Warren Buffett's Letter to BRK Shareholders and Government Liabilities

Each year, Warren Buffett publishes a letter to Berkshire shareholders that is both informative and humorous. This year, Buffett discussed an issue that gets far too little press: pension plan liabilities and actual costs of future benefits, which are notoriously difficult to calculate:

"Whatever pension-cost surprises are in store for shareholders down the road, these jolts will be surpassed many times over by those experienced by taxpayers. Public pension promises are huge and, in many cases, funding is woefully inadequate. Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that problems will only become apparent long after these officials have departed. Promises involving very early retirement – sometimes to those in their low 40s – and generous cost-of-living adjustments are easy for these officials to make. In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep."

I am happy to say I sounded the horn on this issue before Mr. Buffett, at least in print. On or around December 2007, The Metro published a letter from me discussing the government's pension plan liabilities. In the letter, I sound quite Ron-Paul-ish, probably more than I actually am, but I have revised the letter and included it below:

America was founded to ensure that private citizens had freedom. To that end, the Constitution provided for a limited federal government, recognizing that large, non-transparent governments and freedom are incompatible. Indeed, any government salary (or new law, for that matter) saps resources from private citizens that could be spent on innovation and other, more productive activities, while also increasing a government official’s power to exert influence and control over private lives. High government salaries are particularly problematic, because they are a form of fraud on the public, i.e. the taking of more funds than necessary from dispersed private citizens to support unionized government members. Here, our local government wanted to hide how much its members were making, which prevents the discovery of corruption and fraud in the form of higher-than-normal salaries. Yet, almost any county position could be filled with qualified individuals even if the county reduced its salaries significantly, recognizing that a pension and the possibility of lifetime medical benefits are more than enough to attract qualified workers. In fact, almost no one in the private sector receives pensions or lifetime medical benefits, and all the private companies that used to offer such benefits, such as General Motors and Ford, are changing their policies. There is a lesson there for private citizens, who may eventually be forced to pay higher taxes to support the unusually generous benefits the government keeps giving itself.

As an attorney, I have litigated against several government agencies and have been shocked at how power individual citizens have granted to unqualified government members. In one case, the DFEH brought an action in a separate tribunal set up exclusively for employment claims, in front of an unelected judge who used to work for the DFEH. The DFEH’s client was awarded no money in the case, but my client had to pay thousands of dollars in attorneys’ fees for a case that almost no one in the private sector would have touched. Yet, we are all paying for a tribunal (the FEHC) with the power to award 150,000 dollars against any small business or individual.

This government excess is not limited to legal tribunals. San Jose’s independent police auditor is having to fight to get a small measure of authority to review taser deaths caused by San Jose police. To get an idea of what happens when government workers are strongly unionized and do not have to fear discipline, read the case of Grassilli v. Barr (2006).

California's own government is so large, I was shocked the first time I saw a list of just the state agencies. Take a look at this link–it does not include city or county governments and yet shows a massive, sprawling government:

http://www.ca.gov/About/Government/agencyindex.html

Someone must pay for all of these employees and their pensions, sabbaticals, and health care. Teachers’ unions usually ask for more money, but the California State Teachers Retirement System is already worth around $125 billion.* It has around 750,000 members and is the third largest public retirement fund in the country. Yet, after health care, education reform remains crucial, and the CTA continues to ask for more money.

As a result of government salaries and benefits spiraling out of control, California’s bond ratings have gone from AAA to single A and are approaching status that is slightly above junk (see http://www.treasurer.ca.gov/ratings/current.asp). The high salaries and unusual benefits of local government workers are just one small part of major fiscal problems that will not get better on their own. The lack of transparency in local government salaries has been remedied somewhat, but many other issues remain. I pray that this country’s citizens will read its history and think harder about current Constitutional issues; otherwise, we will be seeing a great power slowly but inexorably degenerate into a bloated, inefficient police state.

