By: Eichengreen, Barry, Foreign Affairs, 00157120, Sep/Oct2009, Vol. 88, Issue 5
The World's Top Currency Faces Competition
LEGIONS OF pundits have argued that the dollar's status as an international currency has been damaged by the great credit crisis of 2007-9--and not a few have argued that the injury may prove fatal. The crisis certainly has not made the United States more attractive as a supplier of high-quality financial assets. It would be no surprise if the dysfunctionality of U.S. financial markets diminished the appetite of central banks for U.S. debt securities. A process of financial deglobalization has already begun, and it will mean less foreign financing for the United States' budget and balance-of-payments deficits. Meanwhile, the U.S. government will emit vast quantities of public debt for the foreseeable future. Together, these trends in supply and demand are a recipe for a significantly weaker dollar. And as central banks suffer capital losses on their outstanding dollar reserves, they will start considering alternatives.
This is especially likely because these trends are superimposed on an ongoing shift toward a more multipolar world. The growing importance of emerging markets has sharply reduced the United States' economic dominance, weakening the logic for why the dollar should constitute the largest part of central-bank reserves and be used to settle trade and financial transactions.
As emerging markets grow, they naturally accumulate foreign reserves as a form of self-insurance. Central banks need the funds to intervene in the foreign exchange market so that they can prevent shocks to trade and financial flows from causing uncomfortable currency fluctuations. This capacity becomes more important as previously closed economies open up and when international markets are volatile, as has been the case recently. It is only logical, in other words, for emerging markets to accumulate reserves.
But in what form? There is a growing feeling among economists and government officials that any system that uses a national currency, such as the dollar, as international reserves is seriously flawed. In order to acquire dollar reserves, countries must run current account surpluses with the United States. The U.S. government, for its part, finds it easy to finance its current account deficit: the foreign central banks that buy its debt securities are a kind of captive market. Insofar as foreign central banks are net buyers of U.S. debt securities--that is, so long as demand is high--U.S. interest rates are lower than they would be otherwise. This allows the U.S. government and, indirectly, the household and corporate sectors in the United States to assume more debt. And as has been shown at considerable cost recently, excessively low interest rates and easy credit are conducive to asset bubbles and, ultimately, financial instability.
These problems were not so pronounced while the U.S. economy was large relative to the world economy and the additional demand for dollar reserves was modest. But over the last decade, neither condition has prevailed. The flow of foreign finance for the U.S. current account deficit grew disturbingly large--a manifestation of what is sometimes referred to as the problem of global imbalances. To be sure, this was not the only factor to set the stage for the crisis; at least as important were distorted incentives created by skewed compensation practices for institutional investors and lax government supervision and regulation. But to the extent that global imbalances did play a part in the crisis, the dollar-based reserve system is implicated.
Like its economic logic, the political logic for a dollar-based international monetary and financial system also seems less compelling today. After World War II, when the United States stationed significant numbers of troops in Europe and Asia, the host countries viewed providing limited support to the U.S. debt market (by accumulating dollar securities) as a quid pro quo. Today, it is not obvious to them why they should subsidize the U.S. government and prop up Americans' living standards. Foreign officials increasingly object to the United States' "exorbitant privilege," as Valéry Giscard d'Estaing, then the French finance minister, put it in the 1960s, and are actively contemplating alternatives to dollar reserves.
AN INCONVENIENT TRUTH
THE ONLY problem is that, for all the talk about change, the dollar's importance to the world has not diminished. In the foreign exchange market, the dollar actually strengthened following the outbreak of the crisis. When investors fled to safety, they fled to U.S. Treasury bills. In the face of spreading illiquidity, U.S. and foreign investors alike sought refuge in the most liquid market, the market for U.S. government debt securities. Since then, the dollar exchange rate has fluctuated, but there has been no dollar crash. And there is no evidence of a massive loss of confidence.
The same conclusion follows from data on the composition of the foreign currency reserves of central banks and governments. According to the International Monetary Fund (IMF), 64 percent of all identified official foreign exchange holdings were in dollars at the end of 2007, down only marginally from 66 percent in 2002-3 and still considerably higher than during the first half of the 1990s. (The dollar represented 71 percent of all identified holdings in 1999, but this unusually high number reflected the one-time destruction of Germany's French franc reserves and France's deutsche mark reserves; these became domestic-currency-denominated claims when the euro was created.) IMF data on the composition of international reserves are incomplete, since some countries, notably China, do not report theirs. One way of inferring those countries' dollar reserves is to look at the U.S. Federal Reserve's custodial holdings of U.S. Treasuries on behalf of foreign central banks. These show that foreign authorities have continued to accumulate dollars, and even accelerated their purchases in the first half of 2009.
All that has changed is that foreign central banks are now accumulating U. S. Treasury obligations rather than the securities of government agencies such as Fannie Mae and Freddie Mac and that they are favoring short-term bills over long-term bonds. Late last year, the further accumulation of Treasuries arguably could have signaled that foreign public investors were shifting from bank deposits to Treasuries because they were alarmed by the condition of the U.S. banking system. But this is a less likely explanation today, now that confidence in the U.S. banking and financial system has begun to return. The crisis may have deterred private foreign investors from investing in the United States, but it has not deterred foreign central banks, which are accumulating dollars at least as fast as before. They are providing a growing share of the financing for the United States' current account deficit.
FIRST-MOVER ADVANTAGE
WHAT, THEN, explains the gap between rhetoric and reality? At the most basic level, the economic logic for holding reserves in dollars, although less overwhelming than in the past, remains compelling. It still makes sense for countries to hold their reserves in the same currency that they use to denominate their foreign debt and conduct their foreign trade, since central banks use the funds to smooth debt and trade flows and intervene in foreign exchange markets. And many countries continue to borrow and settle their trade in dollars, the rise of the euro and other potential competitors notwithstanding. At the end of 2008, some 45 percent of international debt securities were denominated in dollars, compared to only 32 percent in euros. And according to the 2007 triennial survey of the Bank for International Settlements, the dollar was used in 86 percent of all foreign exchange transactions, compared to just 38 percent in which the euro was used (the total for all currencies is 200 percent since two currencies are involved in each transaction).
As of April 2008, according to the IMF, 66 countries used the dollar as their exchange-rate anchor, compared with just 27 that used the euro. What peg a central bank chooses has an important influence on the currency composition of its reserves. Central banks want not just to maximize the returns on their portfolios but also to minimize their riskiness. In a state that pegs its currency to the dollar, for instance, domestic inflation tends to track U.S. inflation, and so, in that case, holding reserves in dollars will mean less variance in terms of domestic purchasing power.
Estimates of what mix of currencies maximizes a particular combination of risk and return typically assume that all currencies are equally easy to buy and sell--that is, they posit that all markets in bonds are equally liquid, no matter what currency they are denominated in. This liquidity is critical. If reserves are not readily convertible into cash, they cannot easily be deployed in market operations--hence the appeal of the market for U.S. Treasury bonds: it is the single most liquid government bond market in the world, as reflected in its high turnover and the narrow spreads between the bid price and the ask price (in investment speak, the "bid-ask spread"). This liquidity is partly a function of the U.S. economy's sheer size, but it is also a self-reinforcing feature. Foreign investors undertake their transactions and concentrate their holdings in U.S. markets because these markets are liquid, and that activity, in turn, makes them more liquid. As in politics, in the competition to be a leading international financial center and to hold the top reserve-currency status, incumbency is an advantage.
Other currencies struggle to compete. The pound sterling and the Swiss franc were once important reserve currencies, but the British and Swiss economies are too small today for the pound or the franc to serve as more than a subsidiary reserve currency; neither country can provide debt instruments on the scale required by the global financial system. Thus, at the end of 2007, the pound accounted for less than three percent of identified global reserves, and the Swiss franc accounted for less than one percent.
Japan's economy is bigger, but the Japanese government long discouraged the use of the yen internationally on the grounds that this would undermine its ability to maintain a low and competitive exchange rate and complicate its conduct of industrial policy. If foreigners had been able to buy and sell Japanese securities in large numbers, the Japanese government would have had more difficulty using the financial system to channel funds toward the domestic firms it favored. Japan now seems anxious to see the yen play a larger international role, especially within Asia, but its past policy has limited the market's current liquidity. More recently, Japan's economic stagnation and zero interest rates have made holding reserves in yen unattractive. (As of the end of 2007, the yen accounted for barely three percent of total identified official holdings of foreign exchange.) Japan's aging population will mean that its economy, as well as its currency, is unlikely to play an expanding global role.
THE EURO STAR
THIS LEAVES the euro as the only reasonably serious rival--not exactly a coincidence given that one motivation for introducing the euro in the first place was to create a European alternative to the dollar. The euro area, which comprises the 16 members of the European Union that have adopted the euro as their currency, possesses the requisite scale: it has a GDP comparable to that of the United States and, at least for the moment, an even greater ratio of debt to GDP. But the euro area's stock of government debt securities is heterogeneous, with the bonds of different governments offering different risks, different returns, and different degrees of liquidity. German government bonds have a reputation for stability, but since institutional investors tend to hold them to maturity, the market for them lacks liquidity. Other euro-area countries have serious financial problems. Ireland's sovereign debt has been downgraded by the rating agencies, and there are worries that ratings for the bonds of other euro countries, such as Greece, Italy, Portugal, and Spain, could drop, too. Italy has the largest outstanding stock of bonds of any euro-area country, but its economic troubles make them unattractive as reserve assets. The current global economic crisis has encouraged talk of issuing euro-area bonds with the backing of the entire set of euro-area members, including, most importantly, Germany. If this were done on a significant scale and if this debt were to replace the member states' national debt securities, the euro area would possess a market with roughly the uniformity and liquidity of the United States' Treasury market. But such radical fiscal federalism is not something to which the German government, among others, is likely to agree.
Financial markets in the euro area will undoubtedly expand as more EU members adopt the currency. If nothing else, the economic crisis has strengthened the euro's prospects as an international currency by driving home the fact that the euro area can be a safe harbor in a financial storm. The European Central Bank has more capacity to act as a lender of last resort than, say, the National Bank of Denmark. And intra-European solidarity notwithstanding, the only way a state can guarantee its access to exceptional liquidity from the ECB is by adopting the euro. Markets in euro-denominated securities may not have all the liquidity that might be hoped for, but they are at least more liquid than the market in Danish krone. This became clear in the turbulence that followed the collapse of Lehman Brothers in the fall of 2008. Whereas the ECB was able to cut interest rates and flood distressed financial markets with liquidity, the National Bank of Denmark had to raise interest rates to defend the krone, which had fallen as a result of deleveraging by foreign investors. Now, opinion polls in Scandinavia and policy statements by eastern European officials indicate greater support for adopting the euro.
Not so in the United Kingdom, ever the outlier on these matters. There the crisis has tarnished the reputation of the pro-EU Labour government and strengthened the euro-skeptical opposition. The United Kingdom's adoption of the euro would make the biggest difference for the development of the euro's international role, given London's status as an international financial center and the pound's long history as a reserve currency But this is not going to happen anytime soon. Meanwhile, EU members oppose accelerating the admission of new eastern European countries to the euro area. The implications are that the euro area will expand slowly rather than rapidly and that the euro's rise as a rival to the dollar will be gradual.
The euro's importance as a reserve currency will grow first and foremost on the euro area's own periphery. It is already the dominant currency for trade among EU countries outside the euro area. The EU is also seeking to develop stronger ties with the non-EU countries to its south and east. With leadership from French President Nicolas Sarkozy, it has put in place the Union for the Mediterranean, a partnership between the EU and most non-EU countries bordering the Mediterranean. The EU relies on its neighbor Russia for its energy supplies, and Russia, in turn, relies heavily on the EU for revenues.
As countries in the EU'S neighborhood develop deeper links with the union, it will make sense for them to hold more of their reserves in euros. For example, in recognition of the growing importance of Europe for its trade and finance, Russia has recently raised the weight of the euro in the basket of currencies it uses to guide its exchange-rate policy. It follows that the country will also want to hold a larger share of its reserves in euro-denominated securities. Russia's central bank confirmed in its most recent annual report that it had increased the share of euros in its reserves from around 42 percent to more than 47 percent between the beginning of 2008 and the beginning of 2009 while reducing the share of dollars from 47 percent to under 42 percent. In June, Alexei Ulyukayev, the bank's first deputy chair, indicated that Russia intended to further reduce the share of dollar-denominated assets in its portfolio as its assets mature.
For these reasons, the central banks of countries on the EU'S periphery are poised to further reallocate their reserves from dollars to euros. The euro is likely to become an increasingly important reserve currency in the EU'S part of the world. That does not mean, however, that the euro will surpass the dollar globally. The dollar has a head start, and relatively unfavorable demographics in the euro area mean that in the years ahead growth will be slower there than in the United States.
PRISONERS OF THEIR OWN DEVICE
DIVERSIFICATION BY Russia would be one thing, but diversification by China, much less by emerging markets as a group, would be another. The economist Brad Setser has estimated that China's official dollar assets as of May 2009 were roughly eight times those of Russia. With some 60 percent of China's official reserves held in dollar-denominated assets, diversification by Beijing would be a very big deal.
And Chinese officials are facing mounting pressure to do something. The issue has become a flashpoint domestically--unsurprisingly, as China's foreign currency reserves amount to $2,000 per Chinese resident, the equivalent of a third of its per capita income. In a recent online poll conducted by the Chinese newspaper Global Times, 87 percent of Chinese respondents called China's holdings in dollars unsafe. On a visit to China in June, U.S. Treasury Secretary Timothy Geithner felt compelled to reassure an audience of students at Beijing University that U.S. Treasury bonds were secure.
At the same time, the Chinese government is aware that it is trapped by the magnitude of its current dollar holdings. Selling U.S. Treasury securities in the quantities needed to significantly alter the composition of China's reserve portfolio would make the prices of these securities tank. If the People's Bank of China moved significant amounts of money from dollars to other currencies, the dollar would depreciate, causing further losses on China's residual holdings. The specter of such effects deters Beijing from acting hastily. Moreover, disruptions to the U.S. Treasury market that raised interest rates in the United States would not endear Beijing to Washington. And transactions that caused the dollar to depreciate sharply, leaving other investors wrong-footed and roiling international markets, would not endear it to other governments. John Maynard Keynes' famous remark comes to mind: "If you owe your bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy."
The sensible strategy under such circumstances is to make a series of small adjustments in the composition of one's portfolio over time. This, in fact, is what China's reserve managers appear to be doing--yet another reason why the decline in the share of the dollar in global reserves is likely to occur gradually.
FUNNY MONEY
UNDERSTANDABLY DISSATISFIED with existing alternatives, China and other countries have begun exploring other options. In March, the governor of China's central bank, Zhou Xiaochuan, made a splash by arguing that the dollar should be replaced as the world's reserve currency by Special Drawing Rights (SDRS), the accounting unit used by the IMF in transactions with its members and currently composed of a basket of four currencies (the dollar, the euro, the yen, and the pound). In June, Moscow suggested that it might be prepared to trade $10 billion of its U.S. Treasury holdings for IMF bonds, which would conceivably be denominated in SDRS. A United Nations commission headed by the economics Nobel laureate Joseph Stiglitz has advocated a greatly expanded role for SDRS in the international monetary and financial system.
