Do Terrorists Get Frequent Flyer Miles?

The news is currently dominated by the "Christmas Day Bomber". Missed signs, missed cues, and missed opportunities on behalf of the U.S. Government. It is all very interesting, and frankly sad that we couldn't prevent this man from boarding an airplane after his own father warned the CIA of radical behavior. Outside of the obvious story highlighting our vulnerability, I found the continued fixation on airline terrorism very interesting. Why, in attacks on American civilians, are foreign terrorists so focused on airplanes?
After watching all the intense coverage of this latest terrorist act, I have to admit the underwear bomb is pretty clever, but I can’t help but wonder why a terrorist would put in the extra effort, risking failure, to attack a relatively difficult target. Having a bomb shaped and positioned in an anatomically sensitive area is a pretty sure way to get through airport security, even with a pat down body search. A passenger would be required to strip completely naked to even have a chance of finding this bomb. I have never seen such enthusiasm for a search in airport security (although it may exist for someone who should have been on a terrorist watch list) so I am not surprised it was successful. Anyone can admit (except for John Stewart) this was a creative method, one which fortunately has not been perfected. I am thankful for the concentration on a single target, but why do foreign terrorists employ these extraordinary efforts to attack an airplane? Living in New York City I may have a unique perspective but I see crowds of more than 200 (roughly the number of people on the flight) everyday. There are probably many more than 200 people in the subway I am currently riding in, which required far less than a metal detector to enter, all you need is $2.25. With so many soft targets there must be some x-factor gained by attacking an airplane, otherwise it doesn't make any sense.
In other countries the car bomb seems to be the weapon of choice for a terrorist plot, but in America I suppose planes have been iconic foreign terrorist targets for years[1]. My first real image of terrorism comes from watching footage of the hijacking of TWA flight 847 in Lebanon. There was also the more recent rehashing of the bombing of Pan Am flight 103 in 1988, which was brought back to the world stage this year with the release of the "Lockerbie Bomber". Americans are no strangers to airline terror, I was too young to really comprehend what was happening at the time but my very concept of terrorism starts with these images which I viewed years after they happened on the History Channel. These events stayed with me with the unrealistic comfort that they occurred in "another time" in the past. This all, of course, abruptly changed by the real time horrific images on September 11, 2001. A plane to me, and maybe many Americans, are a symbol of terrorism, and that might be why they are an ideal target.
I suppose it is possible that the symbol of terrorism is much stronger than the actual act of terrorism, hence the concentrated focus on airlines. This is an attack on our psyche. If the self proclaimed strongest military in the world can't keep its citizens safe from even a repeat target what hope do any of us have from being safe in our daily lives, when we ride the subway, go to school, to work.
Oddly enough, in the face of all the hysteria I have a strange feeling of indifference. I feel like the odds of stopping a determined terrorist are so low that I would be overwhelmed if I was constantly concerned with it, so I choose not to be. Instead I am personally vigilant and hope others are as well. I will take a page out of the book of the guy who apprehended the latest terrorist suspect as he attempted to set off his bomb. I vow that if someone tries to set off a bomb on the next plane I take I am going to throw down! But I am still going to fly without thinking twice. Is that arrogance or the American way?

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[1] The U.S. has also had experience with car bombs but it does not seem strongly connected with foreign terrorism. The Oklahoma City bombing was unfortunately the largest successful car bomb by size and impact, but this was a domestic act of terrorism. I would also be remiss not to also mention the 1993 bombing of the World Trade Center, which was an act of foreign terrorism, but it does not seem to carry the same scale of impact relative to other more recent terrorist acts.

Add Credit Suisse to the Axis of Evil

I hope everyone has read the articles this week in the Times and WSJ reporting on the half-billion dollar settlement with Credit Suisse for laundering money for Iran. I am truly overwhelmed by this story, and was even more shocked when I read the terms of the settlement. I cannot understand why the U.S. Government has not treated this issue with more severity.

The basic story is that Credit Suisse has settled a case accusing the Bank of purposefully facilitating illegal wire transfers to the U.S. from Iran and other sanctioned countries by disguising the country code in the routing numbers. The case was brought by New York City District Attorney, Robert Morgenthau, after a decade-long investigation. The plea levies a hefty fine on the second-largest bank in Switzerland in exchange for admitting fault and promising not to do it again. The only thing more disturbing than the idea of a bank actively circumventing a strict US sanction are the specific clients they had been doing it for: the Times reports that the Atomic Energy Organization of Iran and the Aerospace Industries Organization were two of the Bank's direct clients. Should it even be considered conjecture to assume this money was for materials related to nuclear weapons?