*My figure placed the value of the CTA pension plan at $125 billion. It is actually $131.2 billion, according to the Wall Street Journal's February 28, 2008 article, "Dear Crunch," C1. But what is problematic is that the CTA pension plan is underfunded by 19.6 billion dollars, all of which eventually has to be paid by California taxpayers. This means that the current debt calls for paying retired California teachers 19.6 billion dollars, and the pension plan doesn't have that money now and is hoping to get it in the future (stock market gains, more dues, higher taxes, etc.). To get an overall picture of the financial liabilities we face, the WSJ states that we--that includes you, if you pay taxes in the U.S.--owe our government $440 billion dollars, all of which will be put into the pockets of government workers. In a sign that the purse is already appearing shallow, the WSJ said that the city of Vallejo, CA is considering filing for bankruptcy. Its local government granted itself so much in benefits and salaries that the police and fire department's "salaries and benefits account for 80% of budget costs." Again, if you look at my letter to The Metro, the unstated premise is that without oversight, government will enrich itself at the expense of private citizens, especially in the areas of police power. The City of Vallejo, with almost all the taxpayer revenue going to police/fire union members, proves my point. Yet, even recent front page news stories about how the San Francisco mayor's office increased the salaries of close associates, or how various government departments are paying so much in overtime that correctional guards regularly exceed 100,000 dollars per year in compensation, is not causing any alarm bells to go off (This in a country that now has 1% of its adult population behind bars and will probably need more correctional officers in the future). When front-page news does not shock the public into demanding reform, we need to re-examine how we grant benefits and salaries to government members, perhaps even having referendums or some opt-in voting measure to establish reasonable salaries and benefits. Otherwise, every government employee will be functioning in a pyramid scheme where actual future costs of benefits, especially health care, remain undisclosed and incalculable. Such a situation is not good for taxpayers or our government members. Government, like private industry, benefits when new and highly performing members are attracted to jobs and bring with them fresh ideas. At this rate, government agencies will not be able to hire new employees, and private citizens will not benefit from a fiscally-healthy, secure government.

One of the links in my letter led to bond ratings for all the states. As of today, it shows that California's bond rating is the second worst in the nation, leading to higher borrowing costs and difficulty with improving our infrastructure. Who has the worst bond rating? Louisiana, which was battered by Hurricane Katrina and is still feeling its effects economically. It should be shocking that the sixth or seventh largest economy in the world has the second worst bond rating in the U.S., above only a hurricane-ravaged state, but so far, there are no protests in the streets, no condemnation of government expenditures by citizens, and no cries of unjust takings from our grandchildren. Our founders would be stunned at our utter complacency, but perhaps also proud of the prosperity we have achieved in such a short time. With that in mind, it would be a shame if future generations were unable to see America's promise of prosperity because government members and unions were enriching themselves at our expense or refusing to accept pay cuts, even as tax revenue decreases.

Original letter here: http://www.metroactive.com/metro/12.26.07/letters-0752.html

Update on January 13, 2009: here's a great website on public pensions:

http://www.pensiontsunami.com/

First, Kill All the School Boards

After the Wilson Quarterly, the Atlantic Monthly is my favorite periodical. Its Jan/Feb 2008 issue has a section written by Matt Miller about schools and some memorable quotes:

Mark Twain: In the first place, God made idiots. This was for practice. Then He made School Boards.

Miller jokes, "Things don't appear to have improved since Twain's time."

Also from Matt Miller: The usual explanation for why national [educational] standards won't fly is that the right hates "national" and the left hates "standards."

I read an interesting tidbit about why so many founders of tech companies (e.g. Bill Gates, David Packard, etc.) are focused on changing and improving education. (Many billionaires fund non-profits and various enterprises, but the Gates Foundation, for example, has worked extensively on expanding charter schools.) The theory is that Gates and others in Silicon Valley got their wealth through education rather than inheritance; therefore, they believe that more inventors and entrepreneurs will be created through a better educational system.

