Sunday, November 2, 2008

Don't Blame Me, I Voted For Henry Clay

One of the most vociferous critics of the American fiscal policies that have brought about the current global financial crisis has been Peer Steinbrück, the German Finance Minister. In several widely-reported interviews, Steinbrück blamed the financial crisis on America’s highly-unregulated financial system, stating that the collapse of this system would result in the end of America’s status as the world’s financial superpower. Steinbrück and other European finance ministers particularly recalled last year’s G-7 meeting, at which German Chancellor Angela Merkel urged the US and the UK to adopt more intensive regulation of hedge funds, emphasizing the need for America to move away from its bifurcated banking system that distinguishes between commercial banking and investment banking, and to move toward a more integrated regulatory framework similar to the one generally following in Continental Europe, and indeed, in most of the rest of the world. American representatives at that G-7 meeting generally scoffed at the proposal as a “typical example of Germans’ penchant for over-regulation”, stating that it was not “America’s way.” Steinbrück’s recent criticism of the American financial system had more than a bit of schadenfreude and a refrain of “I told you so.”

In the days following Steinbrück’s jeremiad against the American financial system, the Germans and many other continental Europeans have found themselves wearing a good deal of egg on their faces, as the financial crisis has spread throughout Europe – effectively wiping out the economy of one European nation, Iceland – and it has become clear that European financial institutions have been as guilty as their American counterparts in engaging in foolish speculative activities that have endangered the global financial system. Indeed, Steinbrück and other Europeans have spoken with considerable admiration for the aggressiveness with which US Treasury Secretary Paulson has confronted the crisis, successfully overcoming Congressional opposition on the Left and the Right in order to enact an impressive program authorizing broad government intervention in the financial markets.

At heart, however, there is a good deal of truth in the German criticism of the American financial system. Banking in America, and the American legal and regulatory scheme governing the banking industry, is quite different from the rest of the world. In some respects, America’s unique banking system has been beneficial, helping to fuel the rapid economic growth that has been the hallmark of American history. However, the American banking system has also been very prone to financial “panics” – bursts of extreme financial instability – which have often been the harbinger of wider periods of economic recession and depression. In today’s world of capitalist globalization, it is very dangerous for America’s banking system to continue playing the role of the world's financial “maverick”, as its proclivity for financial instability can rapidly lead to worldwide economic crises.

America often reminds me of Madagascar. Evolutionary biologists love to study Madagascar because it has numerous species of plants and animals that are found nowhere else in the world. However, because Madagascar is an island that broke off from the African mainland in relatively recent geological time, it is possible to find common ancestors that link species found in Madagascar to those found in the rest of Africa. For example, lemurs are unique to Madagascar. They are primates that share common ancestors with the monkeys, apes and humans that evolved in Africa. However, lemurs went off in their own evolutionary direction on the isolated island of Madagascar.

Like Madagascar, America has evolved institutions that are often quite different from those in the rest of the world. America is one of the few countries in the world that is not metric; it is virtually the only country that does not have a VAT (a pet peeve of mine that I will write about some day). The American legal system has lots of rules that are unique – American civil juries have no analog in other countries and the American system of civil litigation, with its free-wheeling discovery, general lack of judicial supervision, and potential for generating enormous jury verdicts including punitive damages, is unlike any other legal system in the world. And, as the Germans have recently pointed out, the American banking system is different from the rest of the world.

Again, the analogy to Madagascar strikes me as very apt. Many of these unique American institutions can be traced to antecedents in Europe, primarily England, such as the jury system or the English system of measurement. However, because of its physical and political isolation, these institutions took a different evolutionary course in America.

To understand America’s unique banking system, we have to go back to the Presidency of Andrew Jackson. As readers of this blog may have noticed, I am quite prone to find the influence of “Jacksonian” ideology in many aspects of American life. The “Jacksonian Era” was the area of my concentration as an American History major in college, and, as I have often commented, I consider Walter Russell Mead’s essay, “The Jacksonian Tradition”, to be one of the most insightful pieces ever written about American ideology. The recent debate on the so-called “Wall Street bailout” had a very familiar ring to anyone who has studied the rhetoric of Jacksonian America. “Populists” on both the Right and the Left decried the greed and corruption of “Wall Street”, in contrast to the honesty and common decency of “Main Street.” These speeches could have been delivered almost verbatim in the 1820s, and they would have been completely comprehensible to the partisans of that era. So, in order to understand the world's current financial crisis, a journey into history is in order.

Modern banking got its start in the Dutch Republic in the late Sixteenth and early Seventeenth Centuries. There were a number of factors that caused Holland to become the first center of merchant capitalism. The Protestant Reformation broke down traditional Roman Catholic dogma that viewed all forms of money lending as sinful. Muslim and Jewish emigrants to the Netherlands fleeing the Spanish Inquisition brought with them an entrepreneurial culture and an understanding of the potential benefits of credit, that embodied the germs of a nascent financial system. The European discovery of the Americas and the beginnings of industrial capitalism promoted trade and sea travel, all of which was very expensive and could not take place without a system of credit. The Dutch golden age proved to the world that there was nothing inherently evil about credit and debt, and that an economy based on merchant capitalism, financed by credit, could generate hitherto unimagined levels of general wealth, and notably, a degree of wealth not restricted to the aristocracy but increasingly available to a new phenomenon in human history: a growing mass middle class.

By the end of the Seventeenth Century, Britain replaced Holland as the dominant merchant capitalist power in the world. The British, however, learned an important lesson from the Dutch about managing an economy based on credit. While credit can be an extremely powerful force in promoting general prosperity, it can also be a very dangerous force if not managed wisely. A credit-based economy can be highly unstable, a characteristic that often spills over into the social and political spheres; Kevin Phillips’s work American Theocracy describes the tendency of societies that are excessively reliant upon credit to experience highly disruptive and often contradictory social phenomena, such as moral decadence and religious fanaticism.

In an effort to manage a credit-based economy more wisely than the Dutch had done, Britain developed a system of central banking. The Bank of England oversaw the activities of all lesser banks. The British modification of the Dutch financial system proved to be fabulously successful, as British trade came to dominate the world. The British were able to convert their mastery of the world’s financial system into political and military dominance, as the British victory in the Seven Years’ War confirmed Britain’s status as the dominant global power, a position it would hold for almost two-hundred years.

One of the most ardent admirers of the British system of central banking was America’s first Treasury Secretary, Alexander Hamilton. At Hamilton’s urging, President Washington supported the establishment of the First Bank of the United States, an institution modeled directly on the Bank of England. The Bank of the United States would serve as the repository of all revenues of the Federal government. This control over Federal revenues would give the Bank a position of dominance in the American financial system that would enable it to exercise direct control over the credit policies of all subordinate banks. Hamilton's system was very popular in the Northeast, especially New York and New England, where merchants and infant industrialists benefited from the fact the Bank gave credibility to the new American Dollar and established stability in credit markets. The agrarian South was less interested in credit, and Hamilton's Bank conflicted with the Jeffersonian ideology that favored "small government" and a society of "yeoman farmers", and distrusted trade and finance.

In 1811, Jefferson's successor, President James Madison, allowed the charter of the Bank of the United States to lapse. Madison, however, soon learned an important lesson in the importance of having a sound financial system. In 1812, Madison succumbed to pressure from the "war hawks" and picked a fight with England, the world's financial superpower. While the over-confident Americans were embarrassed during the early stages of the war - including the British capture of Washington, DC and the burning of the White House - the young American Republic did manage to eke out a draw. The financial consequences of the war, however, were devastating. Madison's Treasury Secretary, the Swiss-born Albert Gallatin, persuaded Madison to revive the Hamiltonian system of central banking and the Second Bank of the US was established in 1816.

Nicholas Biddle, the President of the Second Bank, was, by most accounts, a pretty obnoxious and corrupt individual. Biddle unabashedly used the economic power of the Bank to advance political ends. The two politicians who would later become the founders of the Whig Party, Daniel Webster and Henry Clay, were virtually hired hands of the Bank. Webster served as the Bank's principal lawyer, arguing on behalf of the Bank in the landmark Supreme Court case of McCulloch v. Maryland. Clay served as the Bank's principal agent in Washington, making liberal use of the Bank's economic power to provide benefits to politicians who worked with Clay to advance Biddle's fortunes. Nevertheless, in spite of his corrupt propensities, Biddle was an effective banker and the Second Bank succeeded in bringing about a prolonged period of prosperity and economic stability during the 1820s.