The biggest shocker about this story is the reaction of the U.S. Government. First, without making any assumptions, the Bank clearly violated economic sanctions that have been in effect for the better part of two decades. These sanctions are our only current resource to curb Iran's nuclear ambitions. They are recognized, and may soon be matched by the international community, through the United Nations. How can this Bank even begin to justify ignoring this policy?

Secondly, to add insult to injury, it seems likely the Bank facilitated Iran's ability to purchase nuclear related goods and/or services. Does this Suisse have a shred of moral fiber? I understand this is a private, profit-driven institution, but at what cost? Keeping nuclear weapons out of Iran may actually be the only thing the majority of this world agrees on!

This plea deal is nothing short of lunacy. The U.S. is involved in a simmering conflict with Iran, a country with nuclear ambitions that funds and supports terrorism throughout the world. With sanctions, we are waging a war of economics and Suisse is aiding the enemy. At the very least I think the Treasury should be freezing the Bank's U.S. assets and bar the Bank from any U.S. operation. Credit Suisse clearly has total disregard for U.S. law and interests, and should see real ramifications for its actions. If a bank will do all this for money, I think it sends a pretty clear message when your company is now barred from doing business in the largest economy in the world.

President Obama, Hilary Clinton, you want more effective sanctions? I can't think of a better gift, use it.

As a final point for this story. Where are the FBI, the Treasury, and Homeland Security in all this? How on earth did the little old NYC District Attorney Robert Morgenthau (literally old: he is in his 90s) nail this case down? Is anyone watching these things? Is it really as simple as disguising a routing number? No wonder this has been completely ineffective foreign policy. Someone better be stepping it up soon because Morgenthau is set to retire January first. Who will watch out for money laundering from the "evil doers" once he is gone?

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Is There Any Value in Education?

I read a disturbing article in the Wall Street Journal today talking about how difficult it has become to obtain a school loan. I could swear I have read this story before, but this article was particularly striking because it also discussed a rise in tuition for both public and private colleges, 6% and 4% respectively. The article simply states that the once-lucrative business of school loans has dried up and students are feeling the pinch, especially in an economy where many parents are out of work. The article made me really think about how the value of education may change in a post recession America.

The article headline, “Students Rely on Federal Loans to Pay Rising Tuition,” reminded me of a conversation I had with a close friend almost a year ago. We were sitting discussing the state of the world over a cup of coffee. At the time, he was a first-year med student at a state university. The school had just raised his tuition and we were discussing how this fit into the broader economic disaster that seemed to have no end in sight. Last year in New York, state schools raised tuition as a money generator for the State. With a dwindling tax base stemming from high unemployment, the State was trying to be creative with generating additional funding. At the time I thought this was brilliant from a public policy perspective. During a recession, as unemployment rises, tax revenue falls. But the last thing you want to do is add an additional tax burden onto the fragile bones of an economy. Solution? Cash in now on students who can defer the tax payment to a later date by taking out a larger school loan! My student friend listened politely, even agreed with me, but he didn't like it.

Yesterday’s article flipped my thinking on this whole issue. I am now more honed in on the scary fact that students can no longer leverage future income to meet their rise in tuition. By putting both tuition hikes and loan problems in the same article, a much larger issue seemed to appear (even though the article did not make the link). The value of the college grad in a post recession economy does not look good.

The credit issues our students are facing means our lending institutions do not believe a degree is as economically realistic as it used to be. What if a degree no longer guarantees students will make enough money after graduation to afford their debt service? The answer is what we are seeing in the market: the loans are drying up. A student in 2009 is becoming a bad business deal.

Making the business deal even worse is the rise in tuition. Schools (and governments) are hurting for money. Endowments took a hit but professors still need to be paid. It is making a degree with seemingly depreciating value more risky because of a higher cost. The conclusion one could draw is that we have reached the tipping point of risk/return. It no longer makes sense to lend additional funds to meet the rise in tuition because the long term return just isn't there.

Have we past the time when a college student could simply leverage their future potential to secure a loan?

It seems this market phenomenon is the recognition of a new risk factor related to future wages. I considered, but dismissed, the possibility that the currently high unemployment rate is an influencing these loan decisions. Unemployment trends are relatively quick, short term problems; the loans we are discussing are medium term with a minimum 14 year time horizon from issuance, since a student doesn't begin paying back until they graduate and I believe a typical payback term is 10 years. If we dismiss the short term unemployment factor, the alarming new risk is probably an anticipated drop in lifetime wages of a degree-holding worker, a really important medium- to long-term risk factor. In this case, loans are not made because the investment no longer creates an income (wages) that support the debt service. In short, the college degree is no longer worth its price tag.

How scary is that possibility?!