Book Review: When the Game Was Ours

(Written January 18, 2011)

When the Game Was Ours is a treat for any basketball fan. Apart from the firsthand commentary from both Magic Johnson and Larry Bird, the book is surprisingly personal.  For example, I had no idea Larry Bird's father committed suicide when he was 16 years old, or that Larry Bird almost decided to stay in his small town and get a "normal" job until his mother reminded him of her expectation that he would be the first in the family to graduate college (which Bird did--even after he was drafted by the Celtics while in college).  I don't want to pontificate my own interpretation of the book, so I'll just share some sections I found interesting:

Larry's teammates were sometimes jealous of the attention he received--back when Magic and Bird played, there were fewer NBA teams, so the talent level was higher across the board.  So-called "sixth men" at that time could have easily started on many NBA teams today.

"Somebody asked me once how I felt about all that [the jealousy from teammates]," Bird said.  "I told them, 'Hell, I'm jealous of them, too.  I'm jealous because I never got to play with a Larry Bird.'" (pp. 47, 2009, hardcover)

On revenues and revenue-sharing: 

"By 1981...60 percent of the gross revenue, which was hovering at $118 million, was being paid out to the players.  The formula had to change or the league was going to be out of business."  "In March 1983...the salary cap...[paid] the players 53 percent of the league's defined gross revenue (television and radio revenues and gate receipts) and a guaranteed $500,000 a year in licensing."  (pp. 99)

"In 1984 the NBA's retail merchandise generated $44 million.  By 2007 that number had jumped to a staggering $3 billion under [David] Stern's watching eye." (pp. 109)

"In 1979, the league's four-year deal with CBS was worth $74 million.  By 2002 the league had inked a six-year deal with ABC, ESPN, and TNT valued at $4.6 billion." (pp. 110)

"[I]n 2002, the league signed a network contract valued at $4.6 billion, a significant upgrade over the four-year, $74 million pact the NBA inked in Magic's and Larry's rookie season." (pp. 312)

On Isiah Thomas, who ends up looking like the least classy player in the book: 

"Isiah [Thomas] kept questioning people about it [Magic's sexuality]," Magic said.  "I couldn't believe that.  Everyone else--Byron [Scott], Arsenio [Hall], Michael [Jordan], Larry [Bird]--they were all supporting me.  And the one guy I thought I could count on had all these doubts.  It was like he kicked me in the stomach." [pp. 241]

"I'm sad for Isiah [Thomas].  He has alienated so many people in his life, and he still doesn't get it.  He doesn't understand why he wasn't chosen for that Olympic team, and that's really too bad.  You should be aware when you have ticked off more than half the NBA." [pp. 263]

Dennis Rodman's reaction to playing with Magic after the HIV announcement: 

Rodman eliminated the awkwardness on his very first trip down the floor, when he elbowed Magic in the back, then bodied up on him and bumped him in the post. "C'mon now," Rodman said to Magic. "Show me what you got." ... After a few minutes, the players seemed to relax." [pp. 249]

Bird on tipping and frugality: 

In his rookie season, the first time Bird went to New York with the Celtics, he and Rick Robey popped into a bar to have a brew. When he saw the prices on the tavern's menu, Larry abruptly stood up and walked out.  Years later, while dining with his teammates in a trendy New York eatery, the players began collecting money for the bill.  Told they were going to give the waiter a 20 percent tip, Bird said, "What for? All he did was deliver the food."  He stood up, grabbed the tip money, and strode unannounced into the kitchen.  He handed the astonished cook a fistful of bills, then walked out. [pp. 270]

Bird's politeness: 

"Bird...insisted on calling the commissioner Mr. Stern." (pp. 107) 

Chuck Thompson's Smile When You're Lying

Thompson's Smile When You're Lying is the funniest book I've read since Sedaris' Me Talk Pretty One Day. Thompson writes travel stories you don't often hear about in the sanitized media, which include paintbrushing with unorthodox body parts, possibly being robbed by seemingly demure religious women, and writing love letters for food--and that's just the first chapter. Thompson knows how to write, is opinionated, and interesting, which usually produces a great book filled with unusual insights:

