Happy New Year!  As I indicated in the close of the November letter, as Americans we should begin the new year and the prospect of a new era in our politics with enormous pride in and thanks for the wisdom of the system that will again allow us to perform the true miracle of the American experiment–the peaceful and seamless transition of political power in the most powerful nation on Earth.  And as patriots, regardless of our partisan leanings, we should also wish our new President God speed and every success in the best interests of the American people.

As for those of us in the loyal opposition who tend toward the traditional and conservative on the political spectrum, we are presented with a set of challenges that haven’t confronted our movement for at least a generation and, as I have suggested, will require some deep soul-searching, for all is not well in the great land of political conservatism and significant damage has been done to the brand of the party that has been its vehicle, most of it self-inflicted.  It has been suggested by several that much of the introspection needed by the Republican Party about its future and that of the conservative movement will be largely determined by the result of a lengthy debate about the Bush administration.  That may be true, and I will have my own thoughts about the outgoing President soon, but at this point I will leave all of the party introspection to others, because, as I have previously written, the GOP is important to me only to the extent that it serves as a useful vehicle for political conservatism.

So, whither conservatism in the new era that is upon us?  Peter Berkowitz of the Hoover Institution at Stanford University, building on the work of Edmund Burke, has written that the essence of modern conservatism is the balancing of the claims of liberty and tradition, or showing how liberty depends on tradition.  Further, he adds that the divisions within contemporary American conservatism–social conservatives, libertarians, and neoconservatives–arise from differences over which goods most urgently need to be preserved, to what extent, and with what role for government.  There is much more to his analysis about how the hotly contested debates among these divisions over the competing goods play out, but this is about as concise a modern definition as I have seen. 

In the wake of recent election defeats, conservatives have been counseled by a range of observers to build a “bigger tent”, adopt a more “moderate” stance on a number of issues, particularly those that are considered “social” in nature, to be more ”inclusive” and more “tolerant”.  We are told that there is a creeping “anti-intellectualism” in the movement and a turn to populist demagoguery cultivated by its principal media spokesmen, Rush Limbaugh and Sean Hannity, and personified by the new conservative star, Sarah Palin.  We are advised that the demographic and generational changes in our country demand that conservatism be “modernized” to reflect the new notions of procedural fairness and social responsibility, as well as enlightened government activism to realize the goals of “positive liberty”, as opposed to the “negative liberty” conceived by the Founders.   

Some of this advice may be well taken, although I don’t buy into a lot of it, and all of it should be included in the mix of discussion about the future of conservatism as a political movement in America.  And I agree that conservatism needs new faces and that it should rethink and develop new applications for its traditional values as they apply to contemporary issues in addition to the priority of goods to be preserved.  But I am troubled by those who preach “moderation” as the answer for the problems of conservatism.  What is a moderate?  Is it someone who splits the difference on policy issues?  Is it someone who is “middle of the road”?  What does that mean in the context of specific issues? 

I suspect that most who use the term ”moderate” have in mind its application to the issues that are usually most important to traditional or social conservatives.  Should these be off the table entirely as some suggest?  Why should consideration of our most deeply-held values, those that are foundational to who we are as a people and as a culture be left off the table of policy deliberation?  And can we and our public policy really be moderate or neutral on these foundational beliefs?  Can we be neutral on the validity of the ideas espoused in the second paragraph of the Declaration of Independence?  Can we be neutral on the foundational belief in a moral order undergirded by natural law?  Can we be neutral on the degree to which the freedom and equality we champion can be sustained only within this moral order?  What is moderation in these contexts?  If we adopt a neutral stance on these issues and their implications, or bracket them out of public discourse, then our civic republican ideal of ordered liberty under the rule of law cannot survive.  In the right ordering of the priority of goods, these goods must have the heaviest weighting; otherwise, all the other goods treasured by conservatives will be moot. 