Venezuela: Going Nowhere -- Fast

It has recently become clear that Hugo Chavez, Venezuela's president, is going about setting up a coalition with one goal in mind: bringing about the fall of "The Empire," i.e.: the United States. He plans to do this by forming alliances with every unsavory country in the world, from North Korea and Russia, to Syria and Iran. He recently announced a deal with Iran to cooperate on nuclear work. France reminded him that Iran was prohibited from exporting its nuclear technology. In return for nuclear aid, Chavez has promised Iran shipments of oil, even though Venezuela can hardly refine enough to supply itself.

Is this something the United States needs to worry about? The short answer is yes. All the U.S. needs is for Iran to be additionally strengthened and for an anti-American alliance to form with a powerful country like Russia involved. The long answer first requires answering another question: will this help Venezuela or Hugo Chavez?

It's hard to see how this could help Venezuela or its people. By forging an alliance that includes Iran and North Korea, Venezuela is headed on a path to international isolation. Perhaps Chavez thinks that if he makes deals with Russia (arms) and China (oil), this will prevent isolation. On the latter half of this bet, at least, he may actually be right. China is hungering for natural resources like oil. It is not improbable that China might protect Venezuela with its Security Council veto, but only if things don't get too dicey.

But even so, this would not prevent political isolation and isolation in other economic areas. True, oil is an important export, and Venezuela has a lot of it, but it requires foreign investment in order to develop the oil fields, some of them off shore. This investment could be blocked. Besides, making Venezuela even more reliant on oil exports, and therefore the whims of the global oil price, is not something Chavez should wish for. The current crisis saw a large drop in the oil price, bringing trouble for Venezuela's budget. If Venezuela can no longer receive foreign investment, its current fields will dry up (Venezuela's oil production capacity has steadily dropped since Chavez came to power. One would think that a man who increases his country's dependency on one export would ensure the viability of that export's future).

The country is already fighting inflation, as the government has kept fiscal and monetary policy looser than it ought to. This has caused the black-market trade in bolivares to soar. This market indicates that the bolivar is worth a fraction of what the Venezuelan government maintains it is worth. Strict capital controls are in place to prevent a massive slide and the emptying of the central bank's foreign exchange reserves. Domestic industries are already complaining that the strict limits on conversion to the dollar are making it all but impossible to do business by cutting off imports to the country (which has in turn spurred inflation as imports become much more expensive). Chavez is also consolidating the economy under the control of his clan, which of course receives generous exceptions from the dollar-limit regime and import restrictions. High inflation, blocked imports, and extremely restricted access to industry for everyone not associated with the Chavez clan hardly sounds like a good recipe for economic success. Far from the modern socialist revolution Chavez claims to be bringing about, his revolution sounds like many sad stories we have heard before.

This brings us back to our longer answer to the first question: should the U.S. worry about this? In the long run, these policies will ruin Venezuela, which is certainly nothing to hope for on account of the innocent lives that will be ruined along with it. A nuclear Venezuela, or even just a more heavily armed one, is cause for worry about stability in the region. The real concern is that this could spark a South American arms race. Arms races tend to lead to fear mongering and radicalism. It is therefore much more the future of South America that is at stake than that of the United States's alleged "empire." Venezuela will hardly be able to pose a military threat to the United States, even if it becomes nuclear (see my article on North Korea and compare), and the U.S. relies economically very little on Venezuela, Russia, Iran, and North Korea, et al. The political and economic isolation that will be wrought upon Venezuela if it continues, including in South America (Mr. Chavez is not admired everywhere there, particularly in Colombia) will only serve to weaken Venezuela.

But weak states can become even more radicalized and dangerous. For this reason Venezuela, unlike North Korea, is not something the U.S. should write off. Its approach, however, must be multilateral. Unilateralism would play into Chavez's hands, who claims to be battling the evil that is the United States. Better would be to work to convince Chavez's potential allies that the U.S. is not the bad guy, but that Chavez, indeed, is. This can be done via a higher degree of cooperation and other incentives (free trade agreements, etc.). This would do nothing to convince Russia and China, of course, but I posit that they need little convincing anyway. Venezuela is being used by both. China and Russia (and all other countries) will act in their own interests, and these are unlikely to align with Chavez's that often. The point, then, is for the U.S. to make sure that other countries, who can be more effected by U.S. incentives, are convinced that it is not in their best interests to side with Chavez. Given Chavez's poor policies and overt hotheadedness, this should not even be particularly hard, particularly if the U.S. works to cultivate as broad an international consensus as possible. Venezuela is on a road to nowhere, that doesn't mean we all have to go along for the ride.