The idea of a supranational reserve currency goes back to the 1940s--to Keynes' call for creating a new international unit (he called it "bancor") and to the Yale economist Robert Triffin's demonstration of the dynamic instability of an international system that uses a national unit as the main form of reserves. Empowering the IMF to issue SDRS SO that it could meet central banks' growing demand for international reserves would eliminate the exorbitant privilege of existing national suppliers, such as the United States, and remove the asymmetry that has fed global imbalances and credit-market problems. It would also solve the dilemma faced by large reserve holders, such as China, by creating a real alternative to national currencies.
But reserves are attractive only if they can be used, and at the moment governments can use SDRS only to settle accounts with other governments and the IMF. They cannot use them to intervene in foreign exchange markets or in other transactions with market participants. Making SDRS more appealing would require developing private markets in which they could be bought and sold. It would be necessary to build liquid markets on which governments and corporations could issue SDR bonds at competitive cost. Accepting SDR-denominated deposits and extending SDR-denominated loans would have to be attractive to banks. And it would be necessary to restructure foreign exchange markets so that traders seeking to buy, say, South Korean won for Thai baht could, before buying won, sell baht for SDRS rather than for dollars.
This is a tall order: it is worth recalling that a previous attempt to commercialize SDRS in the 1970s never really got off the ground. Only a few public-sector companies issued SDR-denominated debt, and only a few banks ever accepted SDR deposits. It is not hard to see why: the first issuers of SDR liabilities would incur extra costs by virtue of the instrument's novelty; the first private SDRS, by definition, could not be traded on a liquid market. This puts them at a competitive disadvantage since there already exist liquid markets in dollar- and euro-denominated assets. Displacing national currencies is as much of an uphill battle now as it was in the 1970s.
Winning that fight would require significant investments by governments over an extended period. If China is serious about elevating the SDR to reserve-currency status, it should take steps to create a liquid market in SDRS. Specifically, it could issue its own SDR-denominated bonds. This would be a much more meaningful step than buying SDR bonds from the IMF--which China, Brazil, and Russia have recently said they are prepared to do--because those bonds cannot be traded and thus would not foster market liquidity. The first governments issuing SDR bonds would pay a price for the novelty, but that price would be the cost of investing in a more stable international system.
Then there is the question of who would be on the demand side of the market. Many government bonds are held by pension funds and insurance companies because the maturity of these bonds matches the maturity of their obligations to pensioners and policyholders; this means they can be confident that they will have the requisite money on hand when the time comes to pay out on outstanding contracts. But SDR bonds would not match the currency denomination of their liabilities. If, say, the dollar depreciated against the euro, a European insurance company with SDR bonds and euro-denominated liabilities would find itself in deep trouble. One day, pensioners and policyholders may be prepared to accept payouts in a basket of currencies. But putting it this way is a reminder that the day when there will be a deep and liquid market in SDRS, with adequate demand and supply, is very far away.
Yet another challenge would be creating an SDR-based foreign exchange market. The IMF would be the obvious market maker: it could trade SDRS with all participants, private and official, at narrow bid-ask spreads, competitive with those for dollars. The dollar first became an international currency in the 1920s, when the newly established U.S. Federal Reserve started buying and selling dollar acceptances, a kind of negotiable draft, thereby creating a liquid market for those instruments. If the international community is serious about SDRS as an international reserve unit, it will have to empower the IMF to similarly act as a market maker--and provide it with a budget for the undertaking.
Finally, in order for SDRS to truly become an international currency, the IMF would have to be able to issue additional SDRS in periods of shortage, much like the U.S. Federal Reserve provided dollar swaps to ensure adequate dollar liquidity in the second half of 2008. Under current rules, SDRS cannot be issued without the agreement of 85 percent of the IMF'S members--not exactly a recipe for quick action. The IMF'S management would have to be empowered to decide when to issue more SDRS; it would have to have independence and authority, like the monetary policy committee of a central bank. In effect, the IMF would have to become more like a global central bank and an international lender of last resort. And this clearly is not going to happen overnight.
RENMINBI TO THE RESCUE?
WITH ZHOU, the governor of China's central bank, aware of these realities, one wonders why he was promoting SDRS last spring. One explanation is that he was making a political point. He wanted to signal China's unhappiness with prevailing arrangements and remind other countries, on the eve the G-20 economic summit in London, that China expected to actively participate in discussions of international monetary reform and to advocate a rules-based multilateral system. He may also have been playing to his audience at home, seeking to deflect criticism that the Chinese authorities, by failing to actively seek out alternatives to the dollar, have not been careful stewards of the country's international reserves.
Or the tactic may have been a diversion, designed to distract attention from Chinas real objective, which is to make the renminbi itself a reserve currency. This would free China of the need to hold foreign currencies to smooth its balance of payments, and it would allow it to print more or less of its currency as needed, just as the United States does now. Wang Zhaoxing, vice-head of the Shanghai branch of the China Banking Regulatory Commission, suggested to reporters in May that the renminbi could become a major reserve currency by 2020.
But for now, the renminbi remains inconvertible. Foreigners can only use it to purchase goods from China or in cross-border trade with China's immediate neighbors and the special administrative regions of Hong Kong and Macao. Last spring, Brazil and China announced that they wished to explore ways to use their currencies in bilateral trade, but the statement was mainly a way to advertise the extent of their trade. What use would most Brazilian firms have for renminbi when these cannot be converted into reais? Similarly, the swap agreements that China has concluded over the last year with Argentina, Belarus, Hong Kong, Indonesia, Malaysia, and South Korea are of little practical importance; they are largely a way for Beijing to signal its desire to be an international player. The central banks of these countries cannot use renminbi to intervene in foreign exchange markets, import merchandise from third countries, or pay foreign banks and foreign bondholders. China would become a more consequential supplier of emergency credits if it made these available in dollars--but that would undermine the use of swaps to enhance the renminbi's international role.
In time, China could strengthen the international role of the renminbi by developing liquid securities markets and liberalizing foreigners' access to them. In time, it could make its currency convertible for financial and trade transactions. The question is, in how much time? China has been feeling its way toward capital account convertibility, the ability to freely convert local financial assets into foreign ones and vice versa, for more than a decade, and it is still only partly there. As other Asian countries have learned, to their chagrin, maintaining financial stability while granting investors at home full freedom to trade foreign assets and investors abroad full freedom to trade domestic assets requires satisfying formidable preconditions. Markets must be transparent. Banks must be commercialized. Supervision and regulation must be strengthened. Monetary and fiscal policies must be sound and stable. The exchange rate must be flexible enough to accommodate larger flows of capital. In other words, China must move to full capital account convertibility; this is a prerequisite to the renminbi's coming of age internationally. But to do so, China would have to first abandon a growth model in which bank lending and a pegged currency have been two of the main instruments of development policy. This will not be easy. Witness how the Chinese authorities' first reactions to the economic crisis were to further rely on directed lending (in order to boost investment) and to reinforce the renminbi's peg to the dollar (in order to sustain exports).
All of this suggests that China's financial markets will continue to be opened up to foreign investors only gradually. Until now, renminbi-denominated bonds have been sold only in China and only by Chinese and multilateral banks, such as the Asian Development Bank and the International Finance Corporation. The Chinese government has been reluctant to allow foreign corporations to issue bonds, since this would interfere with its ability to channel savings to Chinese industry. The situation is beginning to change, if slowly. In May, HSBC Holdings and the Bank of East Asia announced that they were the first foreign banks authorized to sell renminbi-denominated bonds in Hong Kong. But Hong Kong has open markets, and the China Development Bank and the Bank of China are already permitted to issue renminbi-denominated bonds to individuals there. It would be much more significant if such activities were allowed in Shanghai. Permitting the United States, for example, to issue renminbi-denominated bonds there on a small scale might help turn Shanghai into an international financial center. (Guo Shuqing, chair of the China Construction Bank, called for this during a visit to the United States in June.) Households would presumably regard these bonds, with their returns guaranteed in renminbi, as an attractive alternative to bank deposits, which are often funneled into industrial development. But if they did, China's entire development model would be put at risk.
To be sure, the Chinese government would like to see the United States offer an exchange-rate guarantee on its dollar-denominated securities. Guaranteeing new Chinese holdings against a depreciation of the dollar against the renminbi would be tantamount to issuing those bonds in renminbi. Governments have been known to take such steps. But the strategy is rightly seen as a sign of desperation. It can backfire if the foreign currency appreciates. And as the renminbi is expected to appreciate against the dollar, U.S. authorities are not likely to see this as an attractive option.
That said, China's efforts to internationalize the renminbi should not be underestimated. Chinese policymakers are serious about making Shanghai an international financial center by 2020. But meeting that objective will require building broader and more liquid financial markets in renminbi-denominated assets and liberalizing the access of foreign investors to those markets. And this, in turn, will entail a host of policy changes that would amount to abandoning China's tried and true growth model. Such changes cannot occur overnight, and perhaps not even before 2020.
Another reason that 2020 may be an overly ambitious target date by which to turn the renminbi into a reserve currency is that even if China's economy grows at seven percent annually for the next decade--slower than in the past, given its less favorable demographics now, but still exceptionally fast by historical standards--in 2020 its GDP will be only half the size of the United States' GDP at market exchange rates (market rates being what matter for international transactions). Even then, in other words, the renminbi will have a smaller platform than the dollar from which to launch its international career. Liquidity and transaction costs in renminbi markets will not be comparable to those in dollar markets, and holding reserves in renminbi will therefore continue to have limited appeal. The option will be attractive principally to countries that conduct most of their trade with China and do most of their international financial business in Shanghai. For reasons of proximity, if nothing else, these countries will be Asian first and foremost. The market for renminbi reserves will thus be disproportionately concentrated in Asia, at least initially, much as the market for euro reserves is now disproportionately concentrated in Europe.
This raises the question of whether Asia might one day wish to follow Europe in creating a single regional currency. Much ink has been spilled over the question, but it seems unlikely. China does not need to participate in a monetary union in order to achieve the economic and financial scale necessary for its currency to play a role internationally. It does not have to share monetary sovereignty with its neighbors in order for its currency to become a reserve unit. Rather than pushing ahead toward a regional monetary union, in the manner of Paris and Berlin, Beijing would almost certainly prefer to wait, for the longer it waits, the more the renminbi will matter within the region. There are plenty of reasons why a pan-Asian monetary union is unlikely--ranging from the very different structures of the different economies in Asia to the limited appetite for political integration in the region. But the renminbi's own prospects as an international currency are an important one.
Can the renminbi serve as a regional reserve currency? Yes. As a subsidiary reserve currency? Yes. As a dominant reserve currency? For the foreseeable future, this is hard to imagine.
MEET THE NEW BOSS
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BY PROCESS of elimination, it is clear that the dollar will remain the principal form of international reserves well into the future. It will not be as dominant as in the past, for the same reasons that the United States will not be as dominant economically as it once was. In the short run, the euro will gain market share, especially in and around Europe. In the longer run, the renminbi's role will also grow, especially in Asia. But for as far as one can see clearly into the future, the dollar will remain first among equals.
This state of affairs--with several national currencies sharing, albeit unequally, the status of reserve currency--would not be unprecedented. A similar situation existed for several decades before World War I, when the pound sterling was the dominant reserve currency but the French franc and the German mark held significant market shares, especially in regions commercially and financially linked to France and Germany. Recent research has shown that the pound and the dollar supplied roughly equal shares of global foreign exchange reserves in the 1920s. The view that there is room for only one reserve currency at any point in time is belied by history. The dollar may have dominated to the exclusion of other reserve currencies after World War II, but this reflected exceptional circumstances, including the United States' exceptional dominance of global markets and the fact that only it had deep and open domestic financial markets. And these exceptional circumstances are now a thing of the past.
The emergence of a reserve system based on multiple currencies should not be viewed as alarming. Such an arrangement functioned smoothly before World War I: the different reserve units coexisted peaceably, each in effect with its own constituency. This arrangement also avoided the kind of instabilities seen recently, in which a single supplier is flooded with foreign finance by reserve-hungry emerging markets, feeding asset bubbles. To be sure, the 1920s turned out less happily. When, in 1931, the United Kingdom experienced first a fiscal crisis, then a banking crisis, and finally a currency crisis, central banks around the world shifted their reserves from pounds to dollars. And when instability spread to the United States, some switched back to pounds, others to gold. The international monetary system was destabilized and ultimately destroyed by these erratic shifts. But, if anything, the lesson is that reserve-currency competition ratchets up the market discipline felt by policymakers. The more alternatives central banks and other international investors possess, the more pressure policymakers will feel to take the steps needed to maintain those investors' confidence. Given the proclivities of most policymakers, this is not a bad thing.
~~~~~~~~
By Barry Eichengreen
Barry Eichengreen is George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley.
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30 August 2009
Obama and the Dems Just Sound Too Wonky on Health Care
By George Lakoff, AlterNet
Posted on August 21, 2009, Printed on August 30, 2009
http://www.alternet.org/story/142112/
Barack Obama ran the best-organized and best-framed presidential campaign in history. How is it possible that the same people who did so well in the campaign have done so badly on health care?
And bad it is: The public option may well be gone. Neither Obama himself nor Senior Advisor David Axelrod even mentioned the public option in their pleas to the nation last Sunday (August 16, 2009). Secretary Sibelius even said it was “not essential.” Cass Sunstein’s co-author, Richard Thaler, in the Sunday NY Times (August 16, 2009, p. BU 4) called it “neither necessary nor sufficient.” There has been a major drop in support for the president throughout the country, with angry mobs disrupting town halls and the right wing airing its views with vehemence nonstop on radio and tv all day every day. As the NY Times reports, Organizing for America (the old Obama campaign network) can’t even get its own troops out to work for the President’s proposal.
What has been going wrong?
It’s not too late to turn things around, but we must first understand why the administration is getting beat at the moment.
The answer is simple and unfortunate: The president put both the conceptual framing and the messaging for his health care plan in the hands of policy wonks. This led to twin disasters.
The PolicyList Disaster
The whole is greater than the sum of its parts.
Howard Dean was right when he said that you can’t get health care reform without a public alternative to the insurance companies. Institutions matter. The list of what needs reform makes sense under one conceptual umbrella. It is a public alternative that unifies the long list of needed reforms: coverage for the uninsured, cost control, no preconditions, no denial of care, keeping care when you change jobs or get sick, equal treatment for women, exorbitant deductibles, no lifetime caps, and on and on. It’s a long list. But one idea, properly articulated, takes care of the list: An American Plan guarantees affordable care for all Americans. Simple. But not for policy wonks.
The policymakers focus on the list, not the unifying idea. So Obama’s and Axelrod’s statements last Sunday were just the lists without the unifying institution. And without a powerful institution, the insurance companies will just whittle away at enforcement of any such list, and a future Republican administration will just get rid of the regulators, reassigning them or eliminating their jobs.
Why do policymakers think this way?
One: The reality of how Congress is lobbied. Legislators are lobbied to be against particular features, depending on their constituencies. Blue Dogs are pressured by the right’s communication system operating in their districts. Congressional leaders have a challenge: Keep the eye of centrists and Blue Dogs on the central idea, despite the pressures of right-wing communications and lobbyists’ contributions.
Two: In classical logic, Leibniz’ Law takes an entity as being just a collection of properties. As if you were no more than eyes, legs, arms, and so on, taken separately. Without a public institution turning a unifying idea into a powerful reality, health care becomes just a collection of reforms to be attacked, undermined, and gotten around year after year.
