Monday, October 27, 2008
We Should Talk to Our Enemies
One of the sharpest and most telling differences on foreign policy between Barack Obama and John McCain is whether the United States should talk to difficult and disreputable leaders like Iran's Mahmoud Ahmadinejad or Venezuela's Hugo Chávez.
In each of the three presidential debates, McCain belittled Obama as naive for arguing that America should be willing to negotiate with such adversaries. In the vice presidential debate, Sarah Palin went even further, accusing Obama of "bad judgment … that is dangerous," an ironic charge given her own very modest foreign-policy credentials. Are McCain and Palin correct that America should stonewall its foes?
I lived this issue for 27 years as a career diplomat, serving both Republican and Democratic administrations. Maybe that's why I've been struggling to find the real wisdom and logic in this Republican assault against Obama. I'll bet that a poll of senior diplomats who have served presidents from Carter to Bush would reveal an overwhelming majority who agree with the following position: of course we should talk to difficult adversaries—when it is in our interest and at a time of our choosing.
The more challenging and pertinent question, especially for the McCain-Palin ticket, is the reverse: Is it really smart to declare we will never talk to such leaders? Is it really in our long-term national interest to shut ourselves off from one of the most important and powerful states in the Middle East—Iran—or one of our major suppliers of oil, Venezuela?
During the five decades of the cold war, when Americans had a more Manichaean view of the world, we did, from time to time, cut off relations with particularly odious leaders such as North Korea's Kim Il Sung or Albania's bloodthirsty and maniacal strongman, Enver Hoxha. But for the most part even our most ardent cold-war presidents—Dwight Eisenhower, John Kennedy, Richard Nixon and Ronald Reagan, none of whom was often accused of being weak or naive—decided that sitting down with our adversaries made good sense for America. They all talked to Soviet leaders—men vastly more threatening to America's survival than Ahmadinejad or Chávez are now. JFK negotiated a nuclear Test-Ban Treaty with his mortal adversary, Nikita Khrushchev, just one year after the two narrowly avoided a nuclear holocaust during the Cuban missile crisis. Perhaps more dramatically, Nixon, the greatest anticommunist crusader of his time, went to China in 1972 to repair a more than 20-year rupture with Mao Zedong that he believed no longer worked for America.
All of these cold-war presidents embraced a foreign-policy maxim memorialized by one of the toughest and most experienced leaders of our time, Israel's Yitzhak Rabin, who defended his discussions with Yasir Arafat by declaring, "You don't make peace with friends, you make peace with very unsavory enemies." Why should the United States approach the world any differently now? Especially now?
As Americans learned all too dramatically on 9/11 and again during the financial crisis this autumn, we inhabit a rapidly integrating planet where dangers can strike at any time and from great distances. And when others—China, India, Brazil—are rising to share power in the world with us, America needs to spend more time, not less, talking and listening to friends and foes alike. The real truth Americans need to embrace is that nearly all of the most urgent global challenges—the quaking financial markets, climate change, terrorism—cannot be resolved by America's acting alone in the world. Rather than retreat into isolationism, as we have often done in our history, or go it alone as the unilateralists advocated disastrously in the past decade, we need to commit ourselves to a national strategy of smart engagement with the rest of the world.
Simply put, we need all the friends we can get. And we need to think more creatively about how to blunt the power of opponents through smart diplomacy, not just the force of arms. Talking to our adversaries is no one's idea of fun, and it is not a sure prescription for success in every crisis. But it is crude, simplistic and wrong to charge that negotiations reflect weakness or appeasement. More often than not, they are evidence of a strong and self-confident country. One of America's greatest but often neglected strengths is, in fact, our diplomatic power.
Condoleezza Rice's visit to Libya in September—the first by a U.S. secretary of state in five decades—was the culmination of years of careful, deliberate diplomacy to maneuver the Libyan leadership to give up its weapons of mass destruction and renounce terrorism. She would not have achieved that victory had she refused to talk to the Libyans.