In a more recent article, Berkowitz suggests that a successful compromise among the divisions in conservatism can be built around a commitment to our constitutional order and its underlying principles, much as I have indicated here, but that the demand for purity by the partisans of the two major blocs–social conservatives and libertarians–will be destructive.  I agree, for the reality of simple electoral math is that neither wing can be successful without the other.  

This is not a rhetorical exercise, for the hopefully revived and enhanced conservative movement will be immediately challenged by a new regime that has a drastically different worldview, including that of America’s foundations as well as its future role.  It will ultimately reveal itself as the most radically leftist regime in American history and one that is Eurosocialist and multicultural to its core.  What will follow is a battle for the political soul of the country.  So let the debate proceed with considerable urgency. 

It is comforting to think that the worst of the economic meltdown may be behind us, that hopefully the extreme volatility of the markets has abated somewhat and they have found their bottom for the time being, but I fear a more profound and longer lasting negative impact from the “cures” that have been applied and proposed.  The most destructive policy has been the Federal Reserve’s failure to honor its most important responsibility–to preserve the value of the dollar. 

Believe what you will about the causes of the recent crisis, but the political corruption of Fannie and Freddie, the failure of regulatory oversight, and the overreach of Wall Street product engineering would have produced relatively controllable aberrations were it not for the enabling availability of oceans of excess dollars that financed the debacle.  Aside from this role played by the Fed’s monetary policy over the past five years in misallocating capital in excessive amounts to the subprime mortgage market, the policy that has been pursued over that period has been destructive in a number of other respects.  It has used a cheapened dollar as an instrument of trade protection, thereby significantly damaging U. S. credibility in world markets, which for the country that manages the world’s reserve currency is absolutely critical to world order.  It has undermined the world’s pricing discipline, for our markets can operate to clear themselves only in an environment of rational pricing based on the value of underlying goods and services without the manipulation of exchange rates by central banks.   It has destroyed the anti-inflation discipline of the past 25 years and, with the prospect of new “stimulus” plans proposed by the Obama administration, which can only be financed by the creation of many billions of additional dollars along with the expected tax increases, it will be the accomplice for what I fear will be a renewed round of 1970s-style stagflation, which will have repercussions for entrepreneurial activity far beyond its immediate impact on inflation and prices. 

My hope is that, as a principal advisor to President Obama, Paul Volcker will speak forcefully against this continued misdirection in Fed policy, although it appears that he may be in the minority on the new economic advisory team.   As for the longer term, we need a revived Bretton Woods type compact among a new league of democracies, one that will restore gold backing to the dollar and tie the dollar to the world’s currencies.  Our role as the keeper of the world’s reserve currency and our stewardship of order in world financial markets is much more than a good strategy, it is a moral obligation and we have failed to uphold it.

No One Sees God, by Michael Novak

Novak is one of the more insightful theologian/philosophers and in this release he is at his most provocative.  He draws from his lifelong study of philosophy and his personal struggles with religious faith and belief in exploring the age old debate between faith and reason.  He does so by demonstrating the ways in which both atheist and believer experience the “dark night” of the void, where God seems nowhere to be found.   The most interesting parts of the book are his challenges and responses to the currently most popular atheists, Dawkins, Dennett, Harris, and especially Christopher Hitchens.  Not a light read, but worth the effort.

The Return of History and the End of Dreams, by Robert Kagan

This is a follow up to Kagan’s widely acclaimed Of Paradise and Power.  In it, he explores the new realities following the expected peaceful international order that was to have followed the end of the Cold War and poses the important questions facing the liberal democracies by the growing threat of the eastern autocracies, China and Russia, and the international competition and possible regional conflicts posed by those countries in addition to Europe, Japan, India, and Iran.  A very concise and insightful overview and a touch of reality for the incoming Obama administration.