Andrew Jackson was elected President in 1828, and populist rhetoric directed against the Bank became a maninstay of his political agenda. The Bank was attacked as "aristocratic", and Biddle's abuse of the Bank's economic power as a means of extending his political influence made him a worthy target of much of this criticism. Jackson's attack on the Bank also carried an ethnic dimension. Jackson drew strong support among Scots-Irish immigrants, who had come to the US in large numbers in the years following the Revolution, and the Bank was targeted as an "English" type of institution, and Biddle and his supporters were pilloried as Anglophiles.

Jackson easily defeated the pro-Bank candidate Clay in the election of 1832. Getting rid of the Bank was the top priority of Jackson's second term. Not content to wait for the Bank's charter to lapse, Jackson set about to achieve his goal of the immediate destruction of the Bank. Jackson directed the Secretary of the Treasury to withdraw all Federal funds from the Bank and transfer the funds to various state-chartered banks that were run by Jackson's political supporters. Several Treasury Secretaries resigned rather than follow Jackson's order, which was of doubtful legality. Ultimately, Jackson designated his Attorney General and longtime political crony, Roger Taney, as the Secretary of the Treasury, and Taney carried out Jackson's directions. Soon thereafter, Jackson would reward the toady Taney by appointing him to succeed John Marshall as Chief Justice of the Supreme Court, where Taney would achieve notoriety and would again have an opportunity to change the course of American history, and not for the better, by writing the majority decision in the infamous Dred Scott case.

Stripped of its status as the sole repository of Federal revenues, the Second Bank withered away as an institution of importance in the American economy, and became irrelevant by the time its charter lapsed. The imperious Biddle endured a similar fate.

It is noteworthy that Jackson's attitude towards banking and credit differed significantly from that of the Jeffersonians. Jackson had no particular antipathy towards banks and a credit-driven economy, quite the contrary. Jackson's principal objection to the Bank had been based on its political power and its support for Jackson's rivals. Jackson also objected to the fact that the Bank of the United States tended to impede the growth of numerous state-chartered banks; again, many of these banks were owned by Jackson's political supporters. With the abolition of the Second Bank, there was in fact an explosion in both the number and the size of state-chartered banks. Without any central bank to place any controls on the activities of the state-chartered banks, and with little regulation being imposed by the highly corrupt state governments that chartered these banks, speculation of all sorts ran rampant throughout the American economy. This resulted in the Panic of 1837, initiating a period of serious economic dislocation. By this time, however, Jackson had left the White House and it was his successor, Van Buren, who would pay the price for this economic collapse, being defeated in 1840 by Whig candidate William Henry Harrison, who co-opted the same pseudo populist rhetoric that was Jackson's stock in trade.

Notwithstanding the unhappy experience of the Panic of 1837 and subsequent economic collapse, the American system of state-chartered, minimally-regulated banking instituted by Jackson remained largely unchanged for almost a century. The National Banking Act, enacted during the Civil War, established the Office of the Comptroller of the Currency to provide some minimal level of Federal oversight, but for the most part, no major changes occurred in the system. The most important changes in the American banking system during the Nineteenth Century occurred not because of new legislation or governmental regulation, but rather, because of changes within American society and the American economy. Specifically, the uniquely American bifurcation between commercial and investment banking began to take shape.

What we would ultimately call “commercial banking” came under the domination of J.P. Morgan. Morgan acted as the conduit for large amounts of foreign investment into the U.S., primarily from England. However, the minimally-regulated Jacksonian banking system made it possible for other tycoons to translate their wealth into financial clout. Oil magnates such as Mellon and Rockefeller transformed themselves into bankers. John D. Rockefeller bought up control of the Chase National Bank; brother William Rockefeller took over the First National City Bank, today’s Citibank.

Meanwhile, American ethnic divisions gave birth to a separate, much riskier branch of the banking industry, originally known as “merchant banking” and now known as “investment banking”. German Jewish financiers such as August Belmont (née “Schönburg”), Joseph Seligman, Jacob Schiff, and Marcus Goldman gave birth to the great investment banking firms of Wall Street. These financiers were locked out the world of mainstream banking by Morgan and other WASPs, but they compensated for the impact of such discrimination by opening doors for investments into the American economy by European Jewish financiers such as the Rothschilds and the Warburgs. (Stephen Birmingham’s brilliant work Our Crowd is an outstanding history of the great German Jewish families of New York who played a major role in establishing the leading investment banking firms and inventing “Wall Street.”)

This free-wheeling, unregulated system of commercial and investment banking fostered the smooth flow of capital into the American economy, leading to an era of economic growth in the U.S. virtually without precedent in human history. However, the system was prone to repeated financial “panics”, with increasingly destructive effects on the American economy. In order to mitigate the impact of these frequent disruptions to the American financial system, Morgan began to assume the role of a de facto central bank. During the Panic of 1907, Morgan did many of the same things Secretary Paulson proposed doing to deal with the current crisis. Morgan’s efforts proved to be extremely effective, mitigating significantly the economic impact of the 1907 financial crisis.

Morgan’s death in 1913 made it clear that something had to be done to bring some order to the American banking system. As a result, Congress created the Federal Reserve system.

While we often think of the Federal Reserve as the American central bank, it really isn’t one in the sense that central banks exist in most countries of the world, or in the sense of the Bank of the United States as it existed before Jackson did it in. The Federal Reserve has virtually no regulatory authority or capability with respect to the banking system as a whole. The Federal Reserve’s job is to regulate the size of the money supply, by setting the discount rate at which member banks borrow money and by buying or selling government bonds in order to either inject or withdraw funds from the banking system. What the member banks do with the money is, for the most part, not something that the Federal Reserve has any control over.

The minimally-regulated American banking system again helped to spur massive economic growth during the 1920s, as the historic distinctions between commercial and investment banking virtually disappeared and the large amounts of funds available to commercial banks flowed into highly-risky new investment ventures. As a result, the stock market soared to new heights. Also as a result, when the inevitable fall came, as it did in 1929, it was more catastrophic for the economy as a whole than any of the prior panics that had frequently rocked the American financial system.

One of the first pieces of legislation enacted during the New Deal was the Glass-Steagall Act of 1933. The principal author of the law, Senator Carter Glass of Virginia, was an extremely conservative legislator, and he had no desire to overturn the fundamentals of the American financial system. The law responded to the financial crisis not by creating a real central bank or by establishing a comprehensive regulatory scheme over all aspects of the financial industry, but rather, by creating a wall of separation between commercial banking and investment banking. In other words, the Glass-Steagall Act codified into law the separation between commercial and investment banking that had long existed in the American financial system. Commercial banking would enjoy the benefit of insured deposits through the creation of the Federal Deposit Insurance Corporation, but at the same time, commercial banks would be sharply restricted in the kinds of investments they could make. Specifically, commercial banks would be barred from making investments in equity.

The wall of separation created by the Glass-Steagall Act left the highly profitable equity markets as the exclusive preserve of investment banking firms. The Securities Act of 1933 and the Securities Exchange Act of 1934 imposed new disclosure requirements on equity markets, but in many ways, the business of investment banking continued to be highly unregulated and very risky. And for the firms that managed to succeed in the risky business of investment banking, the business was extraordinarily profitable.

The end of World War II and the subsequent Bretton Woods agreements left the United States as the world’s economic superpower. American financial institutions – both commercial banks and investment banks – prospered. By the 1970s, however, the Bretton Woods regime had broken down and capitalist globalization was on the march. By the 1980s, European and Japanese financial institutions had become dominant and few American banks made it into the lists of the world’s largest financial institutions.

The Glass-Steagall Act became a major target of lobbying by American commercial banks. The exclusion of American commercial banks from the highly profitable business of investment banking, an exclusion that did not apply to non-American financial institutions, was portrayed as a major drag on the competitiveness of American banks.

An attempt to make an end-run around the restrictions of the Glass-Steagall Act was made during the 1980s through the creation of equity-like debt instruments colloquially known as “junk bonds.” This experiment resulted in the savings and loan debacle and a consequent bloodbath for federal insurance, accompanied by the financial crisis of the late 1980s and the recession of the early 1990s.