For sure, a successful diplomacy needs to be backed up by strong military and intelligence services to fight our wars and terrorist groups like Al Qaeda. We should constantly remind our adversaries that we have other options, including the possible use of force, if talks fail. But we have put too many of the world's problems on the shoulders of our generals and intelligence officers when diplomacy—our ability to persuade, cajole or threaten an opponent—is sometimes the better and more effective way to proceed. We need to trust our ability to outmaneuver dangerous regimes at the negotiating table and in the high court of international public opinion.
Iran is a case in point. Its hard-line, theocratic government poses the greatest threat to peace in the Middle East today. It is funding and arming most of the region's terrorist groups shooting at us, Israel and our moderate Arab friends. It has complicated our efforts in Iraq and Afghanistan. Most alarming, Iran is seeking a nuclear-weapons capability that would change the balance of power in the Middle East. Rather than default to the idea of using U.S. military force against Iran, wouldn't it make more sense for the next American president to offer to negotiate with the Iranian leadership? Here's the logic. If the talks end up succeeding, we will have prevented a third, and potentially catastrophic, war for the United States in the volatile area linking the Middle East and South Asia. If the talks fail, we will have a far better chance of persuading Russia and China to sign on to tougher sanctions against Iran. I think war with Iran would be unconscionable if we refuse even to try diplomacy first.
I'm not saying the next president should sit down immediately with Ahmadinejad. We should initiate contact at a lower level to investigate whether it's worth putting the president's prestige on the line. We should leave the threat of military action on the table to give us greater leverage as we talk to the Iranian government. And ultimately we'd want other countries with influence—like Russia and China—to sit on our side of the table in order to bring maximum pressure to bear against Tehran.
But the United States hasn't had a meaningful set of talks with Iran on all the critical issues that separate us in 30 years, since the Khomeini revolution.
To illustrate how far we have isolated ourselves, think about this: I served as the Bush administration's point person on Iran for three years but was never permitted to meet an Iranian. To her immense credit, Secretary Rice arranged for my successor to participate in a multilateral meeting with Iranian officials this past summer. That is a good first step, but the next American president should initiate a more sustained discussion with senior Iranians. If we aren't willing to talk to Iran, we may leave ourselves with only one option—military action. The next U.S. president will have little chance of securing peace in the Middle East if he doesn't determine Iran's bottom line on the nuclear issue through talks. Similarly, there will be no peace treaty between Syria and Israel if we don't support the talks underway between those countries.
In Afghanistan, the new president will face a very difficult set of choices roughly similar to those in Iraq before the surge. The brilliance of Gen. David Petraeus's strategy in Iraq was, in part, to build bridges to formerly bitter foes in the Sunni militias and to cajole and entice them to switch sides. Some are now suggesting that we should deploy a similar strategy with the Taliban rank and file. While we should have absolutely no interest in sitting down with Qaeda fanatics or the Taliban leadership, does it make sense to try to persuade lower-ranking Taliban supporters to give up the armed struggle and commit to a democratic Afghanistan? While that's a seemingly logical goal, it would be highly problematic in the short term. We would be better served if we first built up a position of much greater military and political strength, and increased security for Afghan villagers.
Talking to our adversaries is not always the answer to all our problems, especially in a highly complex environment such as Afghanistan. We have a long way to go before it might be part of a long-term solution there.
America faces a complex and difficult geopolitical landscape. The next president needs to act more creatively and boldly to defend our interests by revalidating diplomacy as a key weapon in our national arsenal and rebuilding our understaffed and underfunded diplomatic corps. Of course he will need to reserve the right to use force against the most vicious and implacable of our foes.
More often than not, however, he will find that dialogue and discussion, talking and listening, are the smarter ways to defend our country, end crises and sometimes even sow the seeds of an ultimate peace.