Three: Current budget-making assumptions. Health is actually systematic in character. Health is implicated in just about all aspects of our culture: agriculture, the food industry, advertising, education, business, the distribution of wealth, sports, and so on. Keeping it as a line item — what figure do you put down on the following lines — misses the systemic nature of health. The image of Budget Director Peter Orszag running constantly in and out of Senator Max Baucus’ office shows how the systemic nature of health has been turned into a list of items and costs. Without a sense of the whole, and an institution responsible for it, health will be line-itemed to death.
Obama had the right idea with the “recovery” package. The economy is not just about banking. It is about public works, education, health, energy, and a lot more. It is systemic. The whole is more than the sum of its parts.
The PolicySpeak Disaster
PolicySpeak is the principle that: If you just tell people the policy facts, they will reason to the right conclusion and support the policy wholeheartedly.
PolicySpeak is the principle behind the President’s new Reality Check Website. To my knowledge, the Reality Check Website, has not had a reality check. That is, the administration has not hired a first-class cognitive psychologist to take subjects who have been convinced by right-wing myths and lies, have them read the Reality Check website, and see if the Reality Check website has changed their minds a couple of days or a week later. I have my doubts, but do the test.
To many liberals, PolicySpeak sounds like the high road: a rational, public discussion in the best tradition of liberal democracy. Convince the populace rationally on the objective policy merits. Give the facts and figures. Assume self-interest as the motivator of rational choice. Convince people by the logic of the policymakers that the policy is in their interest.
But to a cognitive scientist or neuroscientist, this sounds nuts. The view of human reason and language behind PolicySpeak is just false. Certainly reason should be used. It’s just that you should use real reason, the way people really think. Certainly the truth should be told. It’s just that it should be told so it makes sense to people, resonates with them, and inspires them to act. Certainly new media should be used. It’s just that a system of communications should be constructed and used effectively.
I believe that what went wrong is (a) the choice of PolicySpeak and (b) the decision to depend on the campaign apparatus (blogs, Town Hall meetings, presidential appearances, grassroots support) instead of setting up an adequate communications system.
What Now?
It is not too late. The statistic I’ve heard is that over 80% of citizens want a public plan, but the right wing’s framing has been overwhelming public debate, taking advantage of the right’s communication system and framing prowess.
The administration has dug itself (and the country) into a hole. At the very least, the old mistakes can be avoided, a clear and powerful narrative is still available and true, and some powerful, memorable, and accurate language should be substituted for PolicySpeak, or at least added and repeated by spokespeople nationwide.
The narrative is simple:
Insurance company plans have failed to care for our people. They profit from denying care. Americans care about one another. An American plan is both the moral and practical alternative to provide care for our people.
The insurance companies are doing their worst, spreading lies in an attempt to maintain their profits and keep Americans from getting the care they so desperately need. You, our citizens, must be the heroes. Stand up, and speak up, for an American plan.
Language
As for language, the term “public option” is boring. Yes, it is public, and yes, it is an option, but it does not get to the moral and inspiring idea. Call it the American Plan, because that’s what it really is.
The American Plan. Health care is a patriotic issue. It is what your countrymen are engaged in because Americans care about each other. The right wing understands this well. It’s got conservative veterans at Town Hall meeting shouting things like, “I fought for this country in Vietnam, and I’m fight for it here.” Progressives should be stressing the patriotic nature of having our nation guaranteeing care for our people.
A Health Care Emergency. Americans are suffering and dying because of the failure of insurance company health care. 50 million have no insurance at all, and millions of those who do are denied necessary care or lose their insurance. We can’t wait any longer. It’s an emergency. We have to act now to end the suffering and death.
Doctor-Patient care. This is what the public plan is really about. Call it that. You have said it, buried in PolicySpeak. Use the slogan. Repeat it. Have every spokesperson repeat it.
Coverage is not care. You think you’re insured. You very well may not be, because insurance companies make money by denying you care.
Deny you care… Use the words. That’s what all the paperwork and administrative costs of insurance companies are about – denying you care if they can.
Insurance company profit-based plans. The bottom line is the bottom line for insurance companies. Say it.
Private Taxation. Insurance companies have the power to tax and they tax the public mightily. When 20% - 30% of payments do not go to health care, but to denying care and profiting from it, that constitutes a tax on the 96% of voters that have health care. But the tax does not go to benefit those who are taxed; it benefits managers and investors. And the people taxed have no representation. Insurance company health care is a huge example of taxation without representation. And you can’t vote out the people who have taxed you. The American Plan offers an alternative to private taxation.
Is it time for progressive tea parties at insurance company offices?
Doctors care; insurance companies don’t. A public plan aims to put care back into the hands of doctors.
Insurance company bureaucrats. Obama mentions them, but there is no consistent uproar about them. The term needs to come into common parlance.
Insurance companies ration care. Say it and ask the right questions: Have you ever had to wait more than a week for an authorization? Have you ever had an authorization turned down? Have you had to wait months to see a specialist? Does you primary care physician have to rush you through? Have your out-of-pocket costs gone up? Ask these questions. You know the answers. It’s because insurance companies have been rationing care. Say it.
Insurance companies are inefficient and wasteful. A large chunk of your health care dollar is not going for health care when you buy from insurance companies.
Insurance companies govern your lives. They have more power over you than even governments have. They make life and death decisions. And they are accountable only to profit, not to citizens.
The health care failure is an insurance company failure. Why keep a failing system? Augment it. Give an alternative.
The Needed Communication System
A progressive communication system should be started. It should go into every Congressional district. It should concentrate on general progressive ideas. President Obama has articulated what these are.
* The basic values are empathy (we care about people), responsibility for ourselves and others, and the ethic of excellence (making ourselves better and the world better).
* These values form the basis of democracy: It’s because we care about our fellow citizens that we have values like freedom and fairness, for everyone, not just the powerful.
* From that, it follows that government has two moral missions: protection (of consumers, workers, the environment, the old, the sick, the powerless; and empowerment through public works; communication, energy, and water systems; education; banks that work; a court system: and so on. Without them, no one makes it in America. Taxes are what you pay for protection and empowerment by the government, and the more you make the greater your responsibility to maintain the system.
Appropriate language can be found to express these values. They lie at the heart of all progressive policies. If they are out there every day, it becomes easier to discuss any issue. This is what it means to prepare the ground for specific framings.
The Culture War is On! You Can’t Ignore it
President Obama wants to unify the country, and he should. It is a noble idea. It is the right idea. And he started out with the right way to do it. Campaign for what you believe – for empathy, social responsibility, making the nation better. Activate the progressive values in the many millions of Americans who have some conservative values and some progressive values.
But also inhibit the radical, harmful conservative ideology in the brains of our countrymen, by directly saying what’s wrong with it. Yes, there are villains. They have a very potent communications system and can organize their troops. Every victory makes them more powerful. They have put together powerful narratives. We need more powerful ones.
And avoid PolicySpeak and PolicyLists.
What should have been done?
It is useful to review what should and should not have been done, because we need to understand the past to avoid future mistakes.
First, it was obvious to the framing community what the right wing would do. Almost every move could have been predicted, and most of them were. There should have been a serious counter effort from right after the election.
Second, an effective communication system should have been built. Not for dictating what to say, but for creating a system of effectively trained spokespeople who can get the basic progressive values out there every day, to compete with the very effective conservative system. It should not work issue by issue, but in addition to the issues of the day, it should promote general values that apply to all issues.
The elements are all in existence. The money is there. Indeed it would be a lot cheaper to build than spending tens of millions of dollars on health care ads. What it would accomplish is laying the groundwork in advance of any particular issue. The work of such a communication system would be to activate ideas already there in the millions of citizens who have progressive as well as conservative worldviews in their brain circuitry. The idea would be to make progressive ideas stronger and conservative ideas weaker, balancing what the conservative communication system is doing now.
It is rather late in the game for the stimulus, cap and trade, and health care, but better late than never. And it would be indispensible for future policy campaigns. Framing a powerful message is a lot easier when the groundwork for it has already been laid. Without the groundwork, it is much harder.
Third, a serious framing education effort with folks who do know the science should have been organized, not just for the communications system, but for the policymakers themselves.
Fourth, the villainizing of real insurance company villains should have begun from the beginning. As it is, the right wing turned the tables. They attributed to government all the disasters of insurance company health care: rationing, long lines, waits for authorizations and visits to specialists, denial of care. The administration is trying to turn that around, but it is harder now, and they are trying it using PolicySpeak, which is the most ineffective of means.
Fifth, the positive policy should have been made in moral terms, with clear and vivid language. The term “public option” is a PolicySpeak loser. The public is the American public, it is all of us, it is America, and it should have been called the American Plan.
Sixth, the administration should have been on the offensive not the defensive all the way. The use of conservative language should never have been used in debunking.
Seventh, it was a mistake to shut out single payer advocates. They should have been welcomed into the debate. Though the term “single payer” is hopeless PolicySpeak and “doctor-patient care” would have been more accurate, nonetheless the doctors, nurses, and unions advocating for such a plan could have done a lot of the work of villainizing the health care industry and would have drawn fire from the Right. An alternative on the left would have made the President’s plan a compromise. Besides, there is so much to be said in favor of single payer, that there might have been fewer actual compromises with the right.
Eighth, it was a mistake to put cost ahead of morality. Health care is a moral issue, and the right-wing understands that and is using it. That’s why the “death panels” and “government takeover” language resonates with those who have a conservative moral perspective and have effectively used terms like “pro-life.” Health care is a life and death issue, which is as moral as anything could be. The insurance companies have been on the side of death, and that needs to be said overtly.
Ninth, accepting the idea that health is a line item separate from agriculture policy, the food industry, regulation of food and drugs, education, the vitality of business, banking reform, etc. is just bad economics. These are all tied up together. In this, health care might have been treated like the “recovery” package, but in reverse.
A causal approach to economics would be appropriate. Instead of putting funds in many places, it might have taken funds from sources of health problems. For example, big agriculture and the food industry produce and heavily marketed foods that have been central causes of the obesity epidemic and heart disease — corn syrup, too much meat, and so on. They might have been called upon to pay the costs of treating heart disease, strokes, and diabetes. It would not be popular with those industries, but it would be causally fair, and might even save a lot of lives – and money.
Our take another example of causal economics. Hugely high private taxation (that is, high costs and profit taking) by the health insurance industry helped drive American automakers into bankruptcy. The health insurance industry should have had to use a portion of their profits for bailouts of the auto industry, and the equivalent amount of bailout money could have been used for providing health care to those without it.
Given the systemic nature of our culture and our economy, a move in the direction of such causal economics should start to be seriously considered. At the very least it would bring up the question, alert the public to systemic causation, and start people thinking about the justice of causal economics.
All this is not just 20-20 hindsight. My colleagues, Glenn Smith and Eric Haas and I have made many of these points before. See our reply to the May 2009 memo by Frank Luntz:
www.huffingtonpost.com/...lakoff/health-care-reform-some-b_b_200132.html.
And take a look at an even earlier memo of the logic of the health care debate:
http://www.cognitivepolicyworks.com/wordpress/wp-content/uploads/2009/06/logic-of-the-health-care-debate.pdf.
Where PolicyLists and PolicySpeak Come From
Framing is everywhere, not just in language. What people do depends on how they think, on how they understand the world — and we all use framing to understand the world. Truth matters. But it can only be comprehended when it is framed effectively, and heard constantly.
This point is to often misunderstood that it is important to understand why. It is also important to understand where PolicyLists and PolicySpeak come from and why they have the powerful grip that they have. This is especially important now, when there might still be a chance to turn the health care debate around.
The source of these political disasters lies in an unlikely place: our most common understanding of reason itself.
What Is Reason Really Like?
PolicySpeak is supposed to be reasoned, objective discourse. It thus assumes a theory of what reason itself is — a philosophical theory that dates back to the 17th Century and is still taught.
Over the past four decades, cognitive science and neuroscience have provided a scientific view of how the brain and mind really work. A handful of these results have come into behavioral economics. But most social scientists and policymakers are not trained in these fields. They still have the old view of mind and language.
The old philosophical theory says that reason is conscious, can fit the world directly, is universal (we all think the same way), is dispassionate (emotions get in the way of reason), is literal (no metaphor or framing in reason), works by logic, is abstract (not physical) and functions to serve our interests. Language on this view is neutral and can directly fit, or not fit, reality.
The scientific research in neuroscience and cognitive science has shown that most reason is unconscious. Since we think with our brains, reason cannot directly fit the world. Emotion is necessary for rational thought; if you cannot feel emotion, you will not know what to want or how anyone else would react to your actions. Rational decisions depend on emotion. Empathy with others has a physical basis, and as much as self-interest, empathy lies behind reason.
Ideas are physical, part of brain circuitry. Ideas are constituted by brain structures called ‘frames’ and ‘metaphors,’ and reason uses them. Frames form systems, called worldviews. All language is defined relative to such frames and metaphors. There are very different conservative and progressive worldviews, and different words can activate different worldviews. Important words, like freedom, can have entirely different meanings depending on your worldview. In short, not everybody thinks the same way.
As a result, what is taken as “objective” discourse is often worldview dependent. This is especially true of health care. All progressive writing supporting some version of health care assumes a progressive moral worldview, in which no one should be forced to go without heath care, the government should play a role, market regulation is necessary, and so on.
Those with radical conservative worldviews may well think otherwise: that everyone should be responsible for their own and their family’s health care, that the government is oppressive and should stay out of it, that the market should always dominate, and so on.
Overall, the foundational assumptions underlying PolicySpeak are false. It should be no wonder that PolicySpeak isn’t working.
The Bi-conceptual Audience
A property of brains called “mutual inhibition” permits people to have contradictory worldviews and go back and forth between them. Many people have both progressive and conservative worldviews, but on different issues — perhaps conservative on financial issues and progressive on social issues. Such people are called bi-conceptuals. President Obama understands this. He has said that his “bipartisanship” means finding Republicans who happen to share his progressive views on particular issues, and working with them on those issues—and not accepting an ideology (radical conservatism) rejected by the American people.
The people the President has to convince are the millions of bi-conceptuals. That means he has to have them thinking of health care in progressive moral terms, not conservative moral terms. How can this be accomplished?
Why Do the Nature of Reason and Language Matter?
It’s all in the brain. Words activate frame-and-metaphor circuits, which in turn activate worldview circuits. Whenever brain circuitry is activated, the synapses get stronger, and the circuits are easier to activate again. Conservative language will activate conservative frames, which will activate and strengthen the conservative worldview.
Conservative tacticians may not know about brain research, but they know about marketing, and marketing theorists use that brain research. That is why conservatives place such importance on language choice, from the classic “socialized medicine,” to Luntz’s “government takeover” to Palin’s “death panels.” When repeated over and over, the words evoke a conservative worldview, with many of the specific bogeymen — abortion, socialism = communism = nazism, euthanasia, foreigners, taxes, spending, the liberal elite, Big Brother, and so on. The most effective language has emotional appeal and, to conservatives, a moral appeal because it activates the conservative moral worldview. And such language, repeated every day, changes brains, strengthening the synapses of those who listen.
Conservative language will activate and strengthen conservative worldviews — even when negated! I titled a book Don’t Think of an Elephant! to make this point. The classic example is Richard Nixon’s “I am not a crook,” which made everyone think of him as a crook. And yet I’ve heard President Obama say “We don’t want a government takeover,” which activates the idea of a government takeover. Mediamatters.org’s major story, as I write this, is: “The media have debunked the death panels -- more than 40 times.” It then gives a list of 40 cases of debunking, each one of which uses the term “death panels.” And you wonder, after so many debunkings, why it is still believed! Each “debunking” reinforced the idea. The first rule of effective communication is stating the positive in your own terms, not quoting the other side’s language with a negation.