A tale of two countries: Brazil must decide if it would like to be Norway or the Netherlands -- or Venezuela

Brazil recently unveiled plans for its government to scoop up a large share of future oil profits from undersea drilling off its coast, where there are alleged to be up to 50 billion barrels of oil (The Economist). Is this good news or bad news for Brazil?

Oil and other valuable and tradeable natural resources have always been a mixed blessing. In well-governed countries that manage the resources properly and invest the resulting profits wisely, they can lead the country to greater prosperity. In poorly run countries or in countries where the resources and their profits, for whatever reason, are invested poorly, they can lead to political corruption and economic ruin.

An example with less of the former and more of the latter is the Netherlands. The discovery of oil proved not to be much of a blessing for the Netherlands. The sudden increase in export values caused a current account surplus, which in turn caused the Dutch currency to revalue to the point where other exporters in the Netherlands had difficulty competing in foreign markets and domestic producers had difficulty competing at home against cheaper, foreign rivals. The result was dubbed the "Dutch disease." This is one possibility for Brazil, but given Brazil's size, this is probably unlikely.

A further possibility is that things will work out in a way similar to Norway. There, the currency was not permitted to rise too far. Instead, money was siphoned off the top and exported, balancing the current account surplus with a capital account deficit. This has allowed Norway's exporters to continue to export (although they must be competitive, as Norway's currency is still quite expensive), and Norway's domestic producers to continue to be able to compete against outsiders. The cost: high taxes and a large sovereign wealth fund. The money in the fund will then later be used to fund Norway's transition from an oil-based economy to something else, and to slow the slide of the currency once the oil dries up. All in all a well-managed, prudent system.

These two cases show the impact oil can have on even wealthy countries with good governance. Either they take action to prevent the Dutch disease, or they succumb to it. But Brazil is vastly larger than either Norway or the Netherlands. Although it is better managed, it may be closer to compare Brazil with Mexico or Venezuela. These are two countries whose governments are heavily involved in the day-to-day procedures of oil drilling. Both governments also rely heavily on the oil for revenues. And in both countries, revenues are dwindling as oil fields dry up due to a lack of investment in, and technology for, new ones. Much of this is the result of taking too much of the profits and failing to reinvest them in discovering or accessing new fields. Another significant factor is a lack of private investment due to heavy restrictions placed on foreign firms, firms that have the necessary capital, expertise, and technology to get the stuff out of the ground in fields that are almost invariably getting more difficult to utilize (requiring a greater investment in capital and technology, as well as higher risk).

What should Brazil do? Taxation is the simplest method. Doesn't it make more sense for private companies to do the work finding and drilling fields? Isn't it better for private money to be invested to get the oil? And wouldn't everyone be more comfortable if private firms' money were being risked on fields that might not be viable, rather than public funds from citizens' taxes? Having the government run these operations, even if only partly, doesn't make a whole lot of sense. Furthermore, beyond economics, having a government-run organization is an invitation to cronyism and corruption, and may become a political liability. The argument that a government organization would be required to ensure equity and provide for social programs doesn't make any sense at all, either. Those aims can be achieved most easily and efficiently with sensible legislation, regulation, and taxes. No matter how you look at it, Brazil is probably going down the wrong track with its plans for big government in big oil. Let's hope they take a closer look at some other oil producers (Russia has similar problems to Mexico and Venezuela) before making their choice.

Gay Parade in Vienna? Don't Bother.

Well, the straight-rainbow flags have been up since sometime in June (official gay pride month, at least in the States, and apparently here, too), and so I knew it was time for the annual Regenbogenparade (Rainbow Parade) gay pride parade here in Vienna. Once again, I was dismayed to see how pathetic the festivities were. Floats? Cheap-looking things stuck on top of trucks (not covering them, like in New York). Stands and activities? Lamer than words can say. The "crowd" at the end of the parade, which this year was at much-too-small-and-devoid-of-grass Schwarzenbergplatz, or at least the part that didn't run for the hills immediately upon seeing the loser-esque display of homoparade-attempt-uality was drunken and throwing trash on the ground everywhere. What a place to hang out. Interested in a gay parade in Europe? Try Cologne (generally considered Europe's gay Mecca), or maybe Zurich (small, but I've heard it's good). I could imagine that London and Paris would be good, but I haven't heard much about them. Berlin should be good if you like bears and leather. But Vienna? Don't bother.

North Korea: Don't Worry

It's a totalitarian state with nuclear technology and an ideological slant against the rest of the world that also continually threatens the rest of the world with rockets and other attacks. Sounds scary. And indeed, North Korea shouldn't be underestimated. All of these things are true, and it has been launching ineffective rockets that may very well get more effective in the coming years. Still, I'm not worried.