Lobbying against Glass-Steagall by the commercial banks continued during the 1990s, and it began to get real traction when the Republicans gained control of Congress in 1994. The Gramm-Leach-Bliley Act of 1999 finally repealed almost all of what was left of Glass-Steagall.

What seems to have been forgotten when Gramm-Leach-Bliley was enacted was the fact that at its core, America continued to have the same minimally-regulated financial system that resulted from Jackson’s abolition of the Bank of the United States in 1833. Without Glass-Steagall to stop the spillover of the risky business of investment banking into commercial banking, there was little regulatory framework in place to ensure the stability of the American financial system. Not surprisingly, the financial activities of the past decade bear remarkable similarities to the pre-Glass-Steagall era of the 1920s. The commercial banks would move aggressively into investment banking. More importantly, new institutions that would be largely immune from the regulatory jurisdiction of the securities laws, hedge funds, and new financial instruments also largely outside of the jurisdiction of the securities laws, derivatives, came to play dominant roles in the financial industry. As a result, again, when the inevitable collapse came it caused a massive impact on the American economy. And because we now have a truly globalized economy, the effects of the collapse have been felt in every corner of the globe.

Where do we go from here? It seems clear to me that the American tradition of a minimally-regulated financial industry cannot be sustained. On the other hand, there is some legitimacy to the criticism of over-regulation in many European countries such as Germany. The free flow of capital is more important than ever in the era of globalization. The nascent capitalist boom in countries such as China, India, Brazil, Russia, etc., must be sustained in the interest of global economic and political stability. Overreaction in regulating the financial industry could have very harmful effects in choking off economic growth in these emerging economies.

My view is that this is a time for synthesis. I would, of course, like to see the establishment of a new Bretton Woods regime for the 21st Century. However, this should not lead to the creation of some new global central bank to impose an extensive regulatory scheme on all of the financial institutions of the world. Rather, I would foresee the new global regime as imposing certain minimal regulatory standards that the major nations of the world would impose on their financial institutions. The era of unregulated Jacksonian banking should end. However, it also seems that the world could learn something from the American experience under the Glass-Steagall act. Different levels of regulation may be appropriate for different types of financial activities. Risky forms of investment should not be discouraged by overreaction and over-regulation, but on the other hand, the inevitable losses resulting from such speculative investment activities should have limited ramifications, so as to avoid the kinds of massive, global financial collapses we have seen in 1929 and 2008.

The real bottom line is that America can no longer be Madagascar. The rest of the world can learn a lot from the unique American evolutionary history. But neither America nor the rest of the world can afford to have America continue to be the global financial “maverick”, maintaining the Jacksonian model of an unregulated financial industry whose inevitable failures rock the foundations of the world’s economy. In other words, it’s time to re-do the election of 1832.

Sunday, September 21, 2008

The Pernicious Myth of "Human Nature"

The belief that “human nature” includes instinctual drives towards aggression and violence has caused much mischief. The belief has led to a sort of “boys will be boys” attitude towards violence. Such beliefs can be a self-fulfilling prophecy. If one believes that human nature is inherently violent and aggressive, then one must also believe that violence and aggression are inescapable aspects of the human condition, and that any proposal that seeks to reduce or eliminate violence and aggression is doomed to failure. Therefore, it logically follows, it is pointless, even counterproductive, to seek to implement any such proposals. As a result, aggression and violence continue to be prevalent in our lives.

Two things have caused me to think about the great damage that has been caused by the belief that there is such a thing as “human nature”, and that this nature is inescapably violent. First, I have recently read Robert Kagan’s new book, The Return of History and The End of Dreams (it’s only a little over 100 pages long, so it’s really more like an essay than an actual book, but nevertheless, Kagan somehow got somebody to publish it as a stand-alone book). Second, I recently attended a fortieth anniversary special screening and panel discussion of Stanley Kubrick’s masterpiece, 2001 A Space Odyssey, a work of art that I admired greatly when I first saw it as a radical-wannabe teenager during the peak of the counterculture in 1968, but which now fills me with great misgivings when viewed through the eyes of a middle-aged liberal.

Kagan’s book is an extremely important book. It is, in my opinion, a thoroughly loathsome book and I disagree with just about every word of it, including “and” and “the” to borrow a line from Mary McCarthy, and I often found myself throwing down the book in exasperation while reading it (I took it out from the local public library so as to avoid contributing to Mr. Kagan’s royalties, and I frequently had to remind myself not to do damage to public property). Nevertheless, it is a very important book. It is an important work because it is an excellent articulation of the current state of the political philosophy generally known as “neo-conservatism”. Kagan is one of the leading foreign policy advisers to Senator McCain and the book is basically a position paper for the foreign policy that would be pursued during a McCain Presidency. McCain’s call for the creation of a “League of Democracies” to carry out military adventures under the leadership of the United States in the years ahead comes directly from Kagan.

The book also has a lot to do with some of the “inside baseball” in the neo-conservative movement. The Kagan family is sort of the neo-con version of the Partridge Family. Robert Kagan was one of the prime movers behind the Project for a New American Century (PNAC), which remains the focal point for neo-conservative ideas. Patriarch Donald Kagan, a classics scholar at Yale, was one of the early godfathers of neo-conservative philosophy. Brother Frederick Kagan has also been affiliated with PNAC, and was a strident proponent of both the initiation of the Iraq War and of its continuation and escalation and prolongation (the so-called “surge”), with the ultimate goal of installing a permanent U.S. military force in Iraq – the “100-year” occupation espoused by Senator McCain.

Robert Kagan’s new book, in addition to being the blueprint for the foreign policy of a McCain Presidency, is also a rejoinder to the writings of another (now erstwhile) leading light of the neo-conservative movement, Francis Fukuyama. The title of Kagan’s book is actually a dig at the title of Fukuyama’s major work, The End of History and The Last Man. Fukuyama is regarded as something of an apostate by other neo-conservatives, as he has expressed the opinion in his latest book, America at the Crossroads, that the Iraq War was a mistake and Fukuyama has abandoned what had previously been a central tenet of his neo-conservative philosophy, namely, that the United States can and should engage in military conquest for the purpose of spreading “democracy.” Fukuyama has also given a tentative endorsement of Obama’s campaign.

Fukuyama’s celebrated “end of history” thesis was as follows. Fukuyama opined that the end of the Cold War signaled the end of socialism and left free-market capitalism as the world’s sole economic system. However, Fukuyama is a non-Marxist Hegelian who believes that economics isn’t everything, so he was not content to accept the benefits of a world united by globalization and the attendant economic benefits it could bring to the peoples of the world. For Fukuyama, America’s “victory” in the Cold War was not just a triumph for an economic system, it was a triumph for an ideal, namely, the ideal of “democracy.” Fukuyama argued that the end of the Cold War ushered in the “end of history” because it meant that the entire world would now be united by a single common ideology, namely, American-style “democracy.” And, since the end of the Cold War left the United States as the world’s sole superpower, Fukuyama advocated the liberal use of American military force in order the accelerate the global spread of “democracy.”

As noted, Fukuyama now concedes the error of at least some of his ways, as the Iraq debacle has convinced him to abandon the core principles of neo-conservatism. Neo-cons such as Kagan (and McCain), however, are made of sterner stuff.

Kagan argues that the weakness in Fukuyama’s “end of history” thesis lay in its failure to give sufficient recognition to the “instincts for aggression and violence” that are embedded in human nature. Fukuyama’s work had devoted great attention to the classical Greek concept of thumos, the passionate, irrational component of human nature that produces the ferocious sorts of conflicts among tribes, clans, and nations, which we have come to know as “war.” Fukuyama did not contend that thumos could be eliminated; rather, he argued that human instincts for competition would be channeled into peaceful pursuits as a result of the universal embrace of Euro-American style “democracy.” Kagan argues that Fukyama’s thesis is nothing more than wishful thinking, and Kagan announces, almost gleefully, that large-scale, nation vs. nation warfare is here to stay.