The Conservative Communication System
The serious reporting on role of conservative think tanks began in the mid-1990’s with works such as:
* Buying a Movement: Right-Wing Foundations and American Politics (People for the American Way, 1996).
* Sally Covington, Moving a Public Policy Agenda: The Strategic Philanthropy of Conservative Foundations (National Committee for Responsive Philanthropy, 1998).
* Jean Stefancic and Richard Delgado, No Mercy: How Conservative Think Tanks and Foundations Changed America's Social Agenda (Temple University Press, 1996).
In 1996, my Moral Politics appeared, outlining the conservative and progressive moral worldviews and how the conservatives used language to frame public discourse their way.
In 2004, Rob Stein tracked the conservative communications system, traeling the country with his detailed powerpoint, "The Conservative Message Machine Money Matrix." Stein tracked not only conservative think tanks, but also the language experts and training institutes training tens of thousands of conservative spokespeople He also tracked the communications facilities, and the collections of “experts” on every issue, together with a booking agency booking the experts daily on media all over the country. Daily talking points are repeated by those “experts.” The conservative communications system extends into every congressional district, including the districts of democrats. In the case of the Blue Dog Democrats, who come from relatively conservative districts, the Blue Dogs have to deal with constituents who hear conservative framing over and over every day without anything effective countering it. That is a major factor in Blue Dog resistance to administration proposals.
With all this information, you might think that progressives would set up their own communications network going into the heart of conservative districts everywhere, day after day, effectively countering the conservative framing.
It didn’t happen. Instead, PolicySpeak prevailed. The old philosophical theory, which is taught in every policy school, won out. Progressives thought such a communications system would be illegitimate — what the conservatives do. They believe, in 17th Century fashion, that if they just state the facts, people should reason to the right conclusion.
So progressives set up truth squad websites and blogs to negate conservative lies – like Media Matters, The Center for American Progress, the People for the American Way, the Center for America’s Future, MoveOn, Organizing for America, and so on. These are all fine organizations, and we are fortunate to have them. But … they are preaching to the choir (because they don’t have an adequate communications system), and they are using PolicySpeak: just stating the policy truths will be enough.
As I was writing this, I received the viral email written by David Axelrod, which he refers to as “probably one of the longest emails I've ever sent.” It is indeed long. It is accurate. It lays out the President’s list of needed reforms. It answers the myths. It appeals to people who would personally benefit from the President’s plan. It drops the Public Option, which makes sense of the list. And it is written in PolicySpeak. It has 24 points – 3 sets of 8.
Ask yourself which is more memorable: “Government takeover,” “socialized medicine,” and “death panels” — or Axelrod’s 24 points?
Did the administration do a reality check on the 24 points? That is, did they have one of our superb cognitive psychologists test subjects who were convinced of the right-wing framing, have them read the 24 points, and test them a couple days or a week later on whether Axelrod’s 24 points had convinced them? PolicySpeak folks don’t tend to think of such things.
I genuinely hope the 24 points work. But this is the kind of messaging that created the problems in the first place.
I respect Axelrod deeply. But the strategist who ran the best-framed campaign I’ve ever seen is giving in to PolicySpeak.
The Irony
There is a painful irony in all this, and I am aware of it constantly. Highly educated progressives, who argue for the importance of science, have been ignoring or rejecting the science of the brain and mind. Why?
Because brains are brains. A great many progressives have not grown up with, nor have they learned, the new scientific understanding of reason. Instead they have acquired the old philosophical theory of reason and assume it every day in everything they do. The old view is inscribed indelibly in the synapses of their brains. It will be hard for those progressives to comprehend the new science that contradicts their daily practice.
They may find it hard to comprehend framing, metaphor, and narrative as the way reason really works — as what you need to do to communicate truth. Instead, they may well think of framing as merely manipulation and spin, as the mechanism that the right wing uses to communicate lies.
An excellent example of such old-theory thinking appears in the Rahm Emanuel/Bruce Reed book, The Plan, where framing is seen only as manipulation, not as the structure of ideas. Emanuel and Reed (p. 21) assume that policy is independent of what they incorrectly understand framing to be. As a result, they assume that framing can only be illegitimate manipulation.
This is, of course, the very opposite of what I and other cognitive scientists have been saying. They are right that real reason can be manipulated in that way, as Frank Luntz has shown us. But it need not be. An understanding of how the brain really works can be used to communicate the truth effectively, and that’s how it should be used.
In the Obama campaign, honest, effective framing was used with great success. But in the Obama administration, something has changed. It needs to change back.
George Lakoff is the author of Moral Politics, Don't Think of an Elephant!, Whose Freedom?, and Thinking Points (with the Rockridge Institute staff). He is Richard and Rhoda Goldman Distinguished Professor of Cognitive Science and Linguistics at the University of California at Berkeley, and a founding senior fellow at the Rockridge Institute.
Posted on August 21, 2009, Printed on August 30, 2009
http://www.alternet.org/story/142112/
Barack Obama ran the best-organized and best-framed presidential campaign in history. How is it possible that the same people who did so well in the campaign have done so badly on health care?
And bad it is: The public option may well be gone. Neither Obama himself nor Senior Advisor David Axelrod even mentioned the public option in their pleas to the nation last Sunday (August 16, 2009). Secretary Sibelius even said it was “not essential.” Cass Sunstein’s co-author, Richard Thaler, in the Sunday NY Times (August 16, 2009, p. BU 4) called it “neither necessary nor sufficient.” There has been a major drop in support for the president throughout the country, with angry mobs disrupting town halls and the right wing airing its views with vehemence nonstop on radio and tv all day every day. As the NY Times reports, Organizing for America (the old Obama campaign network) can’t even get its own troops out to work for the President’s proposal.
What has been going wrong?
It’s not too late to turn things around, but we must first understand why the administration is getting beat at the moment.
The answer is simple and unfortunate: The president put both the conceptual framing and the messaging for his health care plan in the hands of policy wonks. This led to twin disasters.
The PolicyList Disaster
The whole is greater than the sum of its parts.
Howard Dean was right when he said that you can’t get health care reform without a public alternative to the insurance companies. Institutions matter. The list of what needs reform makes sense under one conceptual umbrella. It is a public alternative that unifies the long list of needed reforms: coverage for the uninsured, cost control, no preconditions, no denial of care, keeping care when you change jobs or get sick, equal treatment for women, exorbitant deductibles, no lifetime caps, and on and on. It’s a long list. But one idea, properly articulated, takes care of the list: An American Plan guarantees affordable care for all Americans. Simple. But not for policy wonks.
The policymakers focus on the list, not the unifying idea. So Obama’s and Axelrod’s statements last Sunday were just the lists without the unifying institution. And without a powerful institution, the insurance companies will just whittle away at enforcement of any such list, and a future Republican administration will just get rid of the regulators, reassigning them or eliminating their jobs.
Why do policymakers think this way?
One: The reality of how Congress is lobbied. Legislators are lobbied to be against particular features, depending on their constituencies. Blue Dogs are pressured by the right’s communication system operating in their districts. Congressional leaders have a challenge: Keep the eye of centrists and Blue Dogs on the central idea, despite the pressures of right-wing communications and lobbyists’ contributions.
Two: In classical logic, Leibniz’ Law takes an entity as being just a collection of properties. As if you were no more than eyes, legs, arms, and so on, taken separately. Without a public institution turning a unifying idea into a powerful reality, health care becomes just a collection of reforms to be attacked, undermined, and gotten around year after year.
Three: Current budget-making assumptions. Health is actually systematic in character. Health is implicated in just about all aspects of our culture: agriculture, the food industry, advertising, education, business, the distribution of wealth, sports, and so on. Keeping it as a line item — what figure do you put down on the following lines — misses the systemic nature of health. The image of Budget Director Peter Orszag running constantly in and out of Senator Max Baucus’ office shows how the systemic nature of health has been turned into a list of items and costs. Without a sense of the whole, and an institution responsible for it, health will be line-itemed to death.
Obama had the right idea with the “recovery” package. The economy is not just about banking. It is about public works, education, health, energy, and a lot more. It is systemic. The whole is more than the sum of its parts.
The PolicySpeak Disaster
PolicySpeak is the principle that: If you just tell people the policy facts, they will reason to the right conclusion and support the policy wholeheartedly.
PolicySpeak is the principle behind the President’s new Reality Check Website. To my knowledge, the Reality Check Website, has not had a reality check. That is, the administration has not hired a first-class cognitive psychologist to take subjects who have been convinced by right-wing myths and lies, have them read the Reality Check website, and see if the Reality Check website has changed their minds a couple of days or a week later. I have my doubts, but do the test.
To many liberals, PolicySpeak sounds like the high road: a rational, public discussion in the best tradition of liberal democracy. Convince the populace rationally on the objective policy merits. Give the facts and figures. Assume self-interest as the motivator of rational choice. Convince people by the logic of the policymakers that the policy is in their interest.
But to a cognitive scientist or neuroscientist, this sounds nuts. The view of human reason and language behind PolicySpeak is just false. Certainly reason should be used. It’s just that you should use real reason, the way people really think. Certainly the truth should be told. It’s just that it should be told so it makes sense to people, resonates with them, and inspires them to act. Certainly new media should be used. It’s just that a system of communications should be constructed and used effectively.
I believe that what went wrong is (a) the choice of PolicySpeak and (b) the decision to depend on the campaign apparatus (blogs, Town Hall meetings, presidential appearances, grassroots support) instead of setting up an adequate communications system.
What Now?
It is not too late. The statistic I’ve heard is that over 80% of citizens want a public plan, but the right wing’s framing has been overwhelming public debate, taking advantage of the right’s communication system and framing prowess.
The administration has dug itself (and the country) into a hole. At the very least, the old mistakes can be avoided, a clear and powerful narrative is still available and true, and some powerful, memorable, and accurate language should be substituted for PolicySpeak, or at least added and repeated by spokespeople nationwide.
The narrative is simple:
Insurance company plans have failed to care for our people. They profit from denying care. Americans care about one another. An American plan is both the moral and practical alternative to provide care for our people.
The insurance companies are doing their worst, spreading lies in an attempt to maintain their profits and keep Americans from getting the care they so desperately need. You, our citizens, must be the heroes. Stand up, and speak up, for an American plan.
Language
As for language, the term “public option” is boring. Yes, it is public, and yes, it is an option, but it does not get to the moral and inspiring idea. Call it the American Plan, because that’s what it really is.
The American Plan. Health care is a patriotic issue. It is what your countrymen are engaged in because Americans care about each other. The right wing understands this well. It’s got conservative veterans at Town Hall meeting shouting things like, “I fought for this country in Vietnam, and I’m fight for it here.” Progressives should be stressing the patriotic nature of having our nation guaranteeing care for our people.
A Health Care Emergency. Americans are suffering and dying because of the failure of insurance company health care. 50 million have no insurance at all, and millions of those who do are denied necessary care or lose their insurance. We can’t wait any longer. It’s an emergency. We have to act now to end the suffering and death.
Doctor-Patient care. This is what the public plan is really about. Call it that. You have said it, buried in PolicySpeak. Use the slogan. Repeat it. Have every spokesperson repeat it.
Coverage is not care. You think you’re insured. You very well may not be, because insurance companies make money by denying you care.
Deny you care… Use the words. That’s what all the paperwork and administrative costs of insurance companies are about – denying you care if they can.
Insurance company profit-based plans. The bottom line is the bottom line for insurance companies. Say it.
Private Taxation. Insurance companies have the power to tax and they tax the public mightily. When 20% - 30% of payments do not go to health care, but to denying care and profiting from it, that constitutes a tax on the 96% of voters that have health care. But the tax does not go to benefit those who are taxed; it benefits managers and investors. And the people taxed have no representation. Insurance company health care is a huge example of taxation without representation. And you can’t vote out the people who have taxed you. The American Plan offers an alternative to private taxation.
Is it time for progressive tea parties at insurance company offices?
Doctors care; insurance companies don’t. A public plan aims to put care back into the hands of doctors.
Insurance company bureaucrats. Obama mentions them, but there is no consistent uproar about them. The term needs to come into common parlance.
Insurance companies ration care. Say it and ask the right questions: Have you ever had to wait more than a week for an authorization? Have you ever had an authorization turned down? Have you had to wait months to see a specialist? Does you primary care physician have to rush you through? Have your out-of-pocket costs gone up? Ask these questions. You know the answers. It’s because insurance companies have been rationing care. Say it.
Insurance companies are inefficient and wasteful. A large chunk of your health care dollar is not going for health care when you buy from insurance companies.
Insurance companies govern your lives. They have more power over you than even governments have. They make life and death decisions. And they are accountable only to profit, not to citizens.
The health care failure is an insurance company failure. Why keep a failing system? Augment it. Give an alternative.
The Needed Communication System
A progressive communication system should be started. It should go into every Congressional district. It should concentrate on general progressive ideas. President Obama has articulated what these are.
* The basic values are empathy (we care about people), responsibility for ourselves and others, and the ethic of excellence (making ourselves better and the world better).
* These values form the basis of democracy: It’s because we care about our fellow citizens that we have values like freedom and fairness, for everyone, not just the powerful.
* From that, it follows that government has two moral missions: protection (of consumers, workers, the environment, the old, the sick, the powerless; and empowerment through public works; communication, energy, and water systems; education; banks that work; a court system: and so on. Without them, no one makes it in America. Taxes are what you pay for protection and empowerment by the government, and the more you make the greater your responsibility to maintain the system.
Appropriate language can be found to express these values. They lie at the heart of all progressive policies. If they are out there every day, it becomes easier to discuss any issue. This is what it means to prepare the ground for specific framings.
The Culture War is On! You Can’t Ignore it
President Obama wants to unify the country, and he should. It is a noble idea. It is the right idea. And he started out with the right way to do it. Campaign for what you believe – for empathy, social responsibility, making the nation better. Activate the progressive values in the many millions of Americans who have some conservative values and some progressive values.
But also inhibit the radical, harmful conservative ideology in the brains of our countrymen, by directly saying what’s wrong with it. Yes, there are villains. They have a very potent communications system and can organize their troops. Every victory makes them more powerful. They have put together powerful narratives. We need more powerful ones.
And avoid PolicySpeak and PolicyLists.
What should have been done?
It is useful to review what should and should not have been done, because we need to understand the past to avoid future mistakes.
First, it was obvious to the framing community what the right wing would do. Almost every move could have been predicted, and most of them were. There should have been a serious counter effort from right after the election.
Second, an effective communication system should have been built. Not for dictating what to say, but for creating a system of effectively trained spokespeople who can get the basic progressive values out there every day, to compete with the very effective conservative system. It should not work issue by issue, but in addition to the issues of the day, it should promote general values that apply to all issues.
The elements are all in existence. The money is there. Indeed it would be a lot cheaper to build than spending tens of millions of dollars on health care ads. What it would accomplish is laying the groundwork in advance of any particular issue. The work of such a communication system would be to activate ideas already there in the millions of citizens who have progressive as well as conservative worldviews in their brain circuitry. The idea would be to make progressive ideas stronger and conservative ideas weaker, balancing what the conservative communication system is doing now.
It is rather late in the game for the stimulus, cap and trade, and health care, but better late than never. And it would be indispensible for future policy campaigns. Framing a powerful message is a lot easier when the groundwork for it has already been laid. Without the groundwork, it is much harder.