Sunday, October 19, 2008
Powell is a man that McCain has tremendous respect and admiration for. He once said he respected Powell more than any man in the world. In the New York Times Magazine this summer McCain said, "Colin Powell, a man who I admire as much as any man in the world, person in the world..." McCain called Powell one of the most "credible" and "respected men in America. Politico reported in August that McCain was even considering asking Powell to be his running mate. McCain has repeatedly said in the past that if elected he would have asked Powell to serve in his administration. Powell and McCain know each other well and have worked closely together. His public endorsement of Obama is a huge validation of Obama and a tremendous repudiation of McCain.
McCain said, "Colin Powell, a man who I admire as much as any man in the world, person in the world..." [NY Times interview with John McCain, 7/13/08]
McCain considered Powell for a running mate. "Retired Gen. Colin Powell is among the potential running mates who have been considered by John McCain, campaign advisers told Politico. Powell was among the possible vice presidential choices the Arizona Republican senator was thinking of when he said he would not rule out a supporter of abortion rights, a key adviser said." [Politico, 8/23/08]
McCain said President Bush was "blessed" to have Powell working for him. McCain said, "I think the president is blessed to have two extremely talented people (Powell and Rumsfeld), experienced people, working for him, and others, but particularly those two." [MSNBC Hardball, 4/23/03]
McCain called Powell one of the most "credible" and "respected men in America. Sen. John McCain (R-Ariz.) praised Powell as one of the "most credible" and "most respected" men in America. [LA Times, 2/6/03]
McCain said he admired and respected Powell, said he was one of most "honest" men he had "ever known." "Sen. McCain: Well, Colin Powell's one of the most honest men that I've ever known and I admire and respect him enormously, and so obviously I'd take his word for it." [CNBC 4/20/04]
McCain was "exuberant" over Powell's selection as Secretary of State. After it was announced that Powell had been nominated by Bush for Secretary of State, McCain said, "I'm exuberant over the prospect of his [Colin Powell] stewardship of American foreign policy. There's a lot of very dangerous places in the world due to the fecklessness of the Clinton administration." [NBC Nightly News, 12/15/00]
McCain lauds Powell's selection as Secretary of State. Senator John McCain "I think his credentials and his charisma will have a significant effect, a beneficial effect, on the conduct of American foreign policy." [NBC Nightly News, 12/16/00]
McCain said if elected in 2000 he would have appointed Powell to his cabinet. On Larry King in 2001, McCain was asked whether he would have named Mr. Rumsfeld and Colin L. Powell to a McCain cabinet. 'Oh, yes." [CNN Larry King, 11/28/01]
As leader of the International Republican Institute, John McCain gave Colin Powell the Freedom Award. "As Senator John McCain waited to speak at the annual awards dinner of the International Republican Institute, a democracy-building group he has led for 15 years," "Mr. McCain could use the chairman's [of the institute] perch to score points with important Republican figures -- he presented Freedom Awards to President Bush, former Secretary of State Colin L. Powell and, in 2003, the incoming Senate majority leader, Bill Frist." [NY Times, 7/28/08]
Huffington Post (19-Oct-08)
Wednesday, October 15, 2008
"Waving the bloody shirt"was the phrase once used to describe the standard demagogic tactic of the late 19th century, when memories of the Civil War were still vivid and loyalists of both parties could be moved to "vote as they shot."
In 1896 the Democrats chose William Jennings Bryan as their leader, a man who was born in 1860 and had thus missed the Civil War, but who seemed to threaten the consensus politics of the time. In response, Republican campaign masterminds organized a speaking tour of the Midwest by a handful of surviving Union generals. The veterans advanced through the battleground states in a special train adorned with patriotic bunting, pictures of their candidate, William McKinley, and a sign declaring, "We are Opposed to Anarchy and Repudiation."
The culture wars are the familiar demagogic tactic of our own time, building monstrous offenses out of the tiniest slights. The fading rancor that each grievance is meant to revive, of course, dates to the 1960s and the antiwar protests, urban riots and annoying youth culture that originally triggered our great turn to the right.