Education’s End: Why Our Colleges and Universities Have Given Up on the Meaning of Life, by Anthony T. Kronman

If you were a fan of Allan Bloom’s The Closing of the American Mind, or didn’t read it but wondered what all the fuss was about, or if you simply have wondered what has happened to the core academic curriculum of the American university and its impact on the past couple of generations of American youth, this is the book with the answers.   Over the years, I have grown in my belief in the basic premise of this book: that the questions of what living is for and of what one should care about and why are the most important questions a person can ask.  It is one of the great tragedies of higher education in this country that these questions have been relegated to the backwaters of the academy and, in fact, have in most cases been expelled from the classrooms of our most prestigious campuses.  Kronman explores why this happened on our watch and calls for a restoration of the pursuit of the quest for life’s meaning to its proper place in higher education. 

On a personal note, I had the opportunity to meet the author when he spoke to the supporters of the Program in Western Civilization and American Institutions at The University of Texas at Austin, on whose board of visitors I serve.  I am pleased to say that this program has received national notoriety as a breakthrough at a major university with the potential to help reverse the unfortunate situation he describes.

Last month I wrote of the disaster looming in the form of 1970′s style “stagflation” as a result of a continuation of the misguided Federal Reserve monetary policy of the past five years that has disregarded its first priority–the protection and stability of the value of the dollar.  Now for the second leg of the looming disaster, one that is being formulated as I write by the “world’s greatest deliberative body”, the U. S. Senate, as it debates the economic stimulus plan written and advanced by the left wing of the majority party and inspired and enabled by the popularity of our new President.

Former George Bush aide Pete Wehner and Congressman Paul Ryan couldn’t have made it clearer for us in a recent op/ed: “We need to understand this new moment…………This will reshape, in deep and enduring ways, our nation’s historic sensibilities.  It will lead here, as it has elsewhere, to passivity and dependence on the state.  Such habits, once acquired, are hard to shake.” 

We were given advance notice of these transforming intentions by President Obama’s Chief of Staff, Rahm Emanuel, when he said quite matter of factly, “You never want a serious crisis to go to waste.  And what I mean by that is an opportunity to do things you think you could not do before.”  This is about as transparent as one can be.

In his inaugural address, President Obama was quick to depart from Ronald Reagan (“government is the problem”) and even Bill Clinton (“the era of big government is over”) with his assertion that “The question we ask today is not whether government is too big  or too small, but whether it works.”  He ignores one very big problem–government is never benign.  At some level, whether successful in its immediate objectives or not, it brings unintended consequences and becomes tyrannical in terms of its coercive nature and its tendency to create dependency and sloth.  Such is the new moment that Messrs. Wehner and Ryan admonish us to understand. 

Andrew Gelman of Columbia University is further instructive on this point in outlining the futility of political direction of a complex organic economy:  “The law of unintended consequences is what happens when a simple system tries to regulate a complex system.  The political system is simple.  It operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misguided incentives.  Society in contrast is a complex, evolving, high-feedback, incentive-driven system.  When a simple system tries to regulate a complex system you often get unintended consequences.”

This is exactly what will happen with the plan currently under debate.  An additional problem with this one, however, is that some of the worst consequences of the plan will not have been unintended by the perpetrators.

Recently, I revisited the 1978 classic, The Way the World Works, by the late Jude Wanniski.  For those of you too young to remember, Wanniski’s work followed on that of Art Laffer and Robert Mundell in fully developing the theories of Jean-Baptiste Say into the supply-side economics that were the platform for the Reagan Revolution of the 1980′s and the Bush economic recovery of the mid-2000′s, the tax policies that are consistently dismissed by the left, as recently as this week by President Obama,  as the “failed policies that got us here”.   In response, we should forcefully remind these critics, as well as some who should naturally be more supportive of these principles, that supply-side fiscal policy, when combined with monetary policy that protects the value of the dollar, has worked every time it has been properly implemented because it relies on human nature and the power of marginal incentives to alter the functioning of the complex market systems that Gelman describes. 

This is the only way out of this crisis of confidence.  I don’t deny that the resources of government will be necessary to enable the recovery, particularly in shoring up the financial system.   But the organizing principle should be, “do no harm”.  And more government intervention and regulatory oversight is not and has never been the answer to such crises, nor is more Keynesian-style spending on make-work projects, nor targeted tax ”rebates” to non taxpayers.  But Obama will get his stimulus bill in one form or another, because ”they won” and the great “moderates” we all admire will provide the deciding votes to win the day, but it will be a day that portends much worse news down the road, because global markets will not stand still while we experiment with Eurosocialism, American-style.   There will be a larger price to pay later.  Remember to understand this new moment.   