"[Bruce Lee's] kitty-cat squealing and falsetto yelping always conveyed to me an understanding of just how laughable all that in-your-face showboating is. I'm not sure what sound the koala makes in anger, but if I ever get back into kendo, that's the one I'm going to adopt as my battle cry." (p. 82, Holt Paperback)

Thompson's rants will become legendary in time--here's one on public school teachers:

"And, yes, poor unappreciated teachers. I did say sweet deal. American public school teachers have the world's best PR operation going. Whining every chance they get about how demanding their jobs are, how many 'extra hours' they put in, how little they make, how much of their own money they have to spend just to do their jobs, how noble they are working this job that nobody ever asked them to do--welcome to the f*cking world...

You think you got it tough? You don't got it tough. American teachers would crumble if they ever had to work the real hours of a cabbie, doctor, bartender, fisherman, truck driver, small-business owner, hotel clerk, mechanic, architect, janitor, musician, surveyor, accountant, or the million other jobs that don't observe weekends, much less every city, county, state, and federal holiday on the docket, almost three months' paid vacation a year, and pension programs funded out of the public trough. How is it we go through school painfully aware that half our teachers are lazy or incompetent or pathological control freaks, then turn around and let them convince us what a bunch of saints they are as soon as we become taxpayers?" (p. 100)

Thompson's views on Americans' general fear of traveling to South America are just as pellucid as his other opinions:

"Despite being home to Angel Falls, the Gran Sabana wilderness, and parts of the the Andes, Amazon River, and Carribbean coastline, fewer than half a million international visitors venture into the majestic Venezuelan countryside... This is in large part due to the fact that, fear being the lietmotif of all good propaganda, about 75 percent of Americans are convinced that any trip south of Texas will involve some combination of bribery, kidnapping, armed revolt, the most toxic GI diseases this side of the Congo, knives pulled in macho bar duels, and a probable colonoscopy at the border." (p. 118)

Thompson's ability to use sharp humor to defuse common misconceptions about travel and the world is unparalleled. One gets the feeling that he's kept all of his non-politically-correct secrets hidden to appease the gods of corporate fealty and finally decided to unleash his wisdom on all of us, decorum be damned. For example, we've all seen the alcohol ads go from Swedish bikini team to "drink responsibly" slogans. But after Thompson writes, "When the beer companies start running ads lecturing the public about responsible behavior, you sense a civilization in decline" (p. 129), you realize beer companies advocating responsibility does appear, on second glance, to be a strange combination. Those "a-ha" moments come regularly and wrapped in laugh-out-loud lines throughout the book. You owe it to yourself to read Smile When You're Lying, especially if you're looking for a good laugh.

(One point I feel compelled to make, in an act of true lawyer-ly nitpicking: Thompson bemoans traveolcity.com's attempt to increase sales using sexy women on its magazine cover, but his own book features a picture of a blonde woman in a bikini holding a margarita, beckoning readers with her pneumatic charms.)

Bonus (added on August 31, 2015): "If there were a fundamental principle that once separated America from the rest of the world, I'd nominate institutional integrity.  More simply, public honesty.  I'm not suggesting that dishonesty isn't readily found in every civilization, that a Golden Age of American honor ever existed...Nor am I parading myself as a paragon of virtue.  We all lie, to some degree, usually in petty ways, for the sake of discretion or keeping the peace or perhaps on occasion simply because it's the most expedient means available to get what we want.  Still, lying and cheating--perhaps other than to avoid hurting someone's feelings--has never been openly accepted or condoned in the United States, much less celebrated as a 'genius' operational tactic (when done with Rovian finesse) from the boardroom to the courtroom.  At least, not until recently....Worse, Americans seem to be reveling the descent...American society is no accident; it didn't evolve by providential decree; its success wasn't inevitable...Americans have historically understood that to create a country in which half the world aspires to live, the first prerequisite is the integrity of its public and private institutions.  That's the foundation upon which the country was assembled and its illustrious future once determined...What's being overlooked in the rush to save the planet, however, is that we're also pissing away a social gift as great as any people in history have been bequeathed.  And if we don't resist the seduction of the seemingly inevitable road in front of us, it won't matter how much fossil fuel we stop burning, we'll fail to preserve the part of us that mattered most in the first place." -- Chuck Thompson, To HellHoles and Back, pp. 309 et al, paperback, Henry Holt and Company. 