Third, a serious framing education effort with folks who do know the science should have been organized, not just for the communications system, but for the policymakers themselves.
Fourth, the villainizing of real insurance company villains should have begun from the beginning. As it is, the right wing turned the tables. They attributed to government all the disasters of insurance company health care: rationing, long lines, waits for authorizations and visits to specialists, denial of care. The administration is trying to turn that around, but it is harder now, and they are trying it using PolicySpeak, which is the most ineffective of means.
Fifth, the positive policy should have been made in moral terms, with clear and vivid language. The term “public option” is a PolicySpeak loser. The public is the American public, it is all of us, it is America, and it should have been called the American Plan.
Sixth, the administration should have been on the offensive not the defensive all the way. The use of conservative language should never have been used in debunking.
Seventh, it was a mistake to shut out single payer advocates. They should have been welcomed into the debate. Though the term “single payer” is hopeless PolicySpeak and “doctor-patient care” would have been more accurate, nonetheless the doctors, nurses, and unions advocating for such a plan could have done a lot of the work of villainizing the health care industry and would have drawn fire from the Right. An alternative on the left would have made the President’s plan a compromise. Besides, there is so much to be said in favor of single payer, that there might have been fewer actual compromises with the right.
Eighth, it was a mistake to put cost ahead of morality. Health care is a moral issue, and the right-wing understands that and is using it. That’s why the “death panels” and “government takeover” language resonates with those who have a conservative moral perspective and have effectively used terms like “pro-life.” Health care is a life and death issue, which is as moral as anything could be. The insurance companies have been on the side of death, and that needs to be said overtly.
Ninth, accepting the idea that health is a line item separate from agriculture policy, the food industry, regulation of food and drugs, education, the vitality of business, banking reform, etc. is just bad economics. These are all tied up together. In this, health care might have been treated like the “recovery” package, but in reverse.
A causal approach to economics would be appropriate. Instead of putting funds in many places, it might have taken funds from sources of health problems. For example, big agriculture and the food industry produce and heavily marketed foods that have been central causes of the obesity epidemic and heart disease — corn syrup, too much meat, and so on. They might have been called upon to pay the costs of treating heart disease, strokes, and diabetes. It would not be popular with those industries, but it would be causally fair, and might even save a lot of lives – and money.
Our take another example of causal economics. Hugely high private taxation (that is, high costs and profit taking) by the health insurance industry helped drive American automakers into bankruptcy. The health insurance industry should have had to use a portion of their profits for bailouts of the auto industry, and the equivalent amount of bailout money could have been used for providing health care to those without it.
Given the systemic nature of our culture and our economy, a move in the direction of such causal economics should start to be seriously considered. At the very least it would bring up the question, alert the public to systemic causation, and start people thinking about the justice of causal economics.
All this is not just 20-20 hindsight. My colleagues, Glenn Smith and Eric Haas and I have made many of these points before. See our reply to the May 2009 memo by Frank Luntz:
www.huffingtonpost.com/...lakoff/health-care-reform-some-b_b_200132.html.
And take a look at an even earlier memo of the logic of the health care debate:
http://www.cognitivepolicyworks.com/wordpress/wp-content/uploads/2009/06/logic-of-the-health-care-debate.pdf.
Where PolicyLists and PolicySpeak Come From
Framing is everywhere, not just in language. What people do depends on how they think, on how they understand the world — and we all use framing to understand the world. Truth matters. But it can only be comprehended when it is framed effectively, and heard constantly.
This point is to often misunderstood that it is important to understand why. It is also important to understand where PolicyLists and PolicySpeak come from and why they have the powerful grip that they have. This is especially important now, when there might still be a chance to turn the health care debate around.
The source of these political disasters lies in an unlikely place: our most common understanding of reason itself.
What Is Reason Really Like?
PolicySpeak is supposed to be reasoned, objective discourse. It thus assumes a theory of what reason itself is — a philosophical theory that dates back to the 17th Century and is still taught.
Over the past four decades, cognitive science and neuroscience have provided a scientific view of how the brain and mind really work. A handful of these results have come into behavioral economics. But most social scientists and policymakers are not trained in these fields. They still have the old view of mind and language.
The old philosophical theory says that reason is conscious, can fit the world directly, is universal (we all think the same way), is dispassionate (emotions get in the way of reason), is literal (no metaphor or framing in reason), works by logic, is abstract (not physical) and functions to serve our interests. Language on this view is neutral and can directly fit, or not fit, reality.
The scientific research in neuroscience and cognitive science has shown that most reason is unconscious. Since we think with our brains, reason cannot directly fit the world. Emotion is necessary for rational thought; if you cannot feel emotion, you will not know what to want or how anyone else would react to your actions. Rational decisions depend on emotion. Empathy with others has a physical basis, and as much as self-interest, empathy lies behind reason.
Ideas are physical, part of brain circuitry. Ideas are constituted by brain structures called ‘frames’ and ‘metaphors,’ and reason uses them. Frames form systems, called worldviews. All language is defined relative to such frames and metaphors. There are very different conservative and progressive worldviews, and different words can activate different worldviews. Important words, like freedom, can have entirely different meanings depending on your worldview. In short, not everybody thinks the same way.
As a result, what is taken as “objective” discourse is often worldview dependent. This is especially true of health care. All progressive writing supporting some version of health care assumes a progressive moral worldview, in which no one should be forced to go without heath care, the government should play a role, market regulation is necessary, and so on.
Those with radical conservative worldviews may well think otherwise: that everyone should be responsible for their own and their family’s health care, that the government is oppressive and should stay out of it, that the market should always dominate, and so on.
Overall, the foundational assumptions underlying PolicySpeak are false. It should be no wonder that PolicySpeak isn’t working.
The Bi-conceptual Audience
A property of brains called “mutual inhibition” permits people to have contradictory worldviews and go back and forth between them. Many people have both progressive and conservative worldviews, but on different issues — perhaps conservative on financial issues and progressive on social issues. Such people are called bi-conceptuals. President Obama understands this. He has said that his “bipartisanship” means finding Republicans who happen to share his progressive views on particular issues, and working with them on those issues—and not accepting an ideology (radical conservatism) rejected by the American people.
The people the President has to convince are the millions of bi-conceptuals. That means he has to have them thinking of health care in progressive moral terms, not conservative moral terms. How can this be accomplished?
Why Do the Nature of Reason and Language Matter?
It’s all in the brain. Words activate frame-and-metaphor circuits, which in turn activate worldview circuits. Whenever brain circuitry is activated, the synapses get stronger, and the circuits are easier to activate again. Conservative language will activate conservative frames, which will activate and strengthen the conservative worldview.
Conservative tacticians may not know about brain research, but they know about marketing, and marketing theorists use that brain research. That is why conservatives place such importance on language choice, from the classic “socialized medicine,” to Luntz’s “government takeover” to Palin’s “death panels.” When repeated over and over, the words evoke a conservative worldview, with many of the specific bogeymen — abortion, socialism = communism = nazism, euthanasia, foreigners, taxes, spending, the liberal elite, Big Brother, and so on. The most effective language has emotional appeal and, to conservatives, a moral appeal because it activates the conservative moral worldview. And such language, repeated every day, changes brains, strengthening the synapses of those who listen.
Conservative language will activate and strengthen conservative worldviews — even when negated! I titled a book Don’t Think of an Elephant! to make this point. The classic example is Richard Nixon’s “I am not a crook,” which made everyone think of him as a crook. And yet I’ve heard President Obama say “We don’t want a government takeover,” which activates the idea of a government takeover. Mediamatters.org’s major story, as I write this, is: “The media have debunked the death panels -- more than 40 times.” It then gives a list of 40 cases of debunking, each one of which uses the term “death panels.” And you wonder, after so many debunkings, why it is still believed! Each “debunking” reinforced the idea. The first rule of effective communication is stating the positive in your own terms, not quoting the other side’s language with a negation.
The Conservative Communication System
The serious reporting on role of conservative think tanks began in the mid-1990’s with works such as:
* Buying a Movement: Right-Wing Foundations and American Politics (People for the American Way, 1996).
* Sally Covington, Moving a Public Policy Agenda: The Strategic Philanthropy of Conservative Foundations (National Committee for Responsive Philanthropy, 1998).
* Jean Stefancic and Richard Delgado, No Mercy: How Conservative Think Tanks and Foundations Changed America's Social Agenda (Temple University Press, 1996).
In 1996, my Moral Politics appeared, outlining the conservative and progressive moral worldviews and how the conservatives used language to frame public discourse their way.
In 2004, Rob Stein tracked the conservative communications system, traeling the country with his detailed powerpoint, "The Conservative Message Machine Money Matrix." Stein tracked not only conservative think tanks, but also the language experts and training institutes training tens of thousands of conservative spokespeople He also tracked the communications facilities, and the collections of “experts” on every issue, together with a booking agency booking the experts daily on media all over the country. Daily talking points are repeated by those “experts.” The conservative communications system extends into every congressional district, including the districts of democrats. In the case of the Blue Dog Democrats, who come from relatively conservative districts, the Blue Dogs have to deal with constituents who hear conservative framing over and over every day without anything effective countering it. That is a major factor in Blue Dog resistance to administration proposals.
With all this information, you might think that progressives would set up their own communications network going into the heart of conservative districts everywhere, day after day, effectively countering the conservative framing.
It didn’t happen. Instead, PolicySpeak prevailed. The old philosophical theory, which is taught in every policy school, won out. Progressives thought such a communications system would be illegitimate — what the conservatives do. They believe, in 17th Century fashion, that if they just state the facts, people should reason to the right conclusion.
So progressives set up truth squad websites and blogs to negate conservative lies – like Media Matters, The Center for American Progress, the People for the American Way, the Center for America’s Future, MoveOn, Organizing for America, and so on. These are all fine organizations, and we are fortunate to have them. But … they are preaching to the choir (because they don’t have an adequate communications system), and they are using PolicySpeak: just stating the policy truths will be enough.
As I was writing this, I received the viral email written by David Axelrod, which he refers to as “probably one of the longest emails I've ever sent.” It is indeed long. It is accurate. It lays out the President’s list of needed reforms. It answers the myths. It appeals to people who would personally benefit from the President’s plan. It drops the Public Option, which makes sense of the list. And it is written in PolicySpeak. It has 24 points – 3 sets of 8.
Ask yourself which is more memorable: “Government takeover,” “socialized medicine,” and “death panels” — or Axelrod’s 24 points?
Did the administration do a reality check on the 24 points? That is, did they have one of our superb cognitive psychologists test subjects who were convinced of the right-wing framing, have them read the 24 points, and test them a couple days or a week later on whether Axelrod’s 24 points had convinced them? PolicySpeak folks don’t tend to think of such things.
I genuinely hope the 24 points work. But this is the kind of messaging that created the problems in the first place.
I respect Axelrod deeply. But the strategist who ran the best-framed campaign I’ve ever seen is giving in to PolicySpeak.
The Irony
There is a painful irony in all this, and I am aware of it constantly. Highly educated progressives, who argue for the importance of science, have been ignoring or rejecting the science of the brain and mind. Why?
Because brains are brains. A great many progressives have not grown up with, nor have they learned, the new scientific understanding of reason. Instead they have acquired the old philosophical theory of reason and assume it every day in everything they do. The old view is inscribed indelibly in the synapses of their brains. It will be hard for those progressives to comprehend the new science that contradicts their daily practice.
They may find it hard to comprehend framing, metaphor, and narrative as the way reason really works — as what you need to do to communicate truth. Instead, they may well think of framing as merely manipulation and spin, as the mechanism that the right wing uses to communicate lies.
An excellent example of such old-theory thinking appears in the Rahm Emanuel/Bruce Reed book, The Plan, where framing is seen only as manipulation, not as the structure of ideas. Emanuel and Reed (p. 21) assume that policy is independent of what they incorrectly understand framing to be. As a result, they assume that framing can only be illegitimate manipulation.
This is, of course, the very opposite of what I and other cognitive scientists have been saying. They are right that real reason can be manipulated in that way, as Frank Luntz has shown us. But it need not be. An understanding of how the brain really works can be used to communicate the truth effectively, and that’s how it should be used.
In the Obama campaign, honest, effective framing was used with great success. But in the Obama administration, something has changed. It needs to change back.
George Lakoff is the author of Moral Politics, Don't Think of an Elephant!, Whose Freedom?, and Thinking Points (with the Rockridge Institute staff). He is Richard and Rhoda Goldman Distinguished Professor of Cognitive Science and Linguistics at the University of California at Berkeley, and a founding senior fellow at the Rockridge Institute.
SERVICES’ FY-11 WAR COST ESTIMATES BILLIONS HIGHER THAN EXPECTED
Inside the Pentagon
Fiscal year 2011 war spending requests submitted to the Office of the Secretary of Defense by the military services are billions of dollars larger than expected, which is raising eyebrows and drawing scrutiny at the Defense Department, Inside the Pentagon has learned.
Earlier this year, the Obama administration halted the Bush administration’s practice of using emergency supplemental spending requests to fund the wars in Iraq and Afghanistan. Instead, the Obama White House submitted a $130 billion overseas contingency operations (OCO) package to Congress with its FY-10 budget request. The White House also laid down a $50 billion OCO placeholder for FY-11 and in each following year.
Now, as the Pentagon weighs the FY-11 base budget and OCO requests submitted by the services on Aug. 14, it is finding the services’ FY-11 OCO requests are larger than expected. Instead of a “substantial” decrease tied to the drawdown in Iraq, the OCO total is “roughly flat” compared with FY-10, a Pentagon official said, noting it is only a bit under the FY-10 level. Deputy Defense Secretary Bill Lynn is slated to mull the matter Friday, the official said.
The services argue they have good reasons to justify their proposals, said Pentagon and service officials. The Navy OCO request involves a lot of flying hours tied to requests from U.S. Central Command that have greatly exceeded programmed levels of funding. The Army has to pay all of its reset costs while covering maintenance costs that will continue for a while during the Iraq drawdown, the Pentagon official said. In addition to service funds, the OCO includes billions of dollars in DOD-wide accounts for items such technologies designed to counter improvised bombs.
Meanwhile, defense budget observers outside the department tell ITP it is unrealistic to expect war costs to drop to $50 billion in FY-11, particularly given the likelihood that Gen. Stanley McChrystal, the top U.S. commander in Afghanistan, will ask the administration to send more U.S. troops there.
“On the military side, everybody is saying this [situation in Afghanistan] is . . . not solid and we’re going to need more forces in order for it to be more solid,” a former government budget official said. The $50 billion placeholder preceded policy decisions and was not informed by those decisions. DOD did not anticipate the FY-11 OCO total would come down that far from FY-10, but did expect a major reduction, the Pentagon official said.
In the weeks to come, DOD will mull whether the services shifted any costs out of the FY-11 base budgets and into the OCO plan in order to balance their budgets, the Pentagon official said. In other words, DOD will determine if the services moved operations and maintenance resources that should have been in the base into the OCO in order to keep more of other things in the base. It is not yet known if that has happened, but DOD will work through the fall to figure it out, the official said.
Every dollar in the OCO package must be justified to the White House’s Office of Management and Budget, so there will be a lot of scrutiny, the official said. If the services put any money into their OCO request that should not be there, the Pentagon must find out and make room for it in the base. If the entire OCO request is justifiable then DOD is in pretty good shape, the official opined. But if there are things in there that will not pass muster, DOD has a problem; the more of that there is, the bigger the problem. Unfortunately, the official said, until DOD does quite a bit more work it will not know if a problem exists -- and if there is one, how big it is.