There is so much to deal with and so little time and space, so here are some odds and ends:

Executive Pay Limitation

The new policy of capping executive pay at $500K annually is typical government populist feel good nonsense.  It suffers from a number of flaws–it reflects complete ignorance of the financial services incentive system; the market will go around it and find other ways to compensate the best talent; it will have the unintended consequence of pushing many talented people into other career pathways, to the detriment of the recovery; and it may very well be a violation of the freedom of contract protection of the Constitution.  A better way to handle the CEOs of bailed out companies is the way the FDIC handled CEOs of bailed out banks in the 1980s–remove them.  

Only in California (Let’s Hope)

California Attorney General Jerry “Moonbeam” Brown is asking the California Supreme Court to declare unconstitutional, seemingly on natural law grounds, the constitutional amendment approved last November by the voters of that state defining marriage as a relationship between a man and a woman.  The perversity of this is mind boggling–as Kenneth Starr notes in response to Brown’s petition, the consequence of it would be that the people can never amend the Constitution to overrule judicial interpretations of inalienable rights. 

I am a natural law devotee.  In giving birth to the “second founding” at Gettysburg, Lincoln merged the natural law espoused by the Declaration of Independence with the negative rights and positive law of the Constitution.  But nowhere in natural right/natural law philosophy is the right to marriage, which is a convention based on the concept that the union of one man and one woman is the most successful means by which children are nurtured and continuity provided to social order.

Limbaugh Out of Bounds?

I was struck recently by the criticism of Rush Limbaugh, who was accused by many of wishing for a failed Obama presidency.  After listening to his taped remarks, that is not at all what he said.  Let’s get this straight–a successful government is not necessarily coterminous with a successful country, nor is a successful or failed presidency determined by the polls gauging the popularity level of a particular President.  Barack Obama is my President, but I am no less patriotic if I wish my President well in the service of the best interests of the country while applauding his failure to successfully adopt policies that are detrimental to the welfare of its citizens.  I wish this President well, but if his success be defined by how well he implements policy that in my estimation moves this country closer to socialism at home and defeat abroad, I pray that he is not successful.

Students as Customers

It was recently reported that a large majority of faculty members at three Texas A&M University campuses declined to participate in cash bonus program based on student evaluations which is part of a group of proposals by Gov. Rick Perry designed to increase accountability in higher education.  This was deja vu for me.  While serving on the Board of Regents of Stephen F. Austin State University in the early 1990′s, I proposed a somewhat similar program there, and the response was about the same.  Listen to what Robert Kreiser of the American Association  of University Professors had to say about the TAMU plan: “Students are attending colleges and universities to be educated; they’re not there as customers; they are not there to get a product as one would in a supermarket or a department store.”  This is very similar to the response I received fifteen years ago, and my response to Mr. Kreiser is this–many of us have had quite enough of this arrogance, and you and your colleagues had better take a longer look at the changing configuration of the K-16 continuum in education as well as the latest customer-driven college cost/benefit analyses lest you become obsolete.

Darwin and the Texas State Board of Education

Count me among those who believe that the State Board’s recent debate over a short phrase in the Texas science curriculum standards was an unfortunate waste of time.  It was not, however, without importance, and it did not deserve the ridiculously slanted coverage that it received by the uninformed media.  The phrase in question currently reads as follows:  “The student is expected to (a) analyze, review, and critique scientific explanations, including hypotheses and theories, as to their strengths and weaknesses, using scientific evidence and information.”   The offensive language, in place for twenty years, is in bold type.  The Board narrowly voted to remove the phrase and replace it with similar, but “more scientific” language, due to the fear that the current phrase has become an opening to challenge Darwinian evolution of species and other elements of the theory.