Kagan points to what he claims to be the lessons of the post-Cold War period in order to support his argument. Kagan asserts that even though global capitalism as an economic system has indeed swept virtually the entire world, this has not led to a trend towards global democracy. The rule of the Communist Party in China appears unshakable. After an initial and largely unsatisfactory flirtation with democracy during the Yeltsin era, Russia appears to have reverted to authoritarianism under the Putin regime. According to Kagan, there is no necessary connection between capitalism and democracy. Kagan believes that “authoritarian capitalism” has shown itself to be a perfectly viable political and economic system in China and Russia, and he believes that it is proving to be a very attractive model for many developing countries in Central Asia and Africa. In Kagan’s world, we can expect “authoritarian capitalist” regimes to be around for quite some time unless they are confronted, and defeated, militarily.

Kagan, like Fukuyama, sees conflict as rooted in ideology, not economics. Here is where the concept of thumos once again raises its ugly head. Kagan believes that the instincts for violence and aggression inherent in human nature make it inevitable that there will be violent conflicts between the rival ideologies of democracy and authoritarianism. Kagan concludes that we have not arrived at Fukuyama’s “end of history” – hence Kagan's assertion of the “return of history” – and we can look forward to a twenty-first century that will be as bloody as the last century. Actually, Kagan suggests that the twenty-first century will be more like the nineteenth century in that there are no longer competing economic systems following the end of the Cold War, just national ideologies struggling to achieve dominance. Nevertheless, in Kagan’s world we should rest assured that human nature will guarantee that these conflicts will be carried out through bloodshed and violence. In order to ensure that America achieves “victory” in this violent world, it should continue to maintain its massive military establishment, and most importantly, the United States must have a military establishment capable of fighting large-scale wars against other powerful nations (i.e., China and Russia), and not just a military attuned to engage in counterinsurgency fighting in places like Iraq and Afghanistan.

Finally, Kagan articulates the proposal that has become the centerpiece of McCain’s foreign policy agenda, namely, that the United States should become the leader of a “League of Democracies” that will carry out the fight against our “authoritarian” rivals around the world. This program includes steps such as the virtual scrapping of the United Nations, the expulsion of Russia from the G-8, and the threat of an American military response to protect the “democracy” in Taiwan against Chinese aggression.

Notably, the threat of Islamic extremism plays a somewhat secondary role in Kagan’s world. At first blush, this might seem inconsistent with what is generally assumed to be the preoccupations of the neo-cons. However, it is perfectly consistent with the PNAC worldview, which sought to achieve an international system based on American hegemony brought about by military might. While Kagan is by no means a fan of radical Islam, he views American military action in the Middle East as merely one part of his scheme of a larger global ideological conflict between “democracy” and “authoritarianism.” Kagan’s goals for American military action in the Middle East are, (1) to promote “democracy” where possible, thereby recruiting new members of the “League of Democracies” that will be the military partners of the United States, and (2) even more importantly, to gain control over vital resources (oil, of course) so as to deny those resources to our authoritarian enemies.

As I said earlier, I disagree with just about every word of Kagan’s book, so I have a bit of a hard time articulating these disagreements in a coherent way. I’ll give it a try.

One can challenge the particulars of Kagan's assumptions about the post-Cold War world. The paradigm of dividing the world into warring ideological camps denominated as "democracies" and "autocracies" is way off base. While states such as Russia and China are certainly far from being open societies along the lines of the liberal democratic ideal, they are unquestionably far freer than they were under their communist regimes. Russia now does conduct elections, and those elections cannot be dismissed as being wholly without substance. While China has made little movement in the direction of electoral democracy, the structure of the Communist Party itself has become far more flexible and amenable to change, and in some cases, it is even responsive to public opinion. The recent earthquake in Sichuan province offers a good example of this. Provincial party officials who were not sufficiently responsive in dealing with the crisis were subjected to intense popular criticism. For the most part, the Chinese party leadership responded not by cracking down on demonstrations of popular anger, but rather, by removing incompetent or corrupt local officials. The contrast with the Bush Administration’s handling of incompetent officials who bungled the Federal government’s response to Hurricane Katrina – Homeland Security Secretary Michael Chertoff kept his job and still holds it – is noteworthy, and to any objective American, humbling.

It is also instructive to look at the other side of the democracy vs. autocracy divide in assessing how accurate Kagan’s analysis really is. The paragon of democracy in Kagan’s world, the United States, has unquestionably been drifting in a much more authoritarian direction during the eight years of the Bush/Cheney administration. The United States government under Bush and Cheney openly advocates programs involving torture and detention, and President Bush engaged in widespread illegal electronic surveillance. Security procedures such as random searches and omnipresent metal detectors have become accepted features of American life. The authoritarian drift in American society is not confined to anti-terrorist measures adopted in the wake of 9/11. Calls for the closing of American borders in order to cut off immigration draw great support among the far right, and even among followers of pseudo populists such as Lou Dobbs. The United States employs capital punishment on a scale unknown anywhere in the “democratic” world – even authoritarian Russia has abolished capital punishment. The United States now has the world’s largest prison population, both in absolute and per capita terms; again, the “autocracies” of China and Russia lag far behind the United States in the rate at which they imprison their own people.

One can also question Kagan’s assertion that autocracies present a greater danger of military aggression than do democracies. Kagan would point to the recent events in Georgia to bolster his contention that the Russian autocracy is a major threat to world peace which the United States must be prepared to resist. The facts of what happened in Georgia are far from clear, as Russian officials have strongly asserted that Georgia initiated the conflict by attacking Russian troops in South Ossetia, and allegedly committing atrocities against Ossetians. While the extent or even the existence of any atrocities committed by Georgian troops in South Ossetia remains unproven, there appears to be little dispute that the hostilities were initiated by Georgian troops that began heavy shelling of Russian troops in South Ossetia; Russian troops have been present in South Ossetia for the past fifteen years, effectively since the break-up of the Soviet Union, pursuant to a mutual agreement between the governments of Russia and Georgia. To be sure, it can be argued that Russian use of military force in Georgia was excessive, but one can only imagine how restrained the United States would be if Castro suddenly decided to start lobbing artillery shells into Guantanamo.

Any objective observer of recent international affairs would have to acknowledge that the most militarily adventurous nation has been the democratic United States, not the autocratic Russia or China. In the past twenty years, the United States has launched invasions of numerous sovereign nations: Panama, Iraq (twice), Somalia, Haiti, the former Yugoslavia, Afghanistan, and most recently, Pakistan. Many of these invasions have had little to do with either the defense of the United States or a response to direct threats against the United States. Nor have many of these military actions by the United States received the approval of any international authority. The most egregious example, of course, is the American invasion and occupation of Iraq, which the United Nations explicitly refused to bless. The United States invaded Iraq anyway, effectively unilaterally, and has occupied Iraq for the past five years. As long as the Republican Party remains in power in Washington, there is no reason to believe that this occupation will end anytime in the foreseeable future. There have been no international calls to have the United States subjected to military or economic sanctions because of its patently illegal occupation of Iraq, comparable to the assertions that followed Russia’s relatively short-lived incursion into Georgia.

The military aggressiveness of the United States in recent years has not been limited to the launching of invasions of other countries. The United States has consistently pressed for the eastward expansion of NATO, including into the former Soviet Union in states bordering directly on Russia, such as the Ukraine and Georgia. It is not entirely clear what purpose NATO serves today following the end of the Cold War and the break-up of the Soviet Union. The United States has sought to make it seem as though NATO is merely an adjunct of the European Union, playing a role that is as much an economic one as a military one. Russian leaders Yeltsin and later Putin argued that if this is the case, then there is no reason why Russia itself could not become a member of NATO. The United States has staunchly opposed this suggestion. Russia has viewed American efforts to expand NATO right up to its doorstep with great suspicion, seeing it as an effort by the United States to expand its military power throughout Eastern Europe and place Russia in a military position where it is at the mercy of the United States. Russia’s suspicions about the ulterior motives of the United States draw support from the Bush Administration’s insistence upon installing American missile systems in Poland and elsewhere in Eastern Europe. To make matters worse, the Bush Administration has advanced the preposterous claim that the purpose of these missile systems is to protect Poland and the rest of Eastern Europe from a missile attack launched by Iran, supposedly having no connection at all to Russia. Not surprisingly, one of the first things that the Bush Administration did in response to Russia’s Georgian incursion was to announce the agreement with Poland to proceed with the construction of American missile sites; in other words, the United States promptly dropped the fig leaf that the missiles were supposedly directed against Iran rather than Russia. No wonder Russia views the United States as a duplicitous, aggressive power intent upon making itself the dominant military power in the world and reducing Russia to a vassal status.

