formidable fighting formations. While vowing loyalty to Damascus, they are, in practice, independent of Syria’s chain of command, financing, recruitment, and even procurement process. The Hawks pay up to three times regular army wages, operate private training facilities, and produce their own fighting vehicles. This much independence can lead to friction on the battlefield. During the much publicized Palmyra offensive in March, tensions between the Hawks and other loyalists came to a head, after Jaber accused the Tiger Forces of deliberately firing onto one of his positions, killing nine and wounding two dozen more. According to multiple sources, including since deleted social media accounts, the militiamen were said to have drawn their guns at Hassan’s men and threatened to depart. In the end, Damascus dispatched a high-ranking delegation to reconcile the warlords and bring the offensive back on track. The units have not shared a frontline since.

Siege economics

Rather than attempt to capture resource monopolies, certain armed groups have taken to making a profit by exploiting the suffering population directly. Consider the town of al-Tall, just north of the capital Damascus. Technically under a truce agreement with the regime, this small opposition community now houses hundreds of thousands of internally displaced people who have fled there from around the capital. Despite guarantees by the government, local loyalist militias tasked with manning the checkpoints in the area have recently begun leveraging a tax of 100 Syrian Pounds per kilogram on all incoming food products. Even a conservative estimate would put the monthly revenue of such a levy into the millions of U.S. dollars. This is enough to feed and supply the thousands of fighters manning the cordon, as well as their families. The watchdog group “Siege Watch” has put the number of civilians encircled by regime forces at an additional 850,000 across Syria. In these stricken areas, the cost of living has multiplied, with the difference syphoned off by those manning the bottlenecks. Put differently, with Damascus nowhere near able to finance and feed the families of loyalist militiamen, the encircling and taxation of civilians has an economic necessity for the regime to keep many of its most important frontline troops supplied and happy.

This is not merely to illustrate the moral evil of the Syrian regime, but to drive home a more important point: With public wages barely enough to feed the conscripts themselves, Assad’s men have long begun feeding off the land and the civilian population. Today, the larger part of loyalist fighting formations no longer rely on the regime for the majority of their income, equipment, or recruits. While strategically valuable to Assad, it is by no means certain that the regime is fully in control of upholding a number sieges, especially in rural Damascus, Homs, and the Qalamoun mountains. A local source who moves regularly between Damascus and Ghouta by way of smuggling tunnels, told me of local rebel battalions run by Syrian Arab Army officers. As the country’s economy and governance institutions continue to falter, these “ghosts,” as Syrians colloquially refer to regime-aligned criminals, have come back to haunt those in power. Despite what color-coded “control” maps show, Bashar al-Assad retains very little meaningful authority over much of the territory he is said to rule. As the war progresses, these dynamics will inevitably lead to divergence of interests among local fighters and the regime, as well as Damascus and its foreign backers.

The Cornered Regime

An incident that occurred in February of this year may serve as an example of what lies ahead. Engaged in heavy clashes with rebel forces near the town of Harbinafsah, militia leader Ahmed Ismail called on his fellow warlord in the neighboring town of Baarin for desperately needed reinforcements. Fadi Qaribish, head of the Baarins armed men, rudely refused the request. The following day, feeling betrayed and with a local ceasefire having taken effect, Ismail turned his guns against Qaribish. Before long, he was joined by detachments from Hama’s air force intelligence, looking to support their preferred client and squash the insubordinate militant. But Qaribish successfully fought off the combined attack and subsequently established his own checkpoints along the roads in the area, cutting into Ismail’s smuggling routes to the rebel pocket. The regime has not dared bother Baarin since.

Apparently too weak to coerce and too broke to bribe those who fight under its banner, Assad has made efforts to tie his subordinates closer to his Damascus by political means instead. This April’s parliamentary “elections” further indicated the structural transformation of the regime from a centralized state to a loose hodgepodge of warlord. A number of long-serving Ba’athist rubberstamp bureaucrats and local dignitaries, pillars of the regime’s traditional rentier system, lost their seats in favor of upstart smugglers, militia leaders, and tribal chiefs. The old guard took note: After results were announced, the supplanted agents of the regime in Hama dispatched an urgent delegation to the capital to warn Assad’s inner circle of the character and disposition of the men they had chosen to elevate. But for lack of alternative, Assad needs to keep these men close by.