Here is my problem.  Far from simply supporting science, the Board has now succumbed to the fallacy of scientism in the paranoid fear that somehow the investigation of any weakness in Darwin’s theory will lead directly to teaching creationism.  It is important for both sides in this debate to make a distinction between the two types of evolution.  Micro-evolution, change within species, and macro-evolution, change from one species to another, are different theories.  Critics of Darwinism must understand that micro-evolution is factual and clearly happens; supporters of Darwin must acknowledge that macro-evolution remains very much a theory that should be subject to scientific critique.  Let’s don’t take this issue down the path of the environmental totalitarians with their notion that the ”global warming debate is over”.  More importantly, let’s don’t close the minds of our kids. 

Can We Handle the Truth?

In all of the debate over the accusations of torture by the Bush administration, the alleged violation of civil rights perpetrated by abusers of the Patriot Act, the alleged mistreatment of prisoners and world condemnation of our detention facility at Guantanamo Bay, I am often reminded of the famous challenge issued by Jack Nicholson as Col. Nathan Jessup to his interrogator played by Tom Cruise in “A Few Good Men”: “You can’t handle the truth!”  Jessup was clearly in the wrong, but his plight was not without some sympathy in the context of our present predicament and that of those on the picket line manning the outer edges of our defense of freedom, as well as those who command them.  I suspect that President Obama has a significantly more refined appreciation of the trade offs today than before he began receiving regular security briefings shortly after election day.  So when he said in his inaugural speech, “As for our common defense, we reject as false the choice between our safety and our ideals”, he probably now has a much different perspective on this choice than the luxury of the campaign trail would allow.  Closing Gitmo was a pander to buy a year’s time with the anti-war, anti-American left, both at home and in Europe, and his apology for the past 20-30 years’ treatment of Muslims over Arab TV, extremely disappointing and misguided on its own, will appeal to the same sensibilities.  But these gestures will also send a message of weakness to a world that understands only one thing–power and the will to use it.  Obama is a lot closer to the truth and the realities than he was a couple of months ago.  Let’s see if he can handle it.

With my first essay in this “disaster” series, I thought one or two would be plenty.  Alas, the disasters just keep on coming.  Now we have Obama’s first proposed budget, and it simply takes your breath away.  

First, a dose of reality.  From a purely financial disaster standpoint, former Bush economic advisor Larry Lindsey put it in concise perspective recently on CNBC, as follows:  The proposed budget bill when combined with the so-called stimulus package will result in a budget deficit of over 12% of gross domestic product (GDP).  By comparison, the 2008 deficit percentage was 4% of GDP.  About half of the increase will be financed by the increased savings of Americans; the remaining 4% of GDP must be borrowed or printed.  To put this in further perspective, according to the Congressional Budget Office, the largest expenditure increases by the Federal government in response to a recession since 1948-49 were just over 2% of GDP in both 1973-74 and 1981-82!  Who will lend us the funds to finance this gigantic sum?  Long term bond rates have been increasing in anticipation of this unprecedented borrowing demand and inflationary expectations and, based on Lindsey’s rounds among world financial centers, investors are not generally willing to finance these deficit levels for our ”social transformation”.  Therefore, a large portion of the deficit must be monetized by our Federal Reserve, in other words, printed.  This is the hottest of monetary growth, highly inflationary, and will cause the dollar to tank, thereby debauching our currency and defrauding current bond holders.

For corroboration of this scenario, look no further than liberal Washington Post columnist Michael Kinsley: “Even if the stimulus is a magnificent success, the money still has to be paid back…………There is another way: don’t pay it back……..Just three or four years of currency erosion at, say, 10% per year would slice the real value of our debt in half…………Inflation works only as a surprise or betrayal.  It can never be part of any public, official plan……..But if that’s not the plan, what is?”  At least he’s being honest about the dirty little secret. 