Ultimately, there is not much to be gained by attempting to dissect the particulars of Kagan’s polemic. Kagan is primarily a propagandist, not an objective analyst of international affairs. As noted, Kagan was one of the founders and intellectual leading lights of PNAC. PNAC seeks to promote an agenda based on American military hegemony. The maintenance, and expansion, of a massive American military establishment is the essential component of the PNAC program. The PNAC thesis is that the United States is the world’s sole superpower following the end of the Cold War, and that the United States should freely use its military supremacy to establish a dominant position in the world, before other powers such as Russia and China can come into their own as potential rivals. The goal is to establish a Pax Americana, a new Roman Empire that will last for the balance of the twenty-first century and beyond.

This then is the true subtext of The Return of History. While Kagan may be purporting to sound the alarm about potential dangers posed by states such as Russia and China, his real agenda is to justify the continuing expansion of American military power throughout the world. And, given the assumptions underlying Kagan’s view of human history – that bloody military conflicts and struggles for national hegemony are an inevitable part of human relations and will continue as such for the foreseeable future unless the United States gets busy establishing a Pax Americana – the program Kagan is promoting is perfectly understandable, even laudable. After all, if you assume that great power military conflict, i.e., warfare between powerful nation states, is an inescapable aspect of the human condition, it makes sense that you would want your nation to come out on top. It all comes back to this concept that human nature is inherently violent and aggressive – the thumos of the ancient Greeks on which both Kagan and Fukuyama place so much importance – that determines the aggressive militaristic agenda that Kagan, and the rest of the neo-cons, want the United States to pursue.

In the title of this post, I characterize the concept of an inherently violent and aggressive “human nature” as a “myth”. But is it? Centuries of bloodshed and warfare would argue that I am a blind fool in making such an assertion. This then brings me to the second component of the inspiration for my post, my recent re-viewing of Kubrick’s 2001.

I have always believed that the most striking segment of 2001 is not the protracted scenes of balletic space travel or the psychedelic light show at the end of the film, but rather, the introductory segment entitled “The Dawn of Man.” This part of the film deals explicitly with the relationships among violence, aggression, tribalism, warfare and civilization. Kubrick’s concept of an inherently bloodthirsty human nature as articulated very clearly in the opening section of 2001, permeates all of his films, most notably Clockwork Orange, Dr. Strangelove, and The Shining.

For those readers who, unlike me, have not committed every frame of 2001 to memory, I will recap the “plot” of the opening segment of the film. The film focuses on a group of early hominids, probably Australophithecenes or a similar species, living on the African plains in terror of predators, eking out a meager subsistence by competing with tapirs and other mammals for edible roots and sparse vegetation, and struggling with rival hominids for control of scarce water resources. One day, the hominids are visited by intelligent extraterrestrials in the form of a mysterious black monolith, accompanied by the eerie music of Gyorgi Ligeti, and the encounter triggers the beginning of logical thought in the hominids. While gazing at a pile of tapir bones, it occurs to one of the hominids, to the strains of Also Sprach Zarathustra, that the femur could be used as a weapon to bash in the skulls of living tapirs. The thought is transformed into action and the hominids are promptly feasting on raw tapir meat. They soon use the bone-clubs to attack and kill rival hominids in order to gain control of a contested waterhole. The victorious hominid throws his club into the air in triumph, and the film abruptly cuts to outer space in the year 2001, where Americans are competing with Soviets for control of the moon. The message of all this is quite clear: there is a direct linkage between aggression and civilization. Violence is inherent in human nature.

When 2001 was made in 1968, many of the most important anthropological discoveries that have given us information about the evolution of early hominids had not yet been made. Lucy, the nearly intact fossilized remains of a female Australopithecus, was not discovered until 1974. The discoveries that have been made about early hominids make it clear that the version of events put forth in 2001, aside from the obvious fact that there is no evidence that singing extraterrestrial monoliths played any role in human evolution, is almost entirely incorrect.

Some of the errors in 2001 were clear to me in my recent re-viewing as a matter of commonsense, and I was astounded that I had not noticed them before. My daughter, a first-year medical student who took me to the screening as a birthday present, immediately pointed out the absurdity of any animal suddenly changing from herbivorous prey to carnivorous predator, as its digestive system could not possibly tolerate such a radical change in diet. Obviously, the human capacity to consume animal protein is something that evolved over a long period of time. Indeed, anthropological discoveries indicate that early hominids had a long history of consuming animal protein, but they did so because they were scavengers, not because they were hunters. The act of killing animals in order to consume their flesh was actually a fairly late development in human evolution. By the time that occurred, hominids had been eating animal protein for centuries, usually in the form of bone marrow obtained from the skeletons of animals that had been killed by other predators. And by the time that humans began the practice of hunting living animals for food, humans were well advanced in the making of tools and were already well on the road to the development of what we would ultimately call civilization.

The question of tool-making also brings up another obvious fallacy in the scenario presented in 2001. Tapirs, like many mammals, are covered with pretty tough hides. Even if an Australopithecus could figure out how to club a tapir to death with a femur, the hominid would still have the problem of cutting open the carcass of the dead tapir in order to consume its flesh. Hominids do not have sharp fangs or claws. In order to dissect an animal to be able to eat it, a hominid would have to have some form of cutting tool. Plainly, intelligent tool-making behavior among hominids preceded hunting. In fact, anthropological discoveries have shown that probably the earliest tools created by hominids were sharpened stones to be used as cutting tools. These primitive “knives” were too small to be used as effective weapons to kill prey; unquestionably, they were used to cut open the carcasses of already dead animals that were killed by other predators and appropriated by hominid scavengers.

One aspect of human pre-history that 2001 probably got right was the focus on competition for water as being a central aspect of hominid existence. However, even this fact sheds a somewhat different light on human evolution. Early hominids required water not just because they were thirsty, but because water played a unique role in human evolution. Again, the study of fossils such as Lucy indicates that from a very early time, hominids had developed two of the characteristics that we often think of as uniquely human: bipedalism and relative hairlessness. These characteristics almost certainly relate to the fact that hominids have a uniquely efficient cooling system. Bipedalism helps to make the human cooling system work more efficiently, since it exposes a larger surface area of the skin to the air than would be the case for an animal walking on four legs, thereby leading to more rapid evaporation of perspiration and more effective cooling. As a consequence, however, hominids have to consume much greater amounts of water than do other animals.

This highly efficient cooling system provided early hominids with an important advantage – they could cover great distances in the hot African climate. Again, this is critical to understanding what anthropology has taught us about the existence of early hominids. Early hominids were highly nomadic creatures, existing not as hunters, but as scavengers. Hominids found a neat little evolutionary niche that enabled them (us) to survive notwithstanding their lack of strength and speed or innate weapons such as fangs and claws. They could roam about large distances in the African heat, finding animal protein to eat in the remains of carcasses left behind by predators and in the bits of marrow dug out of animal bones. This relatively high protein diet in turn made possible other evolutionary improvements, such as a gradual increase in height and weight, and most importantly, larger brain size.

Let’s now do a Kubrickian quick cut and jump back to the world of 2008, where Robert Kagan and the neo-conservatives are prattling on about “the return of history” and the inevitability of inter-state warfare. But is there really such a thing as an inherently violent “human nature” that makes warfare an inescapable component of the human condition? I would submit that the evidence would not support such a conclusion. What we can learn from anthropology is that to the extent that there is such a thing as “human nature” – and in my view, the very concept is of highly questionable utility – that nature is not one of violence and aggression, but rather, one of opportunism and improvisation. To be sure, humans have the capacity to be aggressive and violent, but it is a capacity that tends to be used when it is expedient to do so. All in all, I would submit that the capacity for violence is well down the list of distinctive human characteristics. The scrawny, slow-footed, clawless and fangless creatures that ultimately evolved into homo sapiens survived and even flourished not because they were so violent and aggressive, but because they were clever scavengers who could steal a carcass from a predator, who could figure out ways to get the maximum amount of nourishment out of a dead animal, and who could explore great distances in order to find more carcasses and the precious water they needed to keep their unique cooling systems working.