There are a number of reasons why we should just roll our eyes and carry on with our business while Kim Jong-Il throws yet another tantrum. While it is true that assuming that foreign leaders are rational can be dangerous, it holds true in the overwhelming majority of situations. Although Kim and his forefathers have done many things that could be considered irrational from the point of view of the welfare of the citizens of North Korea, from the standpoint of keeping control of an entire country, they have actually been rather successful. There is little to suggest that Kim Jong-Il or anyone else in North Korea would like to see North Korea wiped out. Thus, I think we can fairly safely assume Kim is rational, if somewhat misguided.

Assuming he is rational, he has very few options. Who would North Korea attack and what could it possibly hope to gain from such an action? The easiest target would be Seoul South Korea, mere miles from the border to North Korea. But again, what would that get North Korea? It would likely result in a UN-sanctioned attack on North Korea, something Obama would not shy away from with widespread international support. Besides, there does seem to be some feeling of brotherhood with their relatives to the south, so killing millions hardly seems likely. How about Japan or the United States, two countries North Korea loathes? Again, wrath, probably much more so than even with an attack against South Korea. This could lead to the re-militarization of Japan and the destabilization of the entire region, something China would desperately seek to hinder. So what about China? China is the closest thing North Korea has to an ally. It would be madness to attack it and that therefore seems highly unlikely. I'm sure anyone can imagine the result if North Korea really succeeded in attacking the United States, especially if Americans were killed. The United States may have shown itself not to be omnipotent, but a country would still be incredibly foolhardy to provoke an attack from it.

Taking all this into account, North Korea is fenced in. It may sometimes seem that China is helping North Korea, but this isn't really true. China pushes other countries to respect North Korean sovereignty for two reasons: it wishes others to do the same with China, and it has no interest in seeing North Korea collapse and then having to deal with a flood of refugees over the border into China. At the same time, China has no desire to have a nuclear competitor as a neighbor. Its siding with North Korea may also stem partly from a desire to snub the West a bit, but at the end of the day, China wants to maintain its predominance (shared with the U.S.) in the region and doesn't want any new dangerous competitors. It may be happy, though, to play North Korea off the West and Japan in the meantime to deflect attention away from itself. This is also all purely rational. Although China's interests are not 100% in line with those of the U.S., they are also not really against them.

A student of mine (Austrian) also let me in on what he was more afraid of: that the U.S. would be hasty and attack North Korea. Here, too, I told him, he could relax. The reason? China, once again. China would be extremely angered by such a move and has too much leverage in the region. No president would endanger relations with such a powerful and important trading partner. Even George Bush realized that. For that reason, an unprovoked (by which I mean that North Korea does not openly attack the U.S. or Americans) U.S. invasion or military engagement against North Korea is extremely unlikely, even before looking at other factors. These factors include the massive debt the U.S. has built and its large deficits, its fighting (or nation-building/peacekeeping, whatever you'd like to call it) on two fronts (Iraq and Afghanistan), and, finally, Barack Obama's presidency, which promises to be a more thoughtful, cautious, and calculating one. All of these factors make it almost inconceivable that the U.S. would do anything militarily against North Korea. Kim Jong-Il knows this, and is pushing his limits and showing his muscle. But that's all it is: show, a demand for more respect.

In the meantime, I propose a sliding scale system of benefits for North Korea, which, once established, would be non-negotiable. This would let North Korea know that it will always be rewarded for doing good things, punished for doing bad, and this always automatically, non-negotiably, instantaneously, and in a predictable and transparent manner. This would prevent North Korea's leaders, current or future, from using tantrums to try to extract more goodies. The only way they could get more would be by improving. Those same benefits would then automatically and immediately be eliminated if things devolved again.

North Korea probably won't stay like this forever, but it is anyone's guess as to how much longer it will remain as it is. Maybe change will come with Kim Jong-Il's passing - maybe not. In the meantime, we should engage North Korea, but not pander to it. By being clear on exactly what consequences which moves will have, we can make it more likely that North Korea will respond positively. If not, it's Kim's loss, not ours. It may be a pity, but that's the way it is. In any case, its threat, though not to be underestimated, especially for its destabilizing effects for the region, should also not be exaggerated.

No Love for Ben

It was not too long ago that our economy seemed to be at the brink of collapse. Just about a year ago, last March, Bear Stearns was the first to fall. A few short months later, in September, another Wall Street financial titan, Leahman Brothers, crumbled under its own weight. We were at war and we had two Generals, Ben Bernanke and Henry Paulson, and neither disappointed. The U.S. was lucky: with a academic who has an affinity for Depression-era economics (Bernake) and a brilliant Wall Street mind (Paulson), we had a fighting chance. But to my surprise, as soon as things start to calm down, our lawmakers are beginning to seem a bit unappreciative.