The Age of Turbulence, by Alan Greenspan

Greenspan's new book is the opposite of his opaque speeches to Congress; here, he's remarkably human and clear. There are several funny tidbits about his life, including a very obtuse, meandering dedication to him in his father's book when he was young, which may have influenced Greenspan more than he may want to admit. His love for his wife comes through loud and clear, and the book includes a delightful picture of him at the piano with her.

However, Greenspan offers nothing new or insightful in his book other than a life-changing interaction with Ayn Rand, which led him inexorably down the path of libertarianism. (And yes, that's a contradiction for a government economist, if you're keeping score.) His comments on over-dependence on foreign oil, "creative destruction" causing U.S. citizens to become concerned about their quality of life, corn-based ethanol being a boondoggle, warnings against protectionism and economic populism, etc.--this has all been said before, by someone else, somewhere else. Greenspan does advocate a higher tax on gasoline to reduce consumption, which is surprising for a libertarian, but again, not a new idea.

Greenspan also compares the U.S.'s main competitors, especially the U.K., Russia, Japan, France, Italy, and India. He concludes that India needs to overthrow its labyrinth bureaucracy to be competitive, France needs to reform its union-based employment system, Italy made a wise decision to join the EU, and Japan's emphasis on saving face may harm its future growth. He also contends, without saying so directly, that Russia may be the next rising power due to its natural resources and military strength.

Greenspan mentions that the currency markets are more difficult to manipulate than one might think, and points out that Japan bought 20 billion U.S. dollars in one day in 2004, and the dollar-yen exchange rate barely moved. On the other side of the currency divide is Argentina, and Greenspan briefly discusses Argentina's pegging of its currency to the dollar, which led to a financial restructuring. Again, nothing new is said, but Greenspan did have access to many high level politicians and economists, so he is able to discuss, for example, Gerald Ford's "ordinary Joe" persona with more credibility. (For the record, Greenspan did not like Nixon, but found him to be very intelligent, and mentions later in the book that until Clinton, he did not meet anyone as intelligent as Nixon in the White House.)

Although he offers nothing profoundly new (except for perhaps the role liquified natural gas might play in our future energy plans), Greenspan's book is pleasant to read and gives the reader an insight into his sense of humor and tastes. Greenspan's overall message seems to be that the U.S. owes the Constitution much credit as its backbone of stability; citizens should be careful not to revert to the old ideas of centralized government; and the Federal Reserve should maintain an environment of controlled optimism.

Borders and Iraq and War

I spent some time at the Santana Row Borders after work today. I was browsing through George Orwell's essays and Edmund Morris's The Rise of Theodore Roosevelt. Both books had interesting quotes that could apply to the war in Iraq:

Better to have an end full of horror than a horror without end.

Do they prefer the risks of a long peace? Or the certainty of a long war?

T.R. also has an interesting quote, "No triumph of peace is quite so great as the supreme triumphs of war." See http://www.claremont.org/publications/pubid.509/pub_detail.asp

To show you T.R.'s great complexity, I will leave you with some beautiful paragraphs from a letter T.R. wrote to a friend, the French poet Frederic Mistral:

"You teach a lesson which none more than the American people, ardent nation, anxious and desirous of acquiring riches, needs to learn. This lesson reminds us that after the acquisition of a relatively considerable material success, the things which really count in life are things of the spirit.

Industries and railroads have their value, of course, but courage and endurance, the love of our children, the love of our country and our hearths, the love and imitation of heroes and the heroic virtues, are really the highest things in life. Without them accumulated riches, imposing and widely heralded industrialism, feverish activities, are neither profitable to the individual or to the nation.