What does this tell us about thumos, the ancient Greek concept of an inherent human propensity for aggression, that is so important to Fukuyama and Kagan, and many other philosophers as well? I think that thumos is another ancient Greek myth, having no more reality than Pegasus or Medusa. As noted, the patriarch of the Kagan clan, Donald Kagan, is a classics scholar, and there is a tendency among classicists to think that just because the ancient Greeks believed something and attached a portentous Greek word to the belief, it must be true. Galileo disproved Aristotle’s claims about the speed with which objects of different weights fall to the ground, thereby paving the way for Newton and the beginning of modern science. I have no problem with a similar declaration of independence from the tyrannies of ancient Greek philosophies in the realm of social science, which, among other things, have saddled us with some baseless mythology about human nature.

What does all of this have to do with contemporary international relations, the subject of Kagan’s recent little book? It seems to me that if you believe that there is such a thing as human nature that is exemplified by Kubrick’s early hominids, whose first sentient thoughts concerned killing, first other animals and soon other members of its own species, ultimately building an entire civilization based on aggression and bloodshed, then you will be inclined to accept Kagan’s view of international affairs, in which large-scale inter-state warfare is inescapable and in which the wisest policy is to seek to become the dominant power. On the other hand, if you believe that if there is such a thing as human nature, it is best exemplified by Lucy and her descendants, highly opportunistic scavengers who only developed the use of violence as a survival technique fairly late in the day and after human beings were well on the road to civilization, then you are more inclined to see the evolution of economic systems and the development of social and political institutions, rather than the inevitability of inter-state warfare, as the most important forces shaping international affairs.

As is evident from what I have written, my view is that Lucy, the real hominid, tells us a lot more about human nature than do Kubrick’s fictitious hominids. Human beings are principally driven by the need to make a living for themselves and their families. Without question, violence has played a very important role in our history, but violence is an adaptation to particular circumstances, not an instinctual driving force that inevitably controls the behavior of human beings. Under the right circumstances, there is no reason why the role of violence in human affairs cannot be reduced to a minimum. This applies in particular to the most destructive manifestation of human violence, inter-state warfare.

At the present stage of human development, economic conditions have brought us to a point where the virtual elimination of large-scale inter-state warfare is indeed a realistic eventuality. From the time of Lucy until relatively recently, virtually all human beings spent most of their lives confronting the fundamental economic problem of survival. Today, that problem has been solved for vast numbers of people. Because of the progress of economic globalization, there are now large numbers of people leading middle-class lives in China and other Asian countries, India, Russia, Latin America, and even parts of Africa and the Middle East, in addition to the traditionally wealthy nations of Western Europe, North America, and Japan. Major inter-state warfare among these people would be nothing less than economic suicide; in this era of nuclear weapons, it would also be literal suicide. Unless one believes that there is such a thing as thumos – an inherent instinctual drive towards aggression and violence – it is nothing less than lunacy to think that large-scale inter-state warfare is likely to break out under these circumstances.

The greatest danger to the prospects for general peace among the advanced capitalist nations of today’s world comes not from the purported fact that human nature is inherently violent and aggressive, but rather, from the belief that human nature is inherently violent and aggressive. That is why I have labeled such a belief in human nature as a “pernicious myth”. If one believes in this myth, then one will act accordingly by being as violent and aggressive to others as you believe they intend to be towards you. As Kagan’s book demonstrates, a great many people do believe in the myth of a violent human nature, and many of them are in the position to control governmental policy, both in the United States and elsewhere. To the extent that people holding such an ideology are in a position to determine policy, the danger of inter-state warfare will remain a real one, notwithstanding the fact that economic reality clearly makes such actions absurd.

Fortunately, at the end of the day, economic reality is far more powerful in shaping events than the fantastic schemes of misguided ideologues such as Kagan. There is now good reason to think that this day may be coming sooner rather than later. I began writing this post in July 2008. The conflict between Russia and Georgia occurred a few weeks later. Kagan and the rest of the neo-cons, and most vociferously Senator McCain himself, were proclaiming victory for their view of the world. The dangers posed by a “resurgent Russia” were claimed to be very real and extremely urgent. Calls for preparation for the realistic possibility of a war with Russia became widespread. Vice Presidential candidate Palin could announce that we may well have to go to war with Russia, letting us know that in the meantime we could all rest assured that she was keeping an eye on what those dangerous Russians were up to because she was watching them out of her kitchen window.

It is now late September 2008 and already, the world has changed considerably. Russia is already getting a sense of the limitations that will be placed on the aggressiveness of its military actions in the world of economic globalization. There have been substantial capital outflows from Russia in the weeks following the Georgian conflict. This has not happened because there are ideologically-driven Western investors who want to punish Russia for its actions in Georgia. Rather, the capital outflows from Russia are the result of the fact that investors are understandably queasy about putting large amounts of their money in a country whose government has shown a propensity for recklessness by engaging in brinksmanship and military adventurism. The Russians are getting a lesson in what it means to be part of the global economy, and I strongly suspect that the lesson is getting through. The Russians are far more interested in keeping their booming economy on an upward trajectory than they are in flexing a bit of military might in the pesky, but ultimately largely irrelevant neighboring state of Georgia.

The much more significant intrusion of economic reality upon the fantastical schemes of the neo-cons, however, is taking place here in the United States. The American financial system is currently on the brink of a total collapse due to excessive overall debt and financial institutions’ non-transparent investments in “off-balance sheet” derivative products. In order to avoid an economic catastrophe on a scale unknown since the 1930s, the Federal government has committed to bailouts of major financial institutions at a cost well in excess of $1 trillion.

These economic developments make the Kagan/McCain assertion that we must get busy preparing for a war with China and/or Russia, while we are already militarily overextended in Iraq and Afghanistan, utter fantasy. After laying out hundreds of billions of dollars to save the American financial system from the consequences of profligate investments, the United States government will hardly be in a position to finance the kind of massive military build-up that Kagan and McCain are urging. Indeed, the cost of this enormous bailout of the financial industry will have to be paid for through expanded American borrowings from foreign sovereign wealth funds, in large part from China and Russia, the very countries against which Kagan and McCain think we should be preparing for war. Many things changed in America as a result of the financial crisis of September 2008; among the most beneficial of those changes may well be the sounding of the death knell for the neo-con/PNAC dream of establishing a new American empire.

On a partisan note, I point out that Senator Obama’s statement on the financial crisis, delivered on September 19, 2008, specifically highlighted the global ramifications of the crisis and the need for the United States to work with the nations of the G-20 to develop new financial regulatory regimes that can address the needs of the globalized economy for the twenty-first century. I realize that I am a very dedicated supporter of Senator Obama, and I am more than a little predisposed to gush about the wisdom of just about anything he says; I have previously written in praise of Obama’s understanding of the interconnectedness among America’s need for domestic political and economic reform, redirecting America’s foreign and military policy, and changing America’s relationship with the global economy. Obama is virtually the only politician who has emphasized the relationship between the current financial crisis and the need for reform in America’s relationship with the rest of the world. I find it particularly heartening that Obama specifically referred to the G-20 as the entity with which the United States must coordinate the shaping of this new financial order – the old G-7, plus Russia, plus other new economic powers such as China, India, and Brazil – reflecting his understanding that the United States must look beyond the old global powers in Western Europe and Japan in making a place in the twenty-first century global economy.

There are still people out there who believe in the myth of an inherently violent human nature, and should they be in a position to make policy in a McCain Administration, I fully expect that they would beat the drums of the ongoing dangers of major inter-state warfare. However, in the face of an economic reality that has made it clear that the demands of economic interconnectedness make all other considerations seem puny by comparison, it seems doubtful that this drumbeat will find many receptive ears.

In short, neither thumos, nor the ghosts of Kubrick’s murderous, but fictitious, hominids, can alter the reality of the world of economic interconnectedness that defines human existence in the twenty-first century. “The return of reality” has served notice that "the return of history” should be placed on the junkpile of the many discredited myths that have bedeviled the history of the human race.

Friday, August 29, 2008

The Forgotten Hero Of The Democratic Convention: George McGovern

Of course, Barack Obama was the hero of the Democratic convention. He re-defined American politics. He gave us a frame for the issues of our time that I truly believe will give us generations of progressive government. We can't count our victories yet, and we all have a lot work to do, but after hearing Senator Obama's speech last night, you're going to have a hard time convincing me that we can lose.