This year the Democrats chose Barack Obama as their leader, a man who was born in 1961 and who largely missed our cultural civil war. In response, Republican campaign masterminds have sought to plunge him back into it in the most desperate and grotesque manner yet.
For days on end, the Republican presidential campaign has put nearly all of its remaining political capital on emphasizing Mr. Obama's time on various foundation boards with Bill Ayers, a former member of the Weathermen, which planted bombs and issued preposterous statements in the Vietnam era. Some on the right seem to believe Mr. Ayers is Mr. Obama's puppet-master, while others are content merely to insist that the association proves Mr. Obama to be soft on terrorism. Maybe he's soft on anarchy and repudiation, too.
I can personally attest to the idiocy of it all because I am a friend of Mr. Ayers. In fact, I met him in the same way Mr. Obama says he did: 10 years ago, Mr. Ayers was a guy in my neighborhood in Chicago who knew something about fundraising. I knew nothing about it, I needed to learn, and a friend referred me to Bill.
Bill's got lots of friends, and that's because he is today a dedicated servant of those less fortunate than himself; because he is unfailingly generous to people who ask for his help; and because he is kind and affable and even humble. Moral qualities which, by the way, were celebrated boisterously on day one of the GOP convention in September.
Mr. Ayers is a professor of education at the University of Illinois at Chicago (UIC), where his work is esteemed by colleagues of different political viewpoints. Herbert Walberg, an advocate of school vouchers who is a visiting fellow at the Hoover Institution, told me he remembers Mr. Ayers as "a responsible colleague, in the professional sense of the word." Bill Schubert, who served as the chairman of UIC's Department of Curriculum and Instruction for many years, thinks so highly of Mr. Ayers that, in response to the current allegations, he compiled a lengthy résumé of the man's books, journal articles, guest lectures and keynote speeches. Mr. Ayers has been involved with countless foundation efforts and has received various awards. He volunteers for everything. He may once have been wanted by the FBI, but in the intervening years the man has become such a good citizen he ought to be an honorary Eagle Scout.
I do not defend the things Mr. Ayers did in his Weatherman days. Nor will I quibble with those who find Mr. Ayers wanting in contrition. His 2001 memoir is shot through with regret, but it lacks the abject style our culture prefers.
Instead I want to note that, in its haste to convict a man merely for associating with Mr. Ayers, the GOP is effectively proposing to make the upcoming election into the largest mass trial in history, with all those professors and all those do-gooders on the hook for someone else's deeds four decades ago. Also in the dock: the demonic city (Chicago) that once named Mr. Ayers its "Citizen of the Year." Fire up Hurricane Katrina and point it toward Lake Michigan!
The McCain campaign has made much of its leader's honor and bravery, but now it has chosen to mount its greatest attack against a man who poses no conceivable threat to the country, who has nothing to do with this year's issues, and who cannot or will not defend himself. Apparently this makes him an irresistible target.
There are a lot of things to call this tactic, but "country first" isn't one of them. The nation wants its hope and confidence restored, and Republican leaders have chosen instead to wave the bloody shirt. This is their vilest hour.
Sunday, October 5, 2008
- Bush 2.0
- McCain 2.2
- Obama 3.3
Our survey is not, by any means, a scientific poll of all economists. We e-mailed a questionnaire to 683 research associates, all we could track down, of the National Bureau of Economic Research, America’s premier association of applied academic economists, though the NBER itself played no role in the survey. A total of 142 responded, of whom 46% identified themselves as Democrats, 10% as Republicans and 44% as neither. This skewed party breakdown may reflect academia’s Democratic tilt, or possibly Democrats’ greater propensity to respond. Still, even if we exclude respondents with a party identification, Mr Obama retains a strong edge—though the McCain campaign should be buoyed by the fact that 530 economists have signed a statement endorsing his plans.