Where were you from 1966 through 1982?  Remember the massive monetary growth spawned by the Johnson Great Society which gave us fifteen years of stagflation cured only by the Reagan tax cuts and the crushing monetary policy of Paul Volcker’s Federal Reserve?  That was a walk in the park compared to the prospects offered by the Obama recovery and budget plans.

Folks, nothing about this has anything to do with a recovery plan.  It’s a bold and audacious attempt to transform American society in the vision of the progressive movement of the early 20th century.  The Obama budget is even subtitled, “Reviving America’s Promise”, a paraphrase of the The Promise of American Life, the progressive “bible” written in 1909 by their patron saint Herbert Croly, one of the founders of The New Republic.  Listen to David Broder: “…a change of domestic policy of historic size…..it could remake the government’s relation to American society…”; to E. J. Dionne: “….he has sought, subtly but unmistakably, to alter the nation’s political assumptions, its attitudes toward collective action and its view of government”; to Robert Reich: “We can basically say goodbye to the philosophy espoused by Ronald Reagan and Margaret Thatcher”; and to Charles Krauthammer: “….the current crisis gives Obama the political space to move the still modest American welfare state toward European-style social democracy”.

A few people are slowly beginning to wake up.  Obviously, the financial markets have voted NO in about as loud and clear a voice as can be expected.  Some of the more responsible members of the moderate wing of the Democratic Party are getting nervous.  Many of Obama’s upscale “left coast” financial backers in the technology and venture capital communities are having doubts about his true priorities.  But there can be no false sense of security that the progressive left will heal or correct itself.  They basically see this through the lens of those media fellow travelers like Dionne, Reich, Paul Krugman, and the amen corners at the New York Times and in the upper reaches of the elite universities.  This is the opening they have been waiting for since Reagan came onto the scene, and it will require an enormous effort, including a large dose of the kind of moral courage that has been a rarity of late, to turn the tide.  As Pat Buchanan has suggested, “it’s pitchfork time”.

Joint Chiefs of Staff Chairman Admiral Mike Mullen moved us one step closer to reality recently with his statement that Iran now has enough enriched uranium to build a nuclear bomb, thus confirming a similar report by the United Nations nuclear weapons agency.  Secretary of Defense Robert Gates was quick to add that “there is some time”, but how far are we from the day when we will be forced to confront a nuclear-armed fanatic that has pledged to eliminate us and our strongest and only true Middle East ally?  Everything we have attempted has failed–talks conducted by the Europeans, sanctions, economic and diplomatic pressure–and in fact, much of it has served to embolden Iran’s Ahmadinejad, who knows very well that we will not get help in the form of pressure on him from Russia, even if we concede on every contentious point with Putin–Georgia, Ukraine, the Eastern European missile defense shield, etc.  And he also knows that the United Nations Security Council will veto any proposed resolution of military force against them.  President Obama’s team is “studying” the management of relations with Iran, and evidently remains committed to diplomacy in an international configuration as an end in itself.  Meanwhile, this is not a rhetorical exercise for Israel; it is life or death.  And the new Israeli government being organized by Benjamin Netanyahu will not be bashful about moral clarity on the issue.  Nor should we.  

I have just read a short, but compelling book, Faith, Reason, and the War Against Jihadism, by George Weigel.  In it he reminds us that the war we are in (and have been since at least 1979) requires first, that we understand our enemy.  In describing Ahmadinejad, he distinguishes his mission from that of the Sunni jihadists like Osama bin Laden, who want to restore the Islamic caliphate.  Shiite jihadists like Ahmadinejad have an entirely different objective: to hasten the return of a messianic figure, the Twelfth Imam, who will cleanse the world.  Hence, the mission is of an apocalyptic cast of mind and he and his cult believe that they are obligated to do whatever they can  to hasten this age, including incinerating Israel and its allies, even if it means self-destruction.  Not exactly the symmetry in a relationship that makes it anywhere close to analogous to our Cold War with the Soviets.  So I wish our President well in his diplomatic attempts, but meanwhile, we’d better be well prepared, militarily as well as emotionally and politically, for the next step, which might come sooner than we think. 