I do not underestimate the value of those things which are the body of the nation. I only desire that they shall not make us forget that beside the body there is a soul."

Nemesis: The Last Days of the American Republic, by Chalmers Johnson

Chalmers Johnson’s book, Nemesis: Last Days of the American Empire, sounds sensationalist. Unfortunately, the content is anything but, and even the most diehard patriot will feel deflated after seeing the vices of the Bush II presidency laid bare. On page 249 of the Metropolitan Books 2006 hardcover edition, Johnson quotes Judge Damon Keith, who wrote, “Democracies die behind closed doors...A government operating in the shadow of secrecy stands in complete opposition to the society envisioned by the Framers of the Constitution. When government begins closing doors, it selectively controls information rightfully belonging to the people. Selective information is misinformation.” Johnson also quotes James Madison, who wrote, “A popular government without popular information, or the means of acquiring it, is but a prologue to a farce or a tragedy, or perhaps both.” Johnson proves that Bush has used his executive power to prevent information from reaching American citizenry throughout his book. Johnson lists the Bush II administration’s acts and contrasts it with Rome and the original intent of America’s founders. While all of this may be old hat to anyone who’s been reading The Guardian or watching the BBC, the slow trickle of information provided to American citizens about the Bush II administration seems insufficient to cause anger because of the secrecy of the acts, the delayed reporting of the acts, and the lack of overt visual evidence of corruption (e.g., Does anyone believe the majority of Americans understand why Alberto Gonzales was forced to resign?). When we see the aggregate of what Bush has done from 2000 to 2007, what emerges is a deliberate intent to increase the executive branch’s power at the expense of privacy, currency, and decency. As a result, the Supreme Court in the 1952 case, Youngstown Sheet and Tube Company v. Sawyer, 343 U.S. 579, seems prescient: “The doctrine of separation of powers was adopted by the Convention of 1787 not to promote efficiency but to preclude the exercise of arbitrary power. The purpose was, not to avoid friction, but by means of inevitable friction incident to the distribution of the governmental powers among three departments, to save the people from autocracy.” For example, Johnson talks about the importance of the FOIA (Freedom of Information Act). He then tells us how Bush attempted to subvert the intent of the law by signing Executive Order 13233 as well as charging non-profits $372,999 for simple requests (p. 247, 248). Unsurprisingly, John Ashcroft, who administered the executive branch’s wishes, ordered the Department of Justice, the agency charged with enforcing civil rights, to limit FOIA requests, stating, “When you carefully consider FOIA requests and decide to withhold records, in whole or in part, you can be assured that the Department of Justice will defend your decisions unless they lack a sound legal basis.” In other words, the federal government intentionally encouraged its employees to withhold information from the people by charging excessively for information or redacting vital information. Of course, had the requests been ambiguous and voluminous, such an order would be reasonable, and the citzenry would understand if the FOIA were limited. In a time of war, and with the billions spent on defense, one wonders why Congress does not also authorize a separate budget for FOIA requests. Johnson mentions later that “as of 2006, the overall cost of the wars in Iraq and Afghanistan since their inception stood at about $450 billion” (p. 276). Johnson also reveals that Congress raised the national debt limit from $8.2 trillion to $8.96 trillion in 2006 (p. 270). This is a precursor to Johnson’s most sensationalist line in the entire book: “The likelihood is that the United States will maintain a facade of constitutional government and drift along until financial bankruptcy overtakes it.” In related news, Bernanke lowered interest rates today. In response, the Swiss Franc increased 0.41% in just one day. In the last three months, it has appreciated almost 5% against the American dollar. The Euro increased 0.82% today. In the last three months, it has appreciated around 4% against the American dollar. Since January 2006, it has appreciated over 14% against the U.S. dollar. The U.S. currency is depreciating, making it easier for foreign interests to buy U.S. property and assets. A country that cannot control its currency places itself at the mercy of foreign interests. Eisenhower knew this, and once said, “[T]o support progress in our country, and indeed throughout