DOD will only get in trouble if things the services put into the OCO get rejected by OMB, forcing the Pentagon to find room for these items in the base budget, the official said. The services maintain the OCO requests are fully supportable while the Office of the Secretary of Defense has not yet formed its opinion.
This fall, DOD will also mull to what degree the services’ FY-11 budget proposals comply with the Guidance for the Development of the Force that Defense Secretary Robert Gates approved July 30. Based on what they submitted, the services can make a case they have complied, the official said. Especially on the low end they did what they were supposed to do, the official added, noting there is certainly no “train wreck.” The services moved in the right direction; the only question is whether they moved the right distance.
Gates plans to summon the combatant commanders to DOD in September for a Defense Senior Leadership Conference to let them weigh in before DOD makes trade-offs in the program review, sources said.
The Pentagon official downplayed the possibility of major budget cuts in the FY-11 cycle, noting the big kills were made in the FY-10 budget process. -- Christopher J. Castelli
PENTAGON-25-34-1
Fiscal year 2011 war spending requests submitted to the Office of the Secretary of Defense by the military services are billions of dollars larger than expected, which is raising eyebrows and drawing scrutiny at the Defense Department, Inside the Pentagon has learned.
Earlier this year, the Obama administration halted the Bush administration’s practice of using emergency supplemental spending requests to fund the wars in Iraq and Afghanistan. Instead, the Obama White House submitted a $130 billion overseas contingency operations (OCO) package to Congress with its FY-10 budget request. The White House also laid down a $50 billion OCO placeholder for FY-11 and in each following year.
Now, as the Pentagon weighs the FY-11 base budget and OCO requests submitted by the services on Aug. 14, it is finding the services’ FY-11 OCO requests are larger than expected. Instead of a “substantial” decrease tied to the drawdown in Iraq, the OCO total is “roughly flat” compared with FY-10, a Pentagon official said, noting it is only a bit under the FY-10 level. Deputy Defense Secretary Bill Lynn is slated to mull the matter Friday, the official said.
The services argue they have good reasons to justify their proposals, said Pentagon and service officials. The Navy OCO request involves a lot of flying hours tied to requests from U.S. Central Command that have greatly exceeded programmed levels of funding. The Army has to pay all of its reset costs while covering maintenance costs that will continue for a while during the Iraq drawdown, the Pentagon official said. In addition to service funds, the OCO includes billions of dollars in DOD-wide accounts for items such technologies designed to counter improvised bombs.
Meanwhile, defense budget observers outside the department tell ITP it is unrealistic to expect war costs to drop to $50 billion in FY-11, particularly given the likelihood that Gen. Stanley McChrystal, the top U.S. commander in Afghanistan, will ask the administration to send more U.S. troops there.
“On the military side, everybody is saying this [situation in Afghanistan] is . . . not solid and we’re going to need more forces in order for it to be more solid,” a former government budget official said. The $50 billion placeholder preceded policy decisions and was not informed by those decisions. DOD did not anticipate the FY-11 OCO total would come down that far from FY-10, but did expect a major reduction, the Pentagon official said.
In the weeks to come, DOD will mull whether the services shifted any costs out of the FY-11 base budgets and into the OCO plan in order to balance their budgets, the Pentagon official said. In other words, DOD will determine if the services moved operations and maintenance resources that should have been in the base into the OCO in order to keep more of other things in the base. It is not yet known if that has happened, but DOD will work through the fall to figure it out, the official said.
Every dollar in the OCO package must be justified to the White House’s Office of Management and Budget, so there will be a lot of scrutiny, the official said. If the services put any money into their OCO request that should not be there, the Pentagon must find out and make room for it in the base. If the entire OCO request is justifiable then DOD is in pretty good shape, the official opined. But if there are things in there that will not pass muster, DOD has a problem; the more of that there is, the bigger the problem. Unfortunately, the official said, until DOD does quite a bit more work it will not know if a problem exists -- and if there is one, how big it is.
DOD will only get in trouble if things the services put into the OCO get rejected by OMB, forcing the Pentagon to find room for these items in the base budget, the official said. The services maintain the OCO requests are fully supportable while the Office of the Secretary of Defense has not yet formed its opinion.
This fall, DOD will also mull to what degree the services’ FY-11 budget proposals comply with the Guidance for the Development of the Force that Defense Secretary Robert Gates approved July 30. Based on what they submitted, the services can make a case they have complied, the official said. Especially on the low end they did what they were supposed to do, the official added, noting there is certainly no “train wreck.” The services moved in the right direction; the only question is whether they moved the right distance.
Gates plans to summon the combatant commanders to DOD in September for a Defense Senior Leadership Conference to let them weigh in before DOD makes trade-offs in the program review, sources said.
The Pentagon official downplayed the possibility of major budget cuts in the FY-11 cycle, noting the big kills were made in the FY-10 budget process. -- Christopher J. Castelli
PENTAGON-25-34-1
Pakistan says costs halve US aid
Financial Times (London, England) - Thursday, August 27, 2009
Author: Bokhari, Farhan
Half of the planned assistance pledged by the US to Pakistan is likely to be wastefully spent on administrative costs, Islamabad's top finance official has said.
Shaukat Tarin, Pakistan's finance minister, has urged the US to channel its assistance through Pakistani agencies instead to save on high intermediation costs incurred by US counterparts.
His comments come as Pakistan struggles to secure funds from international donors who want to know more about where it will be spent. At an international donors meeting in Turkey this week, Pakistan failed to cement earlier pledges of $5.7bn in aid in spite of an appeal by the United Nations not to ignore the country's plight.
Pakistan has become one of the largest recipients of US aid as Washington seeks to help stabilise the country threatened by a Taliban insurgency. US president Barack Obama plans to raise economic assistance to about $1.5bn a year, or $7.5bn over the next five years.
"Whatever aid [the US is] giving must have full impact on the ground which is why they should route as much of this aid through our agencies than their own agencies," Mr Tarin said in an interview with the Financial Times. "Frankly, we only receive almost 50-55 per cent of the aid, 40-45 per cent becomes expenses [because of intermediation costs by the US]."
Some Pakistani officials express concern that USAID, the US's foreign development arm, will establish a large infrastructure in the country and employ generously paid foreign experts. They are concerned that higher personnel and administrative bills will inflate the cost of development projects.
Mr Tarin added Pakistan would resist any linkage of financial assistance to the country's nuclear programme or confidence-building measures with arch-rival India. He said aid would be "unacceptable" if it was tied to greater monitoring of the country's nuclear arsenal.
"If [the US] put conditions on the money to be spent where it is intended (to be spent), that's the kind of condition I would like to place on myself. But if they bring in other things, nuclear or [opening up] trade with India or anything which we believe is not related, that will not be acceptable to us."
US aid is intended to win public goodwill across Pakistan where antiAmericanism is widespread. US administrations have in the past been viewed as generous with military support, but stinting on civilian partnership.
The US seems unlikely to change how it delivers any increased aid to Pakistan. The US says it expends a lot of time and resources trying to make sure its taxpayers' money does not end up in the wrong hands. Transparency International, the Berlin-based corruption watchdog, last year ranked Pakistan 134th out of 180 countries on its corruption perceptions index.
China, meanwhile, has promised to build at least 12 dams across Pakistan, senior Pakistani government officials said yesterday.
Author: Bokhari, Farhan
Half of the planned assistance pledged by the US to Pakistan is likely to be wastefully spent on administrative costs, Islamabad's top finance official has said.
Shaukat Tarin, Pakistan's finance minister, has urged the US to channel its assistance through Pakistani agencies instead to save on high intermediation costs incurred by US counterparts.
His comments come as Pakistan struggles to secure funds from international donors who want to know more about where it will be spent. At an international donors meeting in Turkey this week, Pakistan failed to cement earlier pledges of $5.7bn in aid in spite of an appeal by the United Nations not to ignore the country's plight.
Pakistan has become one of the largest recipients of US aid as Washington seeks to help stabilise the country threatened by a Taliban insurgency. US president Barack Obama plans to raise economic assistance to about $1.5bn a year, or $7.5bn over the next five years.
"Whatever aid [the US is] giving must have full impact on the ground which is why they should route as much of this aid through our agencies than their own agencies," Mr Tarin said in an interview with the Financial Times. "Frankly, we only receive almost 50-55 per cent of the aid, 40-45 per cent becomes expenses [because of intermediation costs by the US]."
Some Pakistani officials express concern that USAID, the US's foreign development arm, will establish a large infrastructure in the country and employ generously paid foreign experts. They are concerned that higher personnel and administrative bills will inflate the cost of development projects.
Mr Tarin added Pakistan would resist any linkage of financial assistance to the country's nuclear programme or confidence-building measures with arch-rival India. He said aid would be "unacceptable" if it was tied to greater monitoring of the country's nuclear arsenal.
"If [the US] put conditions on the money to be spent where it is intended (to be spent), that's the kind of condition I would like to place on myself. But if they bring in other things, nuclear or [opening up] trade with India or anything which we believe is not related, that will not be acceptable to us."
US aid is intended to win public goodwill across Pakistan where antiAmericanism is widespread. US administrations have in the past been viewed as generous with military support, but stinting on civilian partnership.
The US seems unlikely to change how it delivers any increased aid to Pakistan. The US says it expends a lot of time and resources trying to make sure its taxpayers' money does not end up in the wrong hands. Transparency International, the Berlin-based corruption watchdog, last year ranked Pakistan 134th out of 180 countries on its corruption perceptions index.
China, meanwhile, has promised to build at least 12 dams across Pakistan, senior Pakistani government officials said yesterday.
20 August 2009
Pentagon Eyes Commercially Derived 'Arsenal Airplane' as Possible B-52 Replacement
Inside Defense
Aug. 20, 2009 -- The Pentagon is considering a modified commercial wide-body aircraft packed with cruise missiles as a possible low-tech replacement for the Air Force's aging B-52 bomber fleet, a previously unreported option being floated as part of a wider assessment of how the Defense Department might modernize its long-range strike capabilities, according to DOD sources.
A “tiger team” formed earlier this year to examine the underlying need for a new long-range strike aircraft is looking at the option of a so-called “arsenal airplane,” according to Pentagon officials. The team was set up after Defense Secretary Robert Gates in April canceled the fledgling Next-Generation Bomber program.
At issue is a fundamental question about the composition of the future bomber fleet: How much of it must be capable of penetrating sophisticated enemy air defenses; and what, if any, portion can operate like the B-52 does today -- at a safe distance from enemy air defenses.
At Gates' direction, the team is focusing on examining the need for a new bomber, drawing up options for aircraft capable of providing long-range, penetrating, persistent aircraft, systems that would likely be stealthy, supersonic and carry a hefty price tag.
“One of the issues that has come up is: Would we want the entire bomber force to be that aircraft?” said a source familiar with the tiger team's efforts. “Or in time, when the B-52 is replaced, do you go with a stealthy aircraft or an arsenal plane, a commercially derivative plane that can drop bombs?”
Any decision made this fall about what the B-52 replacement might look like will not begin impacting defense budgets for decades, officials said. The Pentagon plans to continue flying the venerable eight-engine bomber until at least 2035.
However, the budget implications for such a decision are being debated. A key issue is the cost of the total capability -- the aircraft plus the munition. Sources say that when a price tag for the cruise missiles is tallied along with the aircraft’s, the total cost could approach amounts comparable to a stealthy, penetrating bomber.
By considering a modified commercial bomber, the Pentagon is dusting off a concept for an arsenal aircraft that first surfaced during the height of Cold War.
Gates has tasked the tiger team to examine if there is a strategic need for long-range strike capability. In addition, according to sources, the group is examining: What does such a capability need to be able to do to be strategically relevant? What are the operational challenges that it needs to be able to address? What are options in terms of platforms and munitions for achieving that?
David Ochmanek, deputy assistant secretary of defense for force development and head of the Quadrennial Defense Review analysis and integration cell, told reporters earlier this summer that the tiger team “is reexamining both the nature of that [long-range strike] mission and opportunities for accomplishing that mission technologically and conceptually.”
The team is expected to deliver its report to Gates in the early fall.
The 2006 Quadrennial Defense Review directed the Air Force to field a new long-range strike aircraft by 2018, accelerating its bomber modernization plans by nearly two decades in an effort to quickly enhance the service's effectiveness across the Asia-Pacific region.
But in April, Gates terminated the Air Force's Next-Generation Bomber program, directing the Pentagon to reexamine both the requirement and available technologies and noting that any decision on a new program will be made in the context of the QDR and the Nuclear Posture Review, as well as follow-on negotiations with Russia over a new strategic arms reduction pact.
Meantime, the Air Force included a classified $140 million request in its unfunded requirements list to continue the bomber effort in fiscal year 2010 (DefenseAlert, June 5).
This year, the tiger team was established “to explicitly relook the requirements and concepts for long-range, penetrating strike and [intelligence, surveillance and reconnaissance], recognizing that a manned bomber may or may not be the right answer,” Ochmanek said on June 28.
Still, Pentagon officials acknowledge the need for some type of long-range strike platform for potential future conflicts, he noted.
“There's recognition of the importance of being able to locate, characterize and attack targets in a hostile air defense environment,” Ochmanek said. -- Jason Sherman
8202009_aug20a
Aug. 20, 2009 -- The Pentagon is considering a modified commercial wide-body aircraft packed with cruise missiles as a possible low-tech replacement for the Air Force's aging B-52 bomber fleet, a previously unreported option being floated as part of a wider assessment of how the Defense Department might modernize its long-range strike capabilities, according to DOD sources.
A “tiger team” formed earlier this year to examine the underlying need for a new long-range strike aircraft is looking at the option of a so-called “arsenal airplane,” according to Pentagon officials. The team was set up after Defense Secretary Robert Gates in April canceled the fledgling Next-Generation Bomber program.
At issue is a fundamental question about the composition of the future bomber fleet: How much of it must be capable of penetrating sophisticated enemy air defenses; and what, if any, portion can operate like the B-52 does today -- at a safe distance from enemy air defenses.
At Gates' direction, the team is focusing on examining the need for a new bomber, drawing up options for aircraft capable of providing long-range, penetrating, persistent aircraft, systems that would likely be stealthy, supersonic and carry a hefty price tag.
“One of the issues that has come up is: Would we want the entire bomber force to be that aircraft?” said a source familiar with the tiger team's efforts. “Or in time, when the B-52 is replaced, do you go with a stealthy aircraft or an arsenal plane, a commercially derivative plane that can drop bombs?”
Any decision made this fall about what the B-52 replacement might look like will not begin impacting defense budgets for decades, officials said. The Pentagon plans to continue flying the venerable eight-engine bomber until at least 2035.
However, the budget implications for such a decision are being debated. A key issue is the cost of the total capability -- the aircraft plus the munition. Sources say that when a price tag for the cruise missiles is tallied along with the aircraft’s, the total cost could approach amounts comparable to a stealthy, penetrating bomber.
By considering a modified commercial bomber, the Pentagon is dusting off a concept for an arsenal aircraft that first surfaced during the height of Cold War.
Gates has tasked the tiger team to examine if there is a strategic need for long-range strike capability. In addition, according to sources, the group is examining: What does such a capability need to be able to do to be strategically relevant? What are the operational challenges that it needs to be able to address? What are options in terms of platforms and munitions for achieving that?