One of the most insidious consequences of the worldwide recession, particularly if it persists for an extended period, will be the growing tendency toward “economic nationalism”, or, to put it more bluntly, the protection of markets, industries, and jobs by home countries who feel threatened by free trade in a shrinking economy.  It’s a natural emotion, and one fanned by populist demagogues to their political benefit and often the detriment of their people.  Of course, the worst example of this phenomenon was during the Great Depression, where the “beggar thy neighbor” trade policies spawned by the disastrous Smoot-Hawley Tariff Bill in the U. S. is generally considered to have greatly deepened and prolonged the worldwide slump. 

In A Splendid Exchange: How Trade Shaped the World, a great book that I reviewed last year, author William J. Bernstein takes a slightly different view of the impact of Smoot-Hawley, but one that is instructive in any case.  He says that, contrary to common belief, the bill did not significantly decrease overall trade flows, it probably resulted in only a 1-2% decrease in world gross domestic product, protectionism was already a big problem even before its adoption, and that it merely represented the peak of world protectionist attitudes.  Notwithstanding that somewhat different take, he acknowledges the really significant long term damage done by the bill and the attitudes that it represented.  Its most devastating impact in his opinion was the damage done to the intangibles of trade: the expansion of consumption beyond domestic goods, commerce with and living among foreigners, and understanding their motives and concerns.  He believes that these damages had a significant bearing on the subsequent growth of economic nationalism and the run up to World War II.

This point is worthy of further debate at another time, but I submit that it has some relevance to our current situation.  If we encourage and/or pursue the growth of the attitudes represented by economic nationalism, it will have a huge impact on our interests, but will have even a greater negative impact on those developing nations who desperately need open access to world markets for their often limited competitive products.  In fact, according to Bjorn Lomborg of the Copenhagen Consensus Center, the completion of the stalled Doha Round of free trade negotiations, now in their eighth year, would represent the biggest global stimulus package that we could otherwise design, producing $120 billion per year in direct gains by 2015, $17 billion of it going to the poorest countries. 

Conversely, if we continue to stall these talks and block further progress in liberalizing trade with notions like “Buy American” provisions and unrealistic labor and environmental restrictions, it will not only damage our interests, but serve to alienate our potential partners and provide ammunition for the demagogues who prey on the emotions fired by economic nationalism.  

“If human embryonic stem cell research does not make you at least a little bit uncomfortable, you have not thought about it enough.” — James A. Thompson, the first scientist to isolate human embryonic stem cells, as quoted by Charles Krauthammer.

Krauthammer served as a member of President George W. Bush’s Council on Bioethics and has recently characterized Bush’s widely vilified stem cell policy announced in 2001 as having been thoroughly vindicated.  How so?  First, because he had the courage of his convictions that a moral line had to be drawn; and second, by supporting research that might lead to the production of stem cells of adult origin, thereby bypassing the need for creation of human embryos for research purposes.  The successful result of this research having now been achieved, there is now a plentiful and, according to reliable scientific authorities, an even more productive source of stem cells.  Thus, the complete vindication of Bush’s courage and confidence, which, not so incidentally, was articulated by him at the time in a speech that was delivered with fairness, balance, and due respect for the moral seriousness of the issue.

Now comes President Obama, who delivered on one of his campaign promises by reversing the Bush policy on federal research on embryonic stem cells and, by so doing, returned the issue to the political arena in a way that is disingenuous at best and anti-democratic at worst.  First, he has not only needlessly reversed the policy restricting embryo-destructive research funding, but he has reversed the order that encourages the National Institute of Health to further pursue non-embryo-destructive sources of stem cells.  Of course, this is exactly the kind of ”in your face” rejection of Bush policy that is red meat for Bush-haters and food for Obama’s leftist base.

But second, and at least as important, as Robert George so well described in a recent article, far from “removing politics from science” as he has claimed, Obama’s decision is simply anti-democratic.  The question of whether to allow the destruction of human embryos for research purposes is fundamentally a moral and civic question about the uses and limitations of science, not a scientific question.  On this most basic of considerations on this issue, Obama has nothing to say.  He leaves full discretion to the scientists, a complete abdication to scientism.