However, I'd also like to step back a moment and acknowledge a great American who in many ways made Senator Obama's triumph possible. He has been one of my heroes since I rang something like ten thousand doorbells for him thirty-six years ago: George McGovern.

Most people think of George McGovern only as the failed Presidential candidate of 1972, the ultimate liberal loser. He was so much more than that. Like Obama he was a powerful and courageous orator. He dared to stand up on the Senate floor and proclaim, "This chamber reeks of blood!" because of its support for the Vietnam War. He was a genuine war hero who flew numerous missions over Europe during World War II - but rarely mentioned the fact to further his political career. He ran an honest and honorable campaign, and the memories of my work in that campaign will always remain a constant source of hope and inspiration for me. And until this year, he was the only Presidential candidate of the Democratic Party who put forward an unabashedly progressive agenda - Obama's clarion call for radical progressive tax reform could have come straight out of the McGovern platform.

However, George McGovern's most lasting legacy was the work of the McGovern Commission, which completely revised the rules of the Democratic Party and brought about what may be one of the most sweeping, and certainly most under-appreciated, changes in the way American democracy works. That is George McGovern's contribution that made last night possible.

Much of the anger of the 1968 Democratic convention was process driven. Few remember, and many young people do not even know, that most of the delegates at the 1968 convention were not selected through primaries or caucuses. Most delegates were selected by the state committees of the Democratic Party, which were, for all intents and purposes, "smoke-filled rooms." What enraged liberal activists in 1968 was not merely the fact that the Democratic Party had rejected the antiwar movement, it was the fact that it had rejected democracy. In primary after primary (in the relatively few states that actually had binding primary elections), the voters chose the antiwar candidates, Kennedy and McCarthy. It seems astounding today, but Humphrey did not win a single primary. Yet, because of the backing he received from LBJ and other power brokers within the party, Humphrey was the inevitable nominee. That fact, even more than the substantive issues that were at stake, was what drove activists to the streets of Chicago.

In the wake of the disastrous 1968 convention and the defeat of the Democratic Party, George McGovern chaired a Commission to draft new rules for the procedures for the selection of delegates. Most party insiders would have favored cosmetic changes that left the fundamentals of the old system intact. That was not George McGovern's way. The McGovern Commission drafted new rules that required that every delegate be selected by means of some form of democratic electoral process, either a primary or a caucus. "Winner take all" primaries were abolished. The McGovern Commission rules required that the make-up of the convention that would choose the Presidential nominee of the Democratic Party represent the will of the voters, not the party bosses.

McGovern paid a steep price for these reforms. In 1972, McGovern himself was the first nominee selected through this newly-mandated democratic process. This did not sit well with some of the powers-that-be. A particularly loathsome organization called "Democrats for Nixon" came into being. It was not just McGovern's opposition to the Vietnam War and his espousal of a strong progressive agenda that turned the bosses against McGovern. It was the fact that they didn't select him and couldn't control him.

I believe that in time scholars of American political history will recognize the reforms of the McGovern Commission as one of the great milestones in the development of American democracy. It has taken the scope of our democracy to a whole new level. Combined with the growth of the internet that has created the potential for broad-based fund raising, first explored in the Dean campaign in 2004 and developed more dramatically through the Obama campaign this year, the process opens the door to change agents who want to upset the status quo and move the party in a different direction. In many ways, it is this process that has supplanted the need for third parties. If we don't like the direction in which the Democratic Party is headed, we have the power to change it.

Barack Obama stood on many shoulders when he accepted the Democratic Party's nomination last night. Among them were the strong shoulders of a prairie populist, George McGovern.

Wednesday, August 20, 2008

The Shady History of Cindy Hensley McCain's Family

I have been working on a new post of a somewhat philosophical nature. I've gotten bogged down in it and it is taking me some time to figure out exactly what I want to say. So in the meantime, I've decided to go with raw partisanship.

In wandering around the internet, I came across some stories about the very shady history of the family of John McCain's wife, Cindy Hensley McCain. In fact, as soon as I saw the stories, the name "Hensley" rang a bell with me, being pretty familiar with the annals of major white collar crime in America. I had just never made the connection to McCain's wife.

The stories raised some very pointed questions about the sources of the Hensley family wealth, a family fortune that has made John McCain a successful politician and one of the wealthiest members of Congress. Specifically, these questions relate to the criminal history of various members of the Hensley family, including Cindy McCain's father, Jim Hensley, and the alleged connections the family has had to organized crime. These questions are certainly worthy of scrutiny, and hopefully, they will find their way out of the blogosphere and into the mainstream media.

At the outset, I would like to point out one of the shortcomings of some of these stories as they appear on the internet. The stories often appear in highly unreliable right-wing, anti-Semitic and racist websites. Indeed, much of the information on the Web relating to the criminal connections of the Hensley family comes from right-wing sources (including Jerome Corsi) who have long-standing vendettas against McCain. Unfortunately, these tainted sources may have caused many people in the media to shy away from the story, assuming that it is merely the lunatic ravings of McCain's right-wing enemies. But the information is real, and it can be verified through numerous sources independent of the right-wing lunatic fringe.

A second problem with this story is, why is it relevant? Much of the information about the Hensley family's criminal past goes back many years, and one can legitimately ask what bearing this should have on McCain's current candidacy. I believe the story is relevant for several reasons.

First, the Hensley family wealth, and the political connections that went along with it, have been the key to McCain's success. The Hensley family history is well-known in Arizona. Even better known is the history of Kemper Marley, the principal benefactor of the Hensleys and a man who was, in possibly every sense of the word, the Godfather of the Arizona Republican Party. When John McCain married Cindy Hensley, starting his political career almost immediately after they got married, it is inconceivable that McCain could have been ignorant of the connections he was making.

In fact, when the controversy recently arose about McCain's inability to recall how many homes he and his wife own, he told Katie Couric on 60 Minutes that he had been "blessed" to have benefited from the wealth of the Hensley family. McCain also described his father-in-law Jim Hensley as a "role model" who had succeeded in business by fulfilling the American Dream. McCain did not mention that Hensley was a convicted felon with ties to organized crime figures.

The unsavory Hensley history also links directly with some of the most distasteful aspects of McCain's own career. The Hensleys introduced McCain to Charles Keating, a long-standing friend of the Hensleys and a co-venturer in a shopping mall in which the Hensleys invested a great deal of money (approximately $400,000). Keating contributed heavily to McCain's campaigns and provided private jets for McCain's usage. McCain returned the favor.

Finally, the most egregious aspect of the story is the way this has all been covered up by the mainstream media. For that reason alone, the story of the Hensley family's criminal background is highly relevant to the current campaign.

A good place to start looking at this story is with the puff-piece cover story that Newsweek ran about Cindy McCain in its June 30, 2008 edition entitled "In Search of Cindy McCain." The full extent of what Newsweek reported about the history of the Hensley family wealth is as follows:

"Her [Cindy's] father, Jim Hensley, was one of the most prominent men in the state. A World War II bombardier, he was shot down over the English Channel. After the war, he and his wife, Marguerite, borrowed $10,000 to start a liquor business. Through the years, it grew to become one of the largest Anheuser-Busch distributorships in the country."

A reader of this story would view the Hensley success story as a sort of Mom and Pop operation that made good through old-fashioned hard work. The truth appears to be a good deal more complicated, and sordid. An article entitled "Haunted By Spirits", which appeared in the Phoenix New Times in February 2000, provides an excellent overview of the story.

In fact, the funding for the Hensley liquor distributorship did not come from a mere "loan"; it reputedly came from Kemper Marley. Marley is the key figure in the history of the Hensleys, and therefore McCain, and a towering figure in Arizona politics. Marley was also a known criminal who is widely believed to have had extensive connections to organized crime. Jim Hensley had worked for Marley going back to the 1920s, when Marley was the most powerful bootlegger in Arizona. After World War II, Hensley again went to work for Marley, who had by then started a major liquor distributorship, United Distributors, following the repeal of Prohibition.