David Ochmanek, deputy assistant secretary of defense for force development and head of the Quadrennial Defense Review analysis and integration cell, told reporters earlier this summer that the tiger team “is reexamining both the nature of that [long-range strike] mission and opportunities for accomplishing that mission technologically and conceptually.”
The team is expected to deliver its report to Gates in the early fall.
The 2006 Quadrennial Defense Review directed the Air Force to field a new long-range strike aircraft by 2018, accelerating its bomber modernization plans by nearly two decades in an effort to quickly enhance the service's effectiveness across the Asia-Pacific region.
But in April, Gates terminated the Air Force's Next-Generation Bomber program, directing the Pentagon to reexamine both the requirement and available technologies and noting that any decision on a new program will be made in the context of the QDR and the Nuclear Posture Review, as well as follow-on negotiations with Russia over a new strategic arms reduction pact.
Meantime, the Air Force included a classified $140 million request in its unfunded requirements list to continue the bomber effort in fiscal year 2010 (DefenseAlert, June 5).
This year, the tiger team was established “to explicitly relook the requirements and concepts for long-range, penetrating strike and [intelligence, surveillance and reconnaissance], recognizing that a manned bomber may or may not be the right answer,” Ochmanek said on June 28.
Still, Pentagon officials acknowledge the need for some type of long-range strike platform for potential future conflicts, he noted.
“There's recognition of the importance of being able to locate, characterize and attack targets in a hostile air defense environment,” Ochmanek said. -- Jason Sherman
8202009_aug20a
Calls for Greater Specificity Spurred Review of Force-Planning Construct
Inside Defense
Aug. 19, 2009 -- Ongoing deliberations about a new force-sizing construct for the U.S. military are fueled, at least in part, by complaints from military planners that the current approach is too vague, according to defense officials.
The 2006 Quadrennial Defense Review introduced the idea of modeling the size and composition of U.S. forces along three major functional themes: homeland defense, counterterrorism and irregular warfare, and conventional warfare. Combined with a series of variables -- like the projected duration of conflicts, their intensity or the environment in which they take place -- defense leaders aimed to create a very high-level formula for translating the complexities of a post-September 11 world into concrete force-sizing guidance.
Officials commonly refer to the planning construct built from this thinking as the “Michelin Man” for the oval depiction of its three major themes, stacked on top of each other, in briefing slides and documents.
But following the transition in the White House earlier this year, military planners and budgeteers from the services and combatant commands pointed to what they thought were shortcomings of this approach in conversations with the new cadre of officials in the Pentagon's policy shop.
“What we heard over and over again was, 'We need a new force-sizing construct,'” Kathleen Hicks, the deputy under secretary of defense for strategy, plans and forces, said in an Aug. 6 interview.
“What we often would hear was [that] there was not enough specificity provided in the Michelin Man -- that it created an inability to control demand for forces,” she added. “It might have worked for a period of time when resources were never ending. But when budgets are becoming constrained, you need a finer mechanism for determining what forces you actually are required to have,” she said.
There was also a recognition that the preceding force-sizing construct, the so-called “1-4-2-1” model, was “too constricting,” Hicks said.
The model dictates that the United States must have sufficient forces to simultaneously defend the homeland, deter aggression in four regions of the world, swiftly deter aggression in two conflicts, and win one of these conflicts decisively.
Officials working on this year's QDR have tried to come up with specific force-sizing “criteria” as well as “planning assumptions and approaches” that will soon be vetted in greater detail, Hicks said. Officials included “interim” guidance to that effect in the recently signed Guidance for the Development of the Force, she noted.
Earlier this month, Inside the Pentagon reported the framework of the new construct as being four-pronged: prevail in ongoing conflicts; prevent and deter; prepare for contingencies; and preserve and enhance the force.
With the Michelin Man concept considered too vague and the 1-4-2-1 model considered too prescriptive for the unknowns of present-day warfare, exactly where the new force-sizing construct will fall is considered one of the key questions of the defense review.
For now, officials are still working on the conceptual underpinning of the new construct before worrying about what to label it, according to Hicks.
“We're very cognizant of our need to be able to translate that into something that is understandable to the public [and] is understandable to Congress,” said Hicks. “But in my mind that is the second step of the process. The first step of the process is getting it right analytically.” -- Sebastian Sprenger
8192009_aug19a
Aug. 19, 2009 -- Ongoing deliberations about a new force-sizing construct for the U.S. military are fueled, at least in part, by complaints from military planners that the current approach is too vague, according to defense officials.
The 2006 Quadrennial Defense Review introduced the idea of modeling the size and composition of U.S. forces along three major functional themes: homeland defense, counterterrorism and irregular warfare, and conventional warfare. Combined with a series of variables -- like the projected duration of conflicts, their intensity or the environment in which they take place -- defense leaders aimed to create a very high-level formula for translating the complexities of a post-September 11 world into concrete force-sizing guidance.
Officials commonly refer to the planning construct built from this thinking as the “Michelin Man” for the oval depiction of its three major themes, stacked on top of each other, in briefing slides and documents.
But following the transition in the White House earlier this year, military planners and budgeteers from the services and combatant commands pointed to what they thought were shortcomings of this approach in conversations with the new cadre of officials in the Pentagon's policy shop.
“What we heard over and over again was, 'We need a new force-sizing construct,'” Kathleen Hicks, the deputy under secretary of defense for strategy, plans and forces, said in an Aug. 6 interview.
“What we often would hear was [that] there was not enough specificity provided in the Michelin Man -- that it created an inability to control demand for forces,” she added. “It might have worked for a period of time when resources were never ending. But when budgets are becoming constrained, you need a finer mechanism for determining what forces you actually are required to have,” she said.
There was also a recognition that the preceding force-sizing construct, the so-called “1-4-2-1” model, was “too constricting,” Hicks said.
The model dictates that the United States must have sufficient forces to simultaneously defend the homeland, deter aggression in four regions of the world, swiftly deter aggression in two conflicts, and win one of these conflicts decisively.
Officials working on this year's QDR have tried to come up with specific force-sizing “criteria” as well as “planning assumptions and approaches” that will soon be vetted in greater detail, Hicks said. Officials included “interim” guidance to that effect in the recently signed Guidance for the Development of the Force, she noted.
Earlier this month, Inside the Pentagon reported the framework of the new construct as being four-pronged: prevail in ongoing conflicts; prevent and deter; prepare for contingencies; and preserve and enhance the force.
With the Michelin Man concept considered too vague and the 1-4-2-1 model considered too prescriptive for the unknowns of present-day warfare, exactly where the new force-sizing construct will fall is considered one of the key questions of the defense review.
For now, officials are still working on the conceptual underpinning of the new construct before worrying about what to label it, according to Hicks.
“We're very cognizant of our need to be able to translate that into something that is understandable to the public [and] is understandable to Congress,” said Hicks. “But in my mind that is the second step of the process. The first step of the process is getting it right analytically.” -- Sebastian Sprenger
8192009_aug19a
19 August 2009
Defense contractors brace for life without supplemental bills
By Katherine McIntire Peters kpeters@govexec.com August 18, 2009
You'd never know from the congressional debate over the Obama administration's fiscal 2010 budget request for the Defense Department that the White House actually wants to increase its budget by about 4 percent, to $533.8 billion. That's because in the convoluted world of defense spending, the Pentagon's budget in recent years has shown little resemblance to what the department actually spends. The White House wants to change that, and defense contractors are bracing for the fallout.
Since 2001, when U.S. forces invaded Afghanistan, Congress has authorized 17 funding bills totaling $882 billion on top of Defense's annual appropriation, according to the Office of Management and Budget. These supplemental bills have funded the costs of military operations in Iraq and Afghanistan, but they've also been padded with money for priorities not related to the wars, such as the F-22 fighter jet, built by Lockheed Martin Corp., which has never been used on the battlefield. Going forward, the White House says it will fund military operations in Iraq and Afghanistan through the regular appropriations process.
So the budget increase administration officials have touted actually portends a significant decrease in defense spending, particularly on some big-ticket weapons programs. Among those the administration is seeking to cancel is the Transformational Satellite Communications System, shared by Lockheed and Boeing Co., which has been valued at anywhere from $14 billion to $25 billion through 2016. Lockheed also would be hit with the cancellation of the presidential helicopter program, whose costs have doubled during the last three years to more than $11 billion.
Cuts in missile defense programs, including Boeing's airborne laser prototype aircraft and Lockheed's Multiple Kill Vehicle, also will hit the two defense behemoths. Likewise, major ship programs, affecting Northrop Grumman Corp. and General Dynamics Corp., would be significantly restructured, along with the Army's central modernization program known as Future Combat Systems, which is managed by Boeing and SAIC.
Defense Secretary Robert Gates expected push back on what he called a "reform budget," and he's getting it. Even before lawmakers received the White House budget request, many protested cuts to favored programs, especially missile defense efforts. It wasn't clear as of late July how significantly Congress would alter the administration's request, but it was clear that Defense spending priorities would have to change.
A central problem for the Pentagon has been figuring out how to pay for the weapons the services want to buy. Even before the depth of the global financial crisis was known, the Air Force calculated it was facing a $20 billion gap between its budget and its plans, and the Army foresaw at least a $30 billion shortfall. The Navy hasn't publicized a figure, but most analysts think it would be in the same ballpark as its sister services.
It's not clear yet whether the Obama administration ultimately will bridge the gap between the services' resources and their plans. The department is undergoing a Quadrennial Defense Review for 2010 that aims to provide the analytical framework for making trade-offs in defense spending priorities, and a number of programs are essentially on hold until that review is completed.
Gates repeatedly has appealed to lawmakers to look beyond their parochial interests and view the Defense budget as part of a broader strategic plan. "We have to be prepared for the wars we are most likely to fight - not just the wars we have been traditionally best-suited to fight, or threats we conjure up from potential adversaries who, in the real world, also have finite resources," he told the House Armed Services Committee in May.
Click here for the top 100 defense contractors.
You'd never know from the congressional debate over the Obama administration's fiscal 2010 budget request for the Defense Department that the White House actually wants to increase its budget by about 4 percent, to $533.8 billion. That's because in the convoluted world of defense spending, the Pentagon's budget in recent years has shown little resemblance to what the department actually spends. The White House wants to change that, and defense contractors are bracing for the fallout.
Since 2001, when U.S. forces invaded Afghanistan, Congress has authorized 17 funding bills totaling $882 billion on top of Defense's annual appropriation, according to the Office of Management and Budget. These supplemental bills have funded the costs of military operations in Iraq and Afghanistan, but they've also been padded with money for priorities not related to the wars, such as the F-22 fighter jet, built by Lockheed Martin Corp., which has never been used on the battlefield. Going forward, the White House says it will fund military operations in Iraq and Afghanistan through the regular appropriations process.
So the budget increase administration officials have touted actually portends a significant decrease in defense spending, particularly on some big-ticket weapons programs. Among those the administration is seeking to cancel is the Transformational Satellite Communications System, shared by Lockheed and Boeing Co., which has been valued at anywhere from $14 billion to $25 billion through 2016. Lockheed also would be hit with the cancellation of the presidential helicopter program, whose costs have doubled during the last three years to more than $11 billion.
Cuts in missile defense programs, including Boeing's airborne laser prototype aircraft and Lockheed's Multiple Kill Vehicle, also will hit the two defense behemoths. Likewise, major ship programs, affecting Northrop Grumman Corp. and General Dynamics Corp., would be significantly restructured, along with the Army's central modernization program known as Future Combat Systems, which is managed by Boeing and SAIC.
Defense Secretary Robert Gates expected push back on what he called a "reform budget," and he's getting it. Even before lawmakers received the White House budget request, many protested cuts to favored programs, especially missile defense efforts. It wasn't clear as of late July how significantly Congress would alter the administration's request, but it was clear that Defense spending priorities would have to change.
A central problem for the Pentagon has been figuring out how to pay for the weapons the services want to buy. Even before the depth of the global financial crisis was known, the Air Force calculated it was facing a $20 billion gap between its budget and its plans, and the Army foresaw at least a $30 billion shortfall. The Navy hasn't publicized a figure, but most analysts think it would be in the same ballpark as its sister services.
It's not clear yet whether the Obama administration ultimately will bridge the gap between the services' resources and their plans. The department is undergoing a Quadrennial Defense Review for 2010 that aims to provide the analytical framework for making trade-offs in defense spending priorities, and a number of programs are essentially on hold until that review is completed.
Gates repeatedly has appealed to lawmakers to look beyond their parochial interests and view the Defense budget as part of a broader strategic plan. "We have to be prepared for the wars we are most likely to fight - not just the wars we have been traditionally best-suited to fight, or threats we conjure up from potential adversaries who, in the real world, also have finite resources," he told the House Armed Services Committee in May.
Click here for the top 100 defense contractors.
Army readies draft of modernization plan
By Megan Scully CongressDaily August 17, 2009
Just months after the termination of its $160 billion Future Combat Systems program, the Army is on track to complete by Labor Day a new outline for how it plans to modernize its fighting forces, according to a senior Army official.
Lt. Gen. Michael Vane, who is overseeing a task force created after the FCS program's demise, said in an interview on Friday that his group will be ready to brief Army leaders on its conclusions in early September.
Included in its assessment will be the task force's recommendations on operational requirements for a new ground combat vehicle for the Army, as well as directions on how the Army should get new equipment to combat brigades.
Vane, director of the Training and Doctrine Command's Army Capabilities Integration Center, said the task force has relied heavily on field lessons learned from the U.S. military and allies during operations in Iraq and Afghanistan to help guide their work.
The Army launched the FCS program nearly a decade ago. It planned eight types of manned ground vehicles with a common chassis as the basis of its modernization strategy.
But in April, Defense Secretary Robert Gates announced plans to kill the ground vehicles -- whose price tag was expected to total $87 billion -- because of concerns the Army had not adequately incorporated lessons learned from Iraq and Afghanistan in their design.
In June, the Pentagon officially ended the FCS program and directed the Army to devise a modernization strategy made up of separate programs. The service plans to pursue many of the other technologies developed under FCS -- such as unmanned air and ground vehicles -- but those efforts will now be called Army Brigade Combat Team Modernization.
The task force's charter is broad, but Vane said the requirements for the vehicles are probably the group's most anticipated product.
"The Army has had not a lot of fair luck here in getting a new combat vehicle," Vane said, alluding to several program cancellations over the last 30 to 40 years.
The vehicle's specific details -- such as weight and whether it will be wheeled or tracked -- will be decided later. But the requirements set by the task force early next month will lay the groundwork for the design and put the Army on course to begin fielding the vehicles in the next five to seven years.
Vane said he has put a premium on establishing a feasible set of requirements.
He also said the task force will recommend which types of vehicles deserve a high priority on developing and fielding. While all decisions are not final, Vane indicated he would support putting a new command-and-control vehicle and an infantry fighting vehicle "near the top" of that list.
When Gates announced his intent to end the FCS ground vehicles, Army leaders did not hide their initial resistance. Army Chief of Staff George Casey said in May he had been unable to convince Gates that the service had taken into account enough of the lessons learned from the current fighting.
Vane acknowledged "change is painful," but added that the decision is a positive move for the Army.
"From where I sit, it really is an opportunity," he said. "It has been an opportunity to re-look where we've been with the program, where we've been with our requirements."
Just months after the termination of its $160 billion Future Combat Systems program, the Army is on track to complete by Labor Day a new outline for how it plans to modernize its fighting forces, according to a senior Army official.