So the politics of the issue will continue and, in fact, will escalate; the question now is whether it will play out in an orderly fashion through a deliberative democratic process. (On this last point, I am pleased to note that the Texas Legislature is taking on the issue through healthy debate on legislation now pending.)

Obama’s decision will almost certainly provide new incentives for taxpayer funding of federal stem cell research, which will in turn produce new incentives for destruction of human embryos, a huge supply of which will be the “leftovers” from invitro fertilization (IVF) clinics, an issue which has acquired significant prominence, as highlighted by such extremes as the recent case of  the “octomom”.

Leon Kass, the former Chairman of President Bush’s Council on Bioethics, warned as early as 1972 that IVF would one day pose almost insoluble dilemmas, the most consequential of which is the changing conception of ourselves, what it means to be human, and “the erosion of our idea of man as something splendid or divine, as a creature with freedom and dignity; and clearly, if we come to see ourselves as meat, then meat we shall become.”

As Ramesh Ponnuru has noted in a great essay on the IVF issue, the problem of mass creation and destruction of “excess embryos” illustrates that some slopes are indeed slippery.  And it’s not as though some very thoughtful people haven’t warned us.  As the man said, if this doesn’t bother you, you need to think again and more deeply.

 I am pleased to include in this issue the following guest essay from David Ikenberry, Professor of Finance and Associate Dean for Executive Programs of the College of Business, The University of Illinois at Urbana-Champaign, who brings unique perspective on hedge funds and their particular role in the recent financial meltdown.

It’s funny when you come across phrases where their underlying meaning conflicts with what we know their commonsense interpretation to be.  One such oxymoronic phrase in the financial world is the “Hedge Fund.”  Hedging is normally thought of as reducing or limiting risk.  We hedge our bets all the time when we buy insurance.  The cost of hedging is one we willingly pay to avoid the economic shocks of life. 

It’s striking then that that these two little, innocent words, hedge fund, have recently become the bane of our economic existence.  Embattled leader, Edward Libby, CEO of AIG Corporation, recently conveyed to Congress that the insurance firm had grown into an internal hedge fund overexposed to market risk.    

How did the concept of insurance and risk reduction get twisted into risk acceleration?  In their earliest days, hedge funds were indeed risk reducing investments.  Managers of these funds did what nearly all good investors do, they made what they felt were good investments.  The hedge concept came about as managers used techniques to trim unwanted exposure to the broader markets that was otherwise necessary for holding their good investments.  To accomplish this, these funds needed a legal structure allowing the risk reducing trades to happen, something that normally was not possible.     

When we hear the phrase hedge fund, we should instead think of this rule structure.  Yet the same financial agreements needed to reduce risk also allowed hedge funds to magnify it.  Soon, managers would search for investment opportunities and use leverage to amplify those gains into what was intended to be handsome profit.  After all, if hedging comes at a cost that reduces returns on average, leverage was a way to restore it.  That lens of financial magnification was the distortion needed to transform us off the primrose path.  And of course, if a little is good, a lot must be better.      

Over time, many hedge funds used complex strategies to identify persistent pricing mistakes or anomalies in the marketplace.  Others went on statistical scavenger hunts, looking for small discrepancies in our financial veneer.  As long as those relationships were stable, the strategies worked.  But just as the optical magnifier can bring fire to the printed page, the same could occur for these funds.

If only a few such funds existed, these disturbances would not have affected all of us so broadly.  However, many of our largest endowments, each pursuing good social purposes in their own right, were unknowingly walking around with these magnifying lenses, some with a lens in each hand.  Many of our formerly grand investment institutions held similar positions.  A blip in our economy diverted us from the key statistical assumptions needed in those hedge fund models – this was clearly the case at AIG.  Boom, our economic world erupted in fire. Is it true that if cattle cars haul cattle, surely we must stand back from fire trucks for they haul fire?