the free world, we must make certain that there is no cheapening, no debasement of our currency” (Presidential Reflections, 1960). Johnson does not merely expose the Bush II administration’s follies. He also uses his background as a former CIA analyst to explore missile defense expenditures and satellite technology. We learn that we have spent around $92.5 billion and $130 billion on “the basic problem of shooting down an ICBM in flight...without even once...succeeded in doing so” (p. 230). He also makes the important point that we are spending massive amounts of money on controlling space and missile defense, but terrorists are more likely to use a cargo container on a transport ship, or an offshore vessel, or the mail to attack Americans (p. 231). My personal belief is that the L.A. and New York/New Jersey ports are the most likely targets of terrorists because of their economic importance and the general hubbub that makes it easy to be anonymous. Yet, rather than spend vast sums of money increasing protection of these ports, it appears that Congress is diverting funds to save military and defense jobs in their own districts. Johnson makes this point in the 2005 film, Why We Fight, which is a good prologue to his book. Perhaps the most intriguing parts of Johnson’s book are his analysis of SOFA and space. He talks about how the most mundane tasks now use satellites, from the card scanner at Walmart, which uses the information to track inventory, to the Garmin GPS system in cars, television broadcasting, and even atomic clocks. He says that Congress has referred to an enemy “jamming” a satellite’s capabilities as one reason to spend billions on space defense, but that a simple missile launching of debris into space would be sufficient to endanger satellite capabilities. In one of the most interesting parts of the book, he quotes Sally Ride, who said that a “speck of paint” had dented a part of the space shuttle (p. 217). Apparently, given the velocities and gravitational forces in space, tiny objects can have extremely powerful impacts (I knew that I would weigh more in certain parts of space, but I hadn’t connected this knowledge to debris damaging satellites). Ms. Fields’ writes, “[T]he analysis afterward showed that our window had been hit by an orbiting fleck of paint, and the relative velocities were enough that the paint actually made a small but visible gouge in the window.” She then goes on to say that as soon as you increase the junk in space, the more likely it is that junk will impact expensive satellites. (So much for dumping our waste in space in case we run out of landfills on Earth.) This is Johnson’s point–that the more things we send into space, the higher the likelihood of polluting space to the extent that our ability to maneuver there becomes impossible. See Primack, who says, “Weaponization of space would make the debris problem much worse, and even one war in space could encase the entire planet in a shell of whizzing debris that would thereafter make space near the Earth high hazardous for peaceful [space exploration] as well as military purposes” (p. 217). Again, Johnson seems to say that much of missile defense and space weaponry research is a boondoggle, to the tune of billions of dollars per year (the satellite expenditures cost $97.2 billion dollars in 2004, with the U.S. spending three-quarters of this amount) (p. 237). At the beginning of the book, Johnson stated, “It is a sad fact that the U.S. no longer manufactures much–with the exception of weaponry” (p. 5). Johnson also talks about SOFA and Japanese-American relations, which is his specialty. SOFAs are Status of Forces Agreements. They basically exempt American soldiers from international law. When such soldiers rape women and pollute local cities, they can return to the base, where they cannot be interrogated by local police. Johnson brings up this aspect of international relations to show American arrogance when dealing with other countries. The flip side of the coin is that American soldiers are in other countries to protect them and forcing consent to local laws would add an unnecessary layer of bureaucracy; however, when Johnson tells us that American soldiers in Okinawa are responsible for raping local women around once a month, including ten year old girls, the agreements seem to provide excessive immunity and be a moral hazard. What is interesting about this section is that Japan’s pacifism, enshrined in law under Article 9 after WWII, is apparently a fiction: “Japan, with 139 warships, now has the second most powerful navy on the planet. Its army, navy, and air force has a total of 239,000 officers and men, deploys 452 combat aircraft, and is financed by a budget roughly equal to China’s military expenditures” (p. 203). Japan, of course, needs oil from the