Does their opinion matter? Economics is just one of the many things the next president will have to worry about; voters still seem to prefer Mr McCain on foreign policy. And even on the economy, economists may not have the same priorities as the population at large. Arguably, what a president says about economics on the campaign trail is less important than how he responds to the unexpected challenges that inevitably arise once he is in office.
Yet economists’ opinions should count for something because irrespective of any party affiliation, most of them approach policy decisions with the same basic tool kit. Their assessment of the candidates’ economic credentials and plans represents an informed judgment on how well they will handle difficult trade-offs between efficiency, equity, growth and consensus-building.
Regardless of party affiliation, our respondents generally agree
- the economy is in bad shape,
- that the election is important to the course of economic policy and
- that the housing and financial crisis is the most critical economic issue facing America.
Even among Republicans Mr Obama has the edge: 46% versus 23% say Mr Obama has the better grasp of the subject. “I take McCain’s word on this one,” comments James Harrigan at the University of Virginia, a reference to Mr McCain’s infamous confession that he does not know as much about economics as he should. In fairness, Mr McCain’s lower grade may in part reflect greater candour about his weaknesses. Mr Obama’s more tightly managed image leaves fewer opportunities for such unvarnished introspection.
A candidate’s economic expertise may matter rather less if he surrounds himself with clever advisers. Unfortunately for Mr McCain, 81% of all respondents reckon Mr Obama is more likely to do that; among unaffiliated respondents, 71% say so. That is despite praise across party lines for the excellent Doug Holtz-Eakin, Mr McCain’s most prominent economic adviser and a former head of the Congressional Budget Office. “Although I have tended to vote Republican,” one reply says, “the Democrats have a deep pool of talented, moderate economists.”
There is an apparent contradiction between most economists’ support for free trade, low taxes and less intervention in the market and the low marks many give to Mr McCain, who is generally more supportive of those things than Mr Obama. It probably reflects a perception that the Republican Party under George Bush has subverted many of those ideals for ideology and political gain. Indeed, the majority of respondents rate Mr Bush’s economic record as very bad, and Republican respondents are only slightly less critical.
Erik Brynjolfsson, a professor at the Massachusetts Institute of Technology Sloan School of Management, says
John McCain has professed disdain for ‘so-called economists’, and for some the feeling has become mutual. Obama’s team is mainstream and non-ideological but extremely talented.On our one-to-five scale, economists on average give Mr Obama’s economic programme a 3.3 and Mr McCain’s a 2.2. Mr Obama, says Jonathan Parker, a non-aligned professor at Northwestern’s Kellogg School of Management, “is a pragmatist not an ideologue. I expect Clintonian economic policies.” If, that is, crushing federal debt does not derail his taxing and spending plans.
On his plans to fix the financial crisis, Mr Obama averages 3.1, a point higher than Mr McCain. Still, some said they didn’t quite know what they were rating—reasonably enough, since neither candidate has produced clear plans of his own.
Where the candidates’ positions are more clearly articulated, Mr Obama scores better on nearly every issue:
- promoting fiscal discipline,
- energy policy,
- reducing the number of people without health insurance,
- controlling health-care costs,
- reforming financial regulation and boosting long-run economic growth.
Mr McCain gets his highest mark, an average of 3.5 and a clear advantage over Mr Obama, for his position on free trade and globalisation. If Mr Obama “would wake up on free trade”, one respondent says, “I could get behind the plans much more.” Perhaps surprisingly, the economists rated trade low in priority compared with the other issues listed. Only 53% say it is important or very important. Neither candidate scored at all well on dealing with the burgeoning cost of entitlements such as Medicare and Social Security.
The economists also prefer Mr Obama’s tax plans. Republicans and respondents who do not identify with either political party see Mr McCain’s tax policies as more efficient but less equitable. But the former prefer Mr McCain’s plans—43% of Republicans say they are good or very good—and the latter Mr Obama’s. Of non-affiliated respondents, 31% say Mr Obama’s are good or very good.