Some of these may prove more problematic than others. Assad’s kleptocratic maternal cousins, the brothers Makhlouf, have built a militia network of their own through their Al-Bustan Association, a private foundation, created before the war that funds both humanitarian relief efforts as well as armed groups. This spans the width and breadth of regime-held territory and is carefully kept outside of state control. At the same time, the Ba’ath party’s earliest political nemesis, the Syrian Social Nationalist Party (SSNP), has reemerged on the scene and already made tremendous inroads among the country’s Orthodox Christian and Druze communities, recruiting for their own growing military wing. Considering the historical role the Makhlouf family played in the SSNP, many in Damascus have cause to worry about centrifugal forces tearing the regime apart even further.

Assad’s foreign sponsors are not much help either. Iran appears perfectly content with the muddled situation on the ground, having put great resources into developing its own client network across the country. Russia meanwhile, the country arguably most concerned with regime stability, appears to be oblivious to the entire situation. Its officers and soldiers are regularly photographed fighting and fraternizing alongside a wide range of tribal and sectarian militias. In one instance, photos surfaced of Russian soldiers fighting alongside members of the so-called Mountain Battalion, a small Alawite outfit that had made headlines last year when they announced the first ever loyalist suicide squad.


Over the past three years, despite foreign military aid and support, the regime under Assad has continued to atrophy at an ever increasing pace. If these trends continue, the Syrian president will soon find himself little more than a primus inter pares, a symbolic common denominator around which a loose coalition of thieves and fiefdoms can rally. Thus, with the slow decay of the once powerful state, military, and party establishment, the person of Bashar al-Assad himself has increasingly come to embody the last remaining pillar not of a state but of “the regime” and its brutal war against its own citizens.

The great majority of forces in Syria today, particularly among the regime’s minority supporters, fight an increasingly localized war for the protection of their particular communities. It is only through the continued existence of the regime — personified in Assad — that these defensive goals have been tied to an aggressive, national vision which we know to be unacceptable to a great majority of Syrians, disastrous to its supporters, and militarily unrealistic. While removing the tyrant may spark in-fighting among the surviving warlords, it would likely not mean a collapse of their forces and the slaughter of their villages. Latakia is being protected not by Assad’s largely imaginary “4th Corps” of the Syrian Arab Army, but by Mohamed Jaber and his merry men of the Desert Hawks. If indeed there is no strong bureaucratic and military class left that could salvage and revive the state and if loyalist militants have developed an increasing degree of self-reliance, then the situation is not as Western policymakers assume. Syria’s president has become not only perfectly expendable as guarantor of the state, but ought to be considered the last remaining obstacle to a peace process based on local ceasefires and return to displaced peoples to their home communities.

This makes those calls heard in Western capitals, as well as Moscow, that Syria’s state institutions must be preserved ring hollow. All this suffering — to preserve what precisely?

It is the fiction of a national regime upheld by Assad that drives the worst abuses of this war, that obliges Alawite kids from the coastal mountains and the plains of Hama to fight their own countrymen in distant corners of a country long fractured into smaller fiefdoms beyond the reach of the state. The United States should not be complicit in this pretension. The Syrian state is gone for good. At this point, a quick decapitation might be preferable to a drawn-out implosion.

When Syrians first rose up, they demanded not just the downfall of Bashar al-Assad, but of the “nizam.” Commonly translated as “regime”, it more closely means “system”. Humanitarian suffering, state failure and — yes — terrorism in Syria are not competing concerns that need to be balanced, but symptoms of a singular disease: The mis-rule of Bashar al-Assad and his clients, cronies, and the petty criminals it has elevated to power.

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