Lt. Gen. Michael Vane, who is overseeing a task force created after the FCS program's demise, said in an interview on Friday that his group will be ready to brief Army leaders on its conclusions in early September.
Included in its assessment will be the task force's recommendations on operational requirements for a new ground combat vehicle for the Army, as well as directions on how the Army should get new equipment to combat brigades.
Vane, director of the Training and Doctrine Command's Army Capabilities Integration Center, said the task force has relied heavily on field lessons learned from the U.S. military and allies during operations in Iraq and Afghanistan to help guide their work.
The Army launched the FCS program nearly a decade ago. It planned eight types of manned ground vehicles with a common chassis as the basis of its modernization strategy.
But in April, Defense Secretary Robert Gates announced plans to kill the ground vehicles -- whose price tag was expected to total $87 billion -- because of concerns the Army had not adequately incorporated lessons learned from Iraq and Afghanistan in their design.
In June, the Pentagon officially ended the FCS program and directed the Army to devise a modernization strategy made up of separate programs. The service plans to pursue many of the other technologies developed under FCS -- such as unmanned air and ground vehicles -- but those efforts will now be called Army Brigade Combat Team Modernization.
The task force's charter is broad, but Vane said the requirements for the vehicles are probably the group's most anticipated product.
"The Army has had not a lot of fair luck here in getting a new combat vehicle," Vane said, alluding to several program cancellations over the last 30 to 40 years.
The vehicle's specific details -- such as weight and whether it will be wheeled or tracked -- will be decided later. But the requirements set by the task force early next month will lay the groundwork for the design and put the Army on course to begin fielding the vehicles in the next five to seven years.
Vane said he has put a premium on establishing a feasible set of requirements.
He also said the task force will recommend which types of vehicles deserve a high priority on developing and fielding. While all decisions are not final, Vane indicated he would support putting a new command-and-control vehicle and an infantry fighting vehicle "near the top" of that list.
When Gates announced his intent to end the FCS ground vehicles, Army leaders did not hide their initial resistance. Army Chief of Staff George Casey said in May he had been unable to convince Gates that the service had taken into account enough of the lessons learned from the current fighting.
Vane acknowledged "change is painful," but added that the decision is a positive move for the Army.
"From where I sit, it really is an opportunity," he said. "It has been an opportunity to re-look where we've been with the program, where we've been with our requirements."
13 August 2009
NPR DOCUMENT CITES GOAL OF ELIMINATING WORLD’S NUCLEAR WEAPONS
Inside Pentagon, Aug 2009
Months after a senior military official cast doubt on whether eliminating the world’s nuclear weapons would be a goal in the Nuclear Posture Review, it has emerged on a Pentagon list of themes for the review, though it does not lead the lineup.
An Aug. 6 Defense Department fact sheet released to nuclear experts includes the goal amid a list of six themes for the NPR: maintain a safe, secure, effective and reliable nuclear deterrent; maintain extended deterrence to allies; consult with allies and friends; continue to reduce the role of nuclear weapons in U.S. national security strategy; continue concrete steps toward a world without nuclear weapons; enhance the effectiveness of the global nonproliferation regime; and provide a basis for defining national arms control and non-proliferation objectives.
The sweeping review aims to establish U.S. nuclear policy, strategy, capabilities and force posture for the next five to 10 years. The Pentagon plans to deliver the NPR report to Congress next February along with the Quadrennial Defense Review, the Aug. 6 document states. This is different from a June 2 DOD statement, which said the NPR would go to Congress in December.
At an April 23 Pentagon background briefing, a reporter asked a senior defense official and a senior military official whether the NPR would include the “global zero” goal. The senior defense official acknowledged that President Obama cited that as an ultimate goal in an April 5, 2009, speech in Prague.
“He also said that until that time, as long as adversaries possess nuclear weapons, we will maintain a robust and credible nuclear deterrent,” the senior defense official said. “And so I think, you know, this NPR is being taken in the context that he lays out in that speech, which is a desire to really strengthen non-proliferation progress, if you will; explore the possibility of further reductions in our own arsenal; while also ensuring that we take the steps necessary, both in terms of the infrastructure and the forces, to ensure that we have a safe and secure and reliable deterrent.”
The senior military official, however, questioned whether the NPR would directly address Obama’s vision for a nuclear-free world.
“But I don’t know that I would speculate to say that that would be a goal,” the senior military official replied. “This NPR, from our perspective, is one about deterrence, how should we deter. And deterrence involves more than just nuclear weapons. So there are other aspects of what the department does that need to be brought to bear to deter, you know, a potential adversary from using nuclear capability.”
The issue came up again July 23 when Assistant Secretary of Defense for Special Operations, Low-Intensity Conflict and Interdependent Capabilities Michael Vickers spoke to reporters at a breakfast in Washington.
“The vision is clear and I think progress will be made,” Vickers replied.
But the Aug. 6 NPR background fact sheet sheds new light on the themes, which were not part of the June 2 NPR fact sheet released online by the Pentagon.
A source tracking nuclear issues noted Obama began his Prague speech by discussing the need to reduce the role of nuclear weapons in the National Security Strategy, but this is listed third in the list of six themes on the Aug. 6 fact sheet. The source wondered whether there is an implicit prioritization in DOD’s list of themes. At press time (Aug. 12), DOD did not respond to a request for comment.
But a second Aug. 6 NPR fact sheet -- this one on arms control, deterrence and START follow-on treaty negotiations -- begins by underscoring Obama’s pledge in Prague to reduce the role of nuclear weapons in the National Security Strategy and to take concrete steps toward a world without nuclear weapons.
“He also promised that as long as nuclear weapons exist, the United States will maintain a safe, secure, and effective arsenal to deter any adversary, and guarantee that defense to our allies,” the statement notes. The speech “sets the stage” for the NPR, which will “analyze the role of nuclear weapons in our national security
strategy, the size and composition of nuclear forces necessary to support that strategy, and the steps necessary to maintain a safe, secure, and effective nuclear deterrence posture,” the statement says.
Further, the statement says the NPR will recommend actions consistent with the president’s goals and will support “a new approach to arms control that reflects the current and future international environment.” This is a new and notable comment, the source said.
“The desired objective is to develop a U.S. nuclear posture that enhances the safety and security and preserves the effectiveness of our nuclear deterrent for as long as it is required, reduces the potential for conflict and nuclear use, enhances strategic stability world-wide, and strengthens the non-proliferation regime,” according to the statement.
There is no predetermined level of reductions for the U.S. arsenal, the statement says. “The DOD, in conjunction with the Departments of State and Energy, are committed to ensuring that decisions about nuclear force structure and posture continue to be based on strong analysis of the potential threat and a deep understanding of our deterrence and assurance requirements,” the statement adds. “The purpose of the review is to determine the appropriate strategy, force levels, and structures to meet national security objectives and extended deterrence requirements.”
The NPR will examine ways to reduce both the role and number of nuclear weapons, the statement says, although the complete elimination of nuclear weapons is not anticipated in the time frame of the review, which is five to 10 years. No one expects nuclear weapons to be eliminated within a decade, but if for instance the notion of doing so by 2025 is accepted, it might raise questions about whether to modernize some U.S. platforms that are good out to 2030, the source said.
The statement stresses extended deterrence to allies will remain a central element of U.S. nuclear policy.
“Extended deterrence to allies meets our formal Treaty commitments and contributes to our non-proliferation goals,” DOD writes. “The NPR is examining how to continue to provide extended deterrence to allies in a manner consistent with the long-term goal of eliminating nuclear weapons and reducing the role of nuclear weapons in national security of the United States and that of other countries around the globe.”
DOD maintains NPR and Strategic Arms Reduction Treaty (START) Follow-on treaty negotiations are closely coordinated to ensure that the U.S. negotiating positions are fully consistent with ongoing NPR analysis concerning nuclear policy, strategy, and force structure. The U.S. and Russia plan to complete the negotiations by December, when START expires.
“After rigorous analysis, the NPR team determined that maintaining a nuclear triad with a significantly reduced number of operationally deployed strategic nuclear weapons (ODSNW) and accountable strategic delivery vehicles (SDV) would enhance our national security objectives and provide extended deterrence to allies and friends,” the statement notes. This is noteworthy, the source said.
These findings were reviewed by military and civilian leadership and vetted through the interagency, DOD writes. “START Follow-on treaty negotiating positions were then subsequently identified and approved at the Cabinet level. Although the specific guidance to our negotiating team remains classified, the results to date of the bilateral negotiations are reflected in the Joint Understanding resulting from the Presidential Summit,” according to the statement.
The NPR is continuing to mull “alternative strategic approaches beyond the immediate confines of the START Follow-on negotiations” to frame options for strategic nuclear decisions for the next five to 10 years, DOD writes.
“Alternative postures and force structures are being analyzed in this NPR to address other possible futures including security environments in which relations with Russia dramatically improve, implications if the START Follow-on treaty does not enter into force and if reset of the US-Russian relationship does not continue,” according to the statement. -- Christopher J. Castelli
PENTAGON-25-32-8
Months after a senior military official cast doubt on whether eliminating the world’s nuclear weapons would be a goal in the Nuclear Posture Review, it has emerged on a Pentagon list of themes for the review, though it does not lead the lineup.
An Aug. 6 Defense Department fact sheet released to nuclear experts includes the goal amid a list of six themes for the NPR: maintain a safe, secure, effective and reliable nuclear deterrent; maintain extended deterrence to allies; consult with allies and friends; continue to reduce the role of nuclear weapons in U.S. national security strategy; continue concrete steps toward a world without nuclear weapons; enhance the effectiveness of the global nonproliferation regime; and provide a basis for defining national arms control and non-proliferation objectives.
The sweeping review aims to establish U.S. nuclear policy, strategy, capabilities and force posture for the next five to 10 years. The Pentagon plans to deliver the NPR report to Congress next February along with the Quadrennial Defense Review, the Aug. 6 document states. This is different from a June 2 DOD statement, which said the NPR would go to Congress in December.
At an April 23 Pentagon background briefing, a reporter asked a senior defense official and a senior military official whether the NPR would include the “global zero” goal. The senior defense official acknowledged that President Obama cited that as an ultimate goal in an April 5, 2009, speech in Prague.
“He also said that until that time, as long as adversaries possess nuclear weapons, we will maintain a robust and credible nuclear deterrent,” the senior defense official said. “And so I think, you know, this NPR is being taken in the context that he lays out in that speech, which is a desire to really strengthen non-proliferation progress, if you will; explore the possibility of further reductions in our own arsenal; while also ensuring that we take the steps necessary, both in terms of the infrastructure and the forces, to ensure that we have a safe and secure and reliable deterrent.”
The senior military official, however, questioned whether the NPR would directly address Obama’s vision for a nuclear-free world.
“But I don’t know that I would speculate to say that that would be a goal,” the senior military official replied. “This NPR, from our perspective, is one about deterrence, how should we deter. And deterrence involves more than just nuclear weapons. So there are other aspects of what the department does that need to be brought to bear to deter, you know, a potential adversary from using nuclear capability.”
The issue came up again July 23 when Assistant Secretary of Defense for Special Operations, Low-Intensity Conflict and Interdependent Capabilities Michael Vickers spoke to reporters at a breakfast in Washington.
“The vision is clear and I think progress will be made,” Vickers replied.
But the Aug. 6 NPR background fact sheet sheds new light on the themes, which were not part of the June 2 NPR fact sheet released online by the Pentagon.
A source tracking nuclear issues noted Obama began his Prague speech by discussing the need to reduce the role of nuclear weapons in the National Security Strategy, but this is listed third in the list of six themes on the Aug. 6 fact sheet. The source wondered whether there is an implicit prioritization in DOD’s list of themes. At press time (Aug. 12), DOD did not respond to a request for comment.
But a second Aug. 6 NPR fact sheet -- this one on arms control, deterrence and START follow-on treaty negotiations -- begins by underscoring Obama’s pledge in Prague to reduce the role of nuclear weapons in the National Security Strategy and to take concrete steps toward a world without nuclear weapons.
“He also promised that as long as nuclear weapons exist, the United States will maintain a safe, secure, and effective arsenal to deter any adversary, and guarantee that defense to our allies,” the statement notes. The speech “sets the stage” for the NPR, which will “analyze the role of nuclear weapons in our national security
strategy, the size and composition of nuclear forces necessary to support that strategy, and the steps necessary to maintain a safe, secure, and effective nuclear deterrence posture,” the statement says.
Further, the statement says the NPR will recommend actions consistent with the president’s goals and will support “a new approach to arms control that reflects the current and future international environment.” This is a new and notable comment, the source said.
“The desired objective is to develop a U.S. nuclear posture that enhances the safety and security and preserves the effectiveness of our nuclear deterrent for as long as it is required, reduces the potential for conflict and nuclear use, enhances strategic stability world-wide, and strengthens the non-proliferation regime,” according to the statement.
There is no predetermined level of reductions for the U.S. arsenal, the statement says. “The DOD, in conjunction with the Departments of State and Energy, are committed to ensuring that decisions about nuclear force structure and posture continue to be based on strong analysis of the potential threat and a deep understanding of our deterrence and assurance requirements,” the statement adds. “The purpose of the review is to determine the appropriate strategy, force levels, and structures to meet national security objectives and extended deterrence requirements.”
The NPR will examine ways to reduce both the role and number of nuclear weapons, the statement says, although the complete elimination of nuclear weapons is not anticipated in the time frame of the review, which is five to 10 years. No one expects nuclear weapons to be eliminated within a decade, but if for instance the notion of doing so by 2025 is accepted, it might raise questions about whether to modernize some U.S. platforms that are good out to 2030, the source said.
The statement stresses extended deterrence to allies will remain a central element of U.S. nuclear policy.
“Extended deterrence to allies meets our formal Treaty commitments and contributes to our non-proliferation goals,” DOD writes. “The NPR is examining how to continue to provide extended deterrence to allies in a manner consistent with the long-term goal of eliminating nuclear weapons and reducing the role of nuclear weapons in national security of the United States and that of other countries around the globe.”
DOD maintains NPR and Strategic Arms Reduction Treaty (START) Follow-on treaty negotiations are closely coordinated to ensure that the U.S. negotiating positions are fully consistent with ongoing NPR analysis concerning nuclear policy, strategy, and force structure. The U.S. and Russia plan to complete the negotiations by December, when START expires.
“After rigorous analysis, the NPR team determined that maintaining a nuclear triad with a significantly reduced number of operationally deployed strategic nuclear weapons (ODSNW) and accountable strategic delivery vehicles (SDV) would enhance our national security objectives and provide extended deterrence to allies and friends,” the statement notes. This is noteworthy, the source said.
These findings were reviewed by military and civilian leadership and vetted through the interagency, DOD writes. “START Follow-on treaty negotiating positions were then subsequently identified and approved at the Cabinet level. Although the specific guidance to our negotiating team remains classified, the results to date of the bilateral negotiations are reflected in the Joint Understanding resulting from the Presidential Summit,” according to the statement.
The NPR is continuing to mull “alternative strategic approaches beyond the immediate confines of the START Follow-on negotiations” to frame options for strategic nuclear decisions for the next five to 10 years, DOD writes.
“Alternative postures and force structures are being analyzed in this NPR to address other possible futures including security environments in which relations with Russia dramatically improve, implications if the START Follow-on treaty does not enter into force and if reset of the US-Russian relationship does not continue,” according to the statement. -- Christopher J. Castelli
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