Right next to Michael Jackson's picture in the Wall Street Journal this morning was this article (abridged online) detailing Ben Bernanke's contentious hearing in front of Congress Yesterday. The purpose of the hearing was to examine the decisions made during our time of war, with particular attention to the BofA takeover of Merrill. These hearings are missing the big picture, not looking at the cause for instability, but instead trying to answer the thousands of what ifs.

Our economy, at its core, is based on a single concept...confidence. Everything revolves around trust. Trust the dollar I put into a bank today will be there tomorrow, trust that I have the ability to purchase things today because I will have a job tomorrow, trust that if I make a loan to the government they will honor it tomorrow. Even our use of dollars is an inherent trust that our government is supporting our currency as legal tender. Breaking this trust has more dire consequences than any Bernie Madoff, Enron, or a dot-com bubble. Without trust nothing works. As the pillars of the economy started to wobble, and doubt filled the minds of every person around the world, Ben stepped up and reestablished our trust.

It is popular opinion (if not fact) that the major error of fiscal policy during the Great Depression was to allow banks to fail. Possibly the only thing worse than the failure of a financial system is the nationalization of one. The ripple effect that follows the loss of confidence in an economy is an irreversible fear that can bring any country to its knees. One only needs a refresher on any monetary crisis (don't have to go too far into history, just look at Iceland) to see how this break down of trust can destroy an economy. Merrill, and many other banks, were going to fail; the foundation was cracking. Our generals used everything at their disposal to hold it all together. From where I sit today, it looks like the worst is behind us and we should thank Ben for his help.

Instead Democrats feel he was too secretive (must have forgotten to write up enough memos as he was saving the world), Republicans think he has too much power (maybe we should have waited for them to vote on it, that worked really well when the house rejected TARP... 777 drop?). At the end of the day the world was in panic mode, faith in the economy was at one of its lowest levels, and I do not think we made it through by accident.

Ben used his brilliance, and all the leverage he had. He may have used brute force to hold things together, but during a time of war there is a need for action. There were definitely some casualties, but the flag still stands and now the general deserves a medal, or at least a full night's sleep!

The Justice Department and Gay Marriage

If you know me, you would probably never expect me to speak out defending the federal government when it defends itself for discriminating against gays and lesbians, but that's what I'm about to do.

A recent article in the Advocate, a GLBT news magazine criticizes the Justice Department for defending the "Defense of Marriage Act" (DOMA), which defines marriage on the federal level as between a man and a woman. Gay rights activists see this as betrayal. This is overly dramatic, but may just be a good rhetorical tool for calling attention to inequality. Although I would consider myself to be a gay rights activist, too, and I also vehemently oppose the DOMA for some very personal reasons (it's blocking my boyfriend and myself from being able to move to the States, as he can't get a green card for the States yet), this is not really a betrayal.

Activists point out that Obama claimed to be against the DOMA. But this position is reiterated in the brief from the Justice Department. However, whatever Obama would like, it is up to Congress to change the law by passing a bill, which he would then presumably sign into law, overturning the DOMA. In the meantime, it is only natural that the Justice Department would defend the DOMA: that's its job. It's part of the executive, which means it is charged with enforcing laws, not interpreting them or deciding if they are fair or constitutional (that would be the courts' job) or deciding if they should be replaced by other laws or changed in some way (that's the job of the legislature, in this case Congress). Furthermore, it is right that there is currently no federal legal precedent that would in any way suggest that the DOMA is unconstitutional (unfortunately). It is possible that the Supreme Court would simply decide otherwise, but it is unlikely to even hear the case, choosing to leave the can of worms closed. Again, this is a legislative issue, not an executive or even judicial one.

That said, if this is a rhetorical weapon, it may just work. I think Obama will now know we're watching. More importantly: Congress will know this, too. They are the ones that must make the first move. The move would be very controversial, and tantamount to allowing gay marriage throughout the 50 states. Though they would not all have to allow same-sex marriages to be performed in their own states, federal recognition would mean they would all have to recognize marriages performed elsewhere. There are many constituents in conservative states, even ones who vote democratic, who would not be happy about this. It would be a risky move. It is therefore unsurprising that Congress is taking its time.

In the end, of course, I hope they find the courage to do the right thing and get rid of the DOMA, but it's going to be a BIG deal if they do. In the meantime, neither the Department of Justice nor Obama himself have proved themselves to be traitors. If you want to bark up the right tree, call your state senators and representatives and tell them to get on it!