Either way, according to the economists, it would be difficult to do much worse than George Bush. The respondents give Mr Bush a dismal average of 1.7 on our five-point scale for his economic management. Eighty-two per cent thought Mr Bush’s record was bad or very bad; only 1% thought it was very good.
The Democrats were overwhelmingly negative, but nearly every respondent viewed Mr Bush’s record unfavourably. Half of Republican respondents thought Mr Bush deserves only a 2. “The minimum rating of one severely overestimates the quality of Bush’s economic policies,” says one non-aligned economist.
Saturday, October 4, 2008
The Bush Administration and Congressional Democrats want taxpayers to pay $700 billion to bail out failing banks. Progressives would prefer to bail out homeowners facing the imminent foreclosure of their homes, as well as those in danger of being foreclosed upon during 2009, at a cost of $1.3 trillion.
Never mind which approach is better. Where will the government find the money?
There are two elephants in the room: war and Bush's 2001 and 2003 tax cuts. We can't afford either. Yet, to abuse the animal metaphor, everyone acts like they're sacred cows.
When you think about it, it's sheer madness. The city marshal is at the door, brandishing a shotgun, ready to evict you and your family for nonpayment of rent. But while your kids are screaming in terror, you're at the computer, wasting thousands on online gambling. You could pay off your landlord instead. You could make the marshal go away. All you have to do is stop. But you keep on keeping on. Click, click. More money squandered.
What the hell is wrong with you? What the hell is wrong with us?
In 2007 the non-partisan Congressional Budget Office estimated that the final cost of our biggest national compulsion, the wars against Iraq and Afghanistan, could total $2.4 trillion, or $8,000 per man, woman and child in the country. That's twice as much as the Korean, Vietnam and Gulf Wars combined. It's also two-thirds the cost of World War II. Yet no one--not the Republicans, not the Democrats, not the media, not even the left--insists that we get out.
To paraphrase Lloyd Bentsen, I've studied World War II. World War II was a worthwhile war, one that freed millions from tyranny and set the stage for the U.S. to dominate he global economy and become the wealthiest nation in history. Iraq and Afghanistan? They're no World War II. As wars go, they're not as worthwhile as the invasion of Grenada.
"The CBO estimates assume that 75,000 troops will remain in both countries through 2017, including roughly 50,000 in Iraq," reported USA Today. If anything, that's a low-ball estimate. More than a half century after the fighting ceased, we still have 37,000 troops in one tiny country, South Korea. And both McCain and Obama promise to send more troops to Afghanistan. That means more taxpayer money.
Nearly two out of three Americans think invading Iraq--where the lion's share of war funding is being spent--was a mistake. The Afghan resistance is kicking our butts. Both wars have been a complete, total waste of money, effort and lives. As surely as the sun will rise in the east, we will lose both. At a total cost of at least $2.4 trillion. Ridiculous.
$2.4 trillion is nearly twice the $1.3 trillion it would take to save every home in danger of foreclosure. That would keep many banks afloat, and act as the biggest economic stimulus in history. Can anyone sane tell us why we shouldn't bring our troops back home? Can anyone justify wasting $2.4 trillion at a time when the U.S. economy is staring into the abyss of total collapse?
The other national obsession is the tax cuts Bush pushed through in 2001 and 2003. "The surplus is not the government's money," Bush said at the time, apparently unaware that the economy was already in a recession. "The surplus is the people's money." Remember surpluses? Such a Clintonian word. Anyway, Democrats in Congress--still in full-on wuss mode following 9/11--went along with Bush's tax cuts. But, bless their wimpy little heads, they did manage to extract a concession: In 2011, tax rates would revert to what they'd been in 2001.
Believe a Republican once, shame on you. Believe a Republican twice, what were you thinking? Now so-called conservatives are complaining that "the largest tax increase in history" will occur in 2011 if Bush's tax cuts are allowed to expire.