Middle East to sustain its economy and also fears a rising China, which is still stinging from its treatment during WWII, and the Japanese failure to apologize for “comfort women.” (Even countries that strive for racial harmony, like Singapore, still have public exhibits showing how the Japanese tortured POWs and civilians.) Johnson does a terrific job of showing that American-Japanese policies seem to be headed towards an inevitable clash with China, which is angling for more international respect. While he is extremely harsh on U.S. policies, which are based on realpolitik, Johnson forces the reader to see the problems of being the world’s policeman. It is unlikely, for instance, that the Canadians and Swiss have similar problems as the U.S. Johnson indicates that there are two paths: one, be like the Roman Empire, refuse to give up the military bases (de facto territories) we have, and collapse; or two, be like the British, who eventually repudiated their empire and focused on domestic issues. Johnson’s other interesting point is that where the U.S. has intervened, we have made the countries worse off, relatively speaking. He mentions the Philippines, which is not doing as well as its neighbors in Southeast Asia who were not occupied by the U.S., such as Singapore, Vietnam, and Thailand. But Johnson’s analysis is debatable when it comes to other countries, such as Chile and Panama, and he conflates free markets with colonialism. Johnson is clearly anti-imperialist, so he does not give a balanced view. Joseph Nye’s words come to mind: “The biggest kid on the block always provokes a mixture of admiration and resentment.” In fact, Nye is the best counter-argument to Johnson. See Foreign Affairs, July 2003: “[T]he problem of creating an American empire might better be termed ‘imperial understretch.’ Neither the public nor Congress has proved willing to invest seriously in the instruments of nation building and governance, as opposed to military force. The entire allotment for the State Department and the U.S. Agency for International Development is only 1 percent of the federal budget. The United States spends nearly 16 times as much on its military, and there is little indication of change to come in this era of tax cuts and budget deficits. The U.S. military is designed for fighting rather than police work, and the Pentagon has cut back on training for peacekeeping operations.” More to the point, Nye points out that the defense expenditures for 2001 were only 3.2% of GDP. Even if they have increased to 5% of GDP after 2001, that is still a tiny percentage of GDP in exchange for ruling the world (healthcare costs, i.e. Medicare, Medicaid, may be 13% of GDP by 2060). The Roman Empire never had this kind of efficiency. Such efficiency brings us to the problem: perhaps it is so easy for the U.S. to dominate the world militarily that we can continue to be unilateral until a counterweight exists. But of course, we’ve been here before–it was called the Cold War, and it seemed unnecessary then, and it seems regressive now to return to that state of existence. Back to the book: Johnson spends the first half of it castigating the Bush administration, with gems such as this: “Secretary Rumsfeld[!] noted that international law allowed the use of force only to prevent future attacks and not for retribution...’No,’ the President yelled....‘I don’t care what the international lawyers say, we are going to kick some ass’” (p. 34). Later, Bush is shown ordering the New York Times to hold off on a story relating to FISA and warrant-less wiretapping in the name of “national security” (p. 255). The bastion of liberal news, the New York Times, actually went along with Bush and did not print the story until a year later, which caused a FISA court judge to voluntarily resign in protest (p. 255). Bush seems to provoke this reaction in many people: Judge J. Michael Luttig also resigned after being lied to by the Bush administration. Yet, with all of these facts laid bare, Americans aren’t crying out for impeachment or blood as our founders might have. The economist in me seems convinced that as long as the people are making money, they won’t care about external events. Most frightening of all, perhaps the current state of affairs can continue for another 100 years, because the weakening of the American dollar won’t be noticeable until many more Americans travel internationally, and most Americans won’t be traveling to Tokyo or London anytime soon. Even if Chinese products increase in price, there will be a Cambodia or African country to take its place, guaranteeing cheaper prices for years to come, and masking the decline of American primacy. As long as the American consumer is the master of the economic machine, perhaps current affairs will remain in its uneasy, simmering stasis.