Obama and Iran: The (U.S.) President Has the Right Idea

Street protests have broken out in Iran, at times becoming violent. They will probably get more so, especially if the government decides to crack down on protesters, which it probably will. This has all happened due to the Iranian presidential election, which is believed to have been rigged so that the incumbent, Mahmoud Ahmadinejad, was declared the winner a suspiciously short time after the polls closed.

Ah, a new Iranian revolution? The moment we've been waiting for? Time for America to rush in? Some seem to think so. That would be asinine.

President Obama's current course (he expressed doubts about the election and that he would support free elections in Iran, but stated that it was up to Iranians to decide who would lead Iran) is the right one. What would those who disagree have him do? Speaking out in favor of the opposition would endanger that very opposition by making it look like it was backed by America, something that would not go over well in a country with a fairly high degree of anti-American sentiment (sentiment left over from when the CIA toppled their democratically elected leader and installed a more West-friendly monarch who ruled over the country for decades and bashed any oppositional voices, though his abuses arguably pale in comparison to the current regime's). What's more, it is unlikely the opposition candidate will come to power, and Barack Obama will have to deal with whomever is in power, probably Ahmadinejad. Acting to back the opposition in any way would make relations with him even more difficult.

Buit even leaving all that aside for a moment: what practical choice does he have? Since no words, whether harsh or soothing, will change the course of events in Iran, the only option would be some sort of intervention. Does anyone really think the U.S. is in a position to intervene in a country several times the size of Iraq that cannot in any way be conceived to wish for this intervention when it is already fighting wars on two fronts and running up a massive bill trying to rescue its own economy from collapse? Not to mention the long-term negative effects yet another Middle East intervention would have on the U.S.'s ability to cooperate with and influence other nations. It would increase anti-Americanism, making any progress in problem areas impossible, and further alienate our allies.

Intervention would be madness, and choosing sides would clearly do more harm than good. Plus, implying support (physically) for a revolution and not being able to back up the promises with actions would endanger the lives of thousands of Iranians if they started a civil war expecting the U.S. to intervene (which is albeit unlikely, since they do not wish to see any U.S. intervention anyway, regardless of what happens).

Given the utter lack of viable alternatives, Obama seems to have chosen the best (or least bad) policy. The greatest thing that Obama has shown since becoming president is not whether he is left or center, but that he is a pragmatist and understands the complexity of the situations that he could so direly influence. For me, at least, this is a relief.

The protests in Iran are heartening because they prove what many have said: Iran is not monolithic, and many of its citizens would like to see bigger reforms and more freedoms. That's a critical first step, but these things have to go inside-out. For now, our focus needs to be on getting Iran to become a better global citizen externally. Easing tensions between Iran, (would-be) Palestine, Israel, and the United States is where we need to focus our attention now. A patient who has no pulse and has broken a leg is best helped by addressing the stopped heart first, we can handle the broken leg later if the patient can be resucitated.

The IMF: learning from its mistakes, or too soft?

The International Monetary Fund has always been subject to criticism for its hard line on desperate countries. It is a fund that was set up at the end of WWII in order to insure monetary stability in North America and Western Europe. It soon took on that role for the rest of the world as well. At first, it was designed to help countries maintain fixed exchange rates by assisting them in handling balance of payments problems. These occur when a country's current (mostly trade, but also things like aid and interest payments on loans and investments) and capital accounts (mostly loans in or out) do not balance. With floating exchange rates, such a "problem" would simply cause the currency to rise or fall to adjust. In the world of fixed exchange rates from the end of WWII to around 1973, this was not possible. The IMF was meant to lend between countries to help them adjust. It's success was limited.

The IMF has arguably been much more successful in its later role as a lender of last, last resort (the lender of last resort is a country's central bank, the IMF then comes when the country itself needs help). When a country gets into a nasty crisis, generally because of too much debt, so that the country is be unable to pay the interest on debt from foreign creditors, the IMF loans the country money at a discounted rate to help it out of the crisis.

This aid is not without cost, however. There are strings attached: the countries must balance their budgets and pay down debt by cutting spending and raising taxes. They must also fix the imbalances (usually current account deficits, mostly made up of trade deficits) that led to the crisis by lowering wages and prices to make their goods more competitive and to curb demand. The name for this is retrenchment, and it means a lot of suffering for everyone in the economy, but is a necessary move to make the country run better and make it sustainable. It is the only way the IMF could be (fairly) certain it gets its money back.

The other good reason to be tough: it discourages lax behavior in the first place by making sure no one turns to the IMF unless absolutely necessary. Governments do everything else in their power first. Otherwise, governments might run bad policies and then just wait to be bailed out.

Or so the theory.