Making the Bush tax cuts permanent would codify the most regressive tax change in history. "After-tax income would increase by more than six percent for households in the top one percent of the nation's income distribution, two percent for households in the middle 60 percent, and only 0.3 percent for households in the bottom 20 percent," found a Brookings Institution study.
Making the rich richer will cost the Treasury an arm, a leg, and the better part of a torso.
"Combined with a minimal but necessary fix to the government's Alternative Minimum Tax, making the tax cuts permanent would reduce federal revenues by almost $1.8 trillion over 10 years--and that's in addition to the $1.7 trillion of revenue losses already locked into law."
$1.8 trillion. Again, allow me to remind you: $1.3 trillion is the amount we need to stave off imminent financial catastrophe.
That sound you hear is the door breaking down. The marshal is coming down the hall. Get off the computer. Fix the problem. Get out of Iraq and Afghanistan. Let the tax cuts expire.
Now a syndicated columnist and editorial cartoonist, Ted Rall was a trader at Bear, Stearns & Co. and a loan officer at the Industrial Bank of Japan during the 1980s. Rall is the author of the new book "Silk Road to Ruin: Is Central Asia the New Middle East?," an in-depth prose and graphic novel analysis of America's next big foreign policy challenge.
Tuesday, September 30, 2008
o Ann Pettifor
o The Guardian,
o Tuesday September 30 2008
Anglo-American finance ministers and central bankers, like little Dutch boys, try desperately to plug leaks in the bursting dyke that is the international financial system. In the US, treasury secretary Hank Paulson hoped for $700bn to plug the gaping hole in Wall Street's banks. In the UK, the government is not just plugging holes, but setting aside competition rules to encourage the monopolisation of finance. Alistair Darling suspended competition rules to allow the Lloyds Bank takeover of HBOS because of the crisis. This is like suspending the law during hurricanes. The demise of another independent bank, Bradford & Bingley, and the transfer of its savings business to Santander, will increasingly monopolise finance.
Will these plugs and private-sector fixes work? No, because
- they are not system-wide fixes and
- they are based on the same flawed economic policies that spurred this crisis in the first place.
But there are other orthodox economic policies that remain intact and are as yet unchallenged by any political party. The most damaging is orthodox monetary policy. This is based on the assumption that money is a commodity, and that its "price" - the rate of interest - must be set by supply and demand for money in private markets for capital - just as the price of oil is set by supply and demand for oil.
This is a nonsense. We do not dig capital out of the ground, nor does it grow on trees. Money is man-made. Interest rates are a social construct. And as such, unlike oil or soya beans, "there are no intrinsic reasons for the scarcity of capital", as Keynes argued in the General Theory. Because there is no reason for the scarcity of capital, there is no reason for the price of capital to be high.
And yet the private finance sector has succeeded in creating a shortage of capital, the credit crunch, and - at the height of a debt crisis - ratchets its price ever upwards. The rate for private inter-bank loans (Libor) continues to move upwards as the crisis worsens.
The private finance sector also requires that central banks maintain official, or base rates at current levels by adhering to a policy esoterically named "inflation targeting". In fact these high rates, by making debts unpayable, lead to rapid de-leveraging of debts (think bank failures) and assets (think property price falls) and are dangerously deflationary.
Flawed monetary policies are turning a crisis into a catastrophe. They must be challenged. Keynes's cool, rational voice on monetary theory and monetary policy must once again be heeded. Central banks must once again take control over all rates - short and long, safe and risky.
But a system-wide fix would go further. It would challenge the orthodoxy that unemployment helps keep wages low and is a good thing; and that wage rises are always inflationary. It is this orthodoxy that has caused wages and other forms of compensation to fall as a share of GDP in all OECD countries over the past three decades. This fall in compensation has forced people to supplement incomes by borrowing more.
Creating jobs and raising incomes as a share of GDP is vital if we want people to repay debts, salvage banks and return to the high street. If we fail to adopt such system-wide fixes, and if we persist with economic orthodoxy, then look forward to a prolonged period of global economic failure.