In 1948, Jim Hensley and his brother, Eugene Hensley, were convicted in Arizona Federal Court of conspiracy to falsify the records of United Distributors. According to the testimony at trial, the Hensley brothers had created phony invoices to cover up unreported cash sales of liquor out of the business. Eugene Hensley was sentenced to one year in prison and Jim Hensley received a sentence of six months, which was later suspended. Marley was not charged, and neither Hensley testified.

Jim Hensley was again indicted for Federal liquor violations in 1953. This time Hensley, as well as Marley's company, were acquitted. A young Arizona lawyer named William Rehnquist was part of the defense team.

Jim Hensley started his Anheuser-Busch distributorship in Phoenix in 1955. Allegedly, Marley bestowed this business upon Hensley as a favor for having kept his mouth shut during the earlier criminal trials. According to, Marley was closely connected with Peter Licavoli, Jr., a Detroit mobster who relocated his operation to Arizona in the 1940s and became known as the "Mafia Prince" of Arizona., a non-political website containing the writings of well-known crime writers and former law enforcement people, describes the linkages among Hensley, Marley, and the Mafia:

"Take the recent example of Senator John McCain, Presidential candidate and Senator from Arizona. Very few people outside the world of organized crime realize that the father of the Senator's second wife is James W. Hensley. And who was James W. Hensley, you ask. He was an Arizona businessman who fell in with the wrong crowd a while back, and ended up taking the rap for a wheeler-dealer named Kemper Marley, Sr. over a liquor violation case back in 1948. Although Hensley was represented by the best defense Arizona cash could buy, the services of future Chief Justice of the United States Supreme Court, Justice William Rehnquist, he got slammed away for a whole year. But it all worked out. When Hensley strolled out of the joint, Marley bought his silence with a lucrative Phoenix-based Budweiser beer distributorship. So, who is this Kemper Marley Sr? To answer that you have to go back to a sweltering summer day in 1976 when Don Bolles, a reporter for the Arizona Republican Newspaper, stepped into his Datsun, put his foot on the peddle and was blown to bits. Parts of the reporter's body were found ten feet from the burning car. Bolles had been poking into Arizona's local and state governments and discovered a land fraud ring, influence peddling, and shady deals that appeared to lead to the very top of Arizona's power structure and to Senator Barry Goldwater's doorstep. If the purpose of murdering Bolles was to cover a series of crimes, it was a big mistake. An enraged news media descended on Arizona, determined to uncover the facts behind the Bolles killing. The investigation led to a Phoenix liquor magnate and one time Bookie named Kemper Marley Sr., who had ties to Arizona's resident Mafia Prince, Peter Licavoli. Marley was a major financial and political power in the state and wanted to take back his seat on the Arizona Racing Commission. He had already been appointed to the post in 1976 by the Governor, only to resign several days later when his ties to organized crime surfaced. The reporter who made the connections between the mob and Marley was Don Bolles."

Interestingly, when the Obama campaign began running ads criticizing McCain for his inability to recall how many homes he owned, McCain responded by running an ad attacking Obama for having purchased his family's one home in part by arranging for a loan from Antonin Rezko, whom the McCain campaign emphasized is a "convicted felon." McCain is the beneficiary of far greater financial largess derived from Jim Hensley, also a "convicted felon."

Notably, Hensley's criminal record did not prevent him from owning a liquor distributorship, at least not in the eyes of Arizona authorities. Hensley filed a false disclosure form in 1988 concealing his Federal conviction, but Arizona authorities took no action against Hensley.

The Budweiser distributorship was not the only business venture that the Hensleys entered into with Marley. In December 1952, Jim and Eugene Hensley purchased a controlling interest in Ruidoso Downs, a racetrack in Albuquerque. However, subsequent litigation revealed that a concealed owner of Ruidoso was Teak Baldwin, a well-known Arizona bookmaker and associate of Marley. According to the New Mexico State Police, the Hensleys and Baldwin were acting as fronts for Marley in the venture. Baldwin would later be convicted of tax evasion. In 1955, Jim Hensley sold his stake in Ruidoso to his brother Eugene.

In 1966, Eugene Hensley was convicted of Federal tax evasion for having skimmed large amounts of money out of Ruidoso to make improvements on his home in Scottsdale and to transfer funds to his family. (The cases of Hensley v. United States, 406 F.2d 481 (10th Cir. 1968) and Ruidoso Racing Association v. Commissioner of Internal Revenue, 476 F.2d 502 (10th Cir. 1973) are very well-known in the law of tax fraud). The United States Tax Court described the evidence of Hensley's fraud as "overwhelming." Eugene Hensley was sentenced to five years' imprisonment. Before reporting to prison, Hensley transfered ownership of Ruidoso to Newco Enterprises, which immediately entered into a long-term contract with Emprise Corporation. Emprise had a long history of problems with governmental authorities as a result of organized crime connections. Emprise reorganized and moved its operations to Arizona, with strong backing from Kemper Marley. Marley had contributed heavily to then Arizona Governor Raul Castro, and Castro appointed Marley to Arizona's racing commission in 1976.

Marley's dubious activities drew the attention of Don Bolles, an investigative reporter for the Arizona Republic. As a result of Bolles' revelations, Governor Castro removed Marley from the racing commission. In June 1976, Bolles was killed by a car bomb. The organization Investigative Reporters and Editors ("IRE") started the "Arizona Project" to probe the background of Bolles' murder. A tow-truck driver and dog track operator, John Charles Adamson, pleaded guilty to having planted the bomb that killed Bolles and testified against two others who had hired Adamson to commit the murder. Bolles' last words were, "Adamson, Emprise, Mafia." Adamson later testified that he was told by the man who paid him to plant the bomb that killed Bolles that Marley had wanted Bolles killed, as well as then Arizona Attorney General Bruce Babbitt, who was conducting an antitrust investigation of the Arizona liquor industry. Marley was never charged for the murder of Bolles.

In the wake of Bolles' murder, the subject of organized crime infiltration of Arizona businesses and politics became a matter of national attention. In March 1977, the Albuquerque Journal ran a major story about the Hensleys and their connections to organized crime, which was re-reported in the New Mexico Independent this past June. Time magazine ran a major story in March 1977 entitled "Putting the Heat on the Sunbelt Mafia" addressing Marley's alleged role in Bolles' murder.,9171,914845-3,00.html

It is in this context that John McCain comes on the scene. McCain met Cindy Hensley in early 1979, he divorced and remarried in 1980, and after retiring from the Navy, McCain settled in Arizona and promptly went to work for the Hensley distributorship in a "public relations" capacity. The job gave McCain a handsome salary and a high profile in the state.

It is important to remember a few facts about McCain's personal background. McCain was a Navy brat, born in the Panama Canal Zone, who spent his entire life moving around military bases and never setting down roots. He had no personal connections to Arizona, or indeed, to anyplace else. If he was intent upon establishing a political career, it was essential that he establish strong connections with the local political establishment. It strains credulity to believe that McCain was unaware of the Hensley family history and the family's close connections to Marley, one of the most powerful men in the state.

In 1982, less than two years after marrying Cindy and going to work for Hensley Distributors, McCain ran for a seat in Congress. The seat in Arizona's First Congressional District was open because of the recent retirement of Republican Congressman John Rhodes. The Hensley family bought a house in the District in order to enable McCain to run. McCain won the election, angrily challenging "carpetbagger" allegations that were made against him by pointing to his status as a Prisoner of War in Vietnam.

In 1986, McCain took over the Senate seat long held by Barry Goldwater, another recipient of Marley's support. As noted, another Hensley family friend and business partner, Charles Keating, helped finance McCain's rise. The members of the Hensley family, including Cindy and her father, were also business partners with Keating in an Arizona shopping mall. The Hensley investment in that Keating venture was made through the same real estate partnership that purchased the home in Arizona's First Congressional District that launched McCain's political career.

McCain would later reach out to Federal regulators on Keating's behalf when Keating's massive savings and loan fraud began to unravel. McCain was officially chastised by the Senate for showing bad judgment in his dealings with Keating, although he escaped the more severe discipline meted out to other Senators. McCain adamantly refused to answer questions, however, about the Hensley family's business relationships with Keating, calling reporters from the Arizona Republic "idiots" and "liars" for having inquired about the Hensley transactions. Once again, McCain relied upon his background as a POW in Vietnam to deflect any questions challenging his integrity.

I think this is a story worth knowing about. It would be nice if somebody reported it.