The Asian debt crisis of 1997-98 changed the perspective for many. The Asian governments generally did not have terribly high debt. Their countries were suffering from a different kind of crisis, much like the one the rich world (and now everyone else) is suffering from now. The answer should have been more government spending to boost flagging demand, not less. The argument is that the austerity measures forced by the IMF actually made the recessions in Asia much more severe than they had to be.

The IMF learned from this. It is now lending almost no-strings-attached to a number of weaker countries hit by the current economic crisis. Is this a rational response to a crisis where boosting demand could help bridge the recession? Or is this niceness coming at the risk of being too soft, causing countries to become too reliant on the IMF in the future?

The new, friendly IMF is probably only a temporary response to the current crisis. But even if it isn't, the old criticisms of the IMF were valid. The prescription of currency devaluation, tax hikes, spending cuts, privatization, and deregulation is not always the best answer. For governments who get themselves into a mess via their own profligacy, though, it really is. I would hope the IMF remains tough on them in the future. Most of the Asian countries, however, were not profligate, but rather suffered from currency speculation and a rather heavy indebtedness of the private sector, not the government (largely due to financial market deregulation at the behest of Washington-based organizations like the IMF!). Had their currencies been free-floating (as they are now), this likely would not have happened (the currency speculation would not have occurred and there probably would have been less borrowing in foreign currencies with the expectation that the fixed exchange rate would hold).

Hopefully, the new IMF is one that differentiates, rather than having a standard set of one-size-fits-all prescriptions that obviously don't fit all. One thing this crisis has shown: the world still needs the IMF, and it still has a critical role to play in world financial stability. Previously, the IMF's nastiness almost did it in, as countries wouldn't turn to the IMF no matter what, and countries like China contemplated making their own pooled funds as an alternative to the IMF's (western/U.S. dominated) meanness. Let's hope it contributes to stability and doesn't encourage profligacy, and that it remains the only lender of last-last resort. A competition among lenders could lead to destabilization as they all get friendlier. It would also be a waste of money, hording cash with IMF-like funds around the world rather than using that cash for something else. As is so often the case, it's all about balance.

The Green Economic Revolution: Will it Destroy Our Economy?

By Charles Kirchofer, April 4th, 2009

Barack Obama and other world leaders have been talking a lot about a sort of green industrial revolution. The hope is that this will create new, high tech jobs, reduce the US and other western countries' dependence on foreign oil and energy supplies, and, of course, help the environment by curbing greenhouse gas emissions, along with other environmental benefits. These benefits, it is hoped, will outweigh the costs. Sure, some jobs will be destroyed by higher energy prices and/or taxes, but these will be replaced by a plethora of jobs in green energy and in other areas that benefit from the technology developed in the green energy sector. The reductions in greenhouse gas emissions will benefit the world by saving it money on things like building dikes and levees and transporting water to newly dried out regions, not to mention the benefits received by the world's poorest, who will all too often be unlikely to implement such measures to protect themselves from climate change. The benefits to security and political stability are clear: the US will enjoy greater security and independence, fights over oil will be less likely and will open the door to fair negotiations on peace in the Middle East, or so it is hoped.

But will all that is hoped for really happen? I think this depends more on the way the plans are enacted than on whether they are enacted. There are good ways and bad ways to do just about everything. Unfortunately, from what I've heard so far, Congress is looking to do it the bad way, although there is hope that a more pragmatic Obama may lead them to better decisions.

Cap and trade: Why it's a good idea
An externality is something a company produces that it cannot charge for (or is not charged for). They can be positive or negative. For example, an externality of Coca-Cola advertising for its products is that some people might to be enticed to buy cola in general, but not necessarily Coke. In this way, Coke's advertising provides a service for all cola producers that they don't have to pay for - a positive externality. Pollution is a perfect example of a negative externality. Companies (and people) produce it, and the cost is spread around to everyone. Negative externalities are examples of market failures, areas where the market does not provide the best result for everyone. In these situations, government must step in. No one would argue that the government should let companies dump toxic chemicals into our water supplies, etc. All right, but the way government steps in is perhaps more important than whether it does.

CO₂ production is a perfect example. It costs everyone, but the costs are not immediate and are not felt by its producers. There are two ways to make the costs more immediate: a carbon tax and a cap-and-trade system. Though it is more complicated, I prefer a cap-and-trade system because it encourages carbon emitters to either reduce or balance their emissions, both of which can be beneficial. With a carbon tax, this flexibility does not exist. The great thing about the balancing is that companies would then have an incentive, for instance, to buy up plots of rainforest and protect them. This is a double-edged sword of adding value to rainforests and natural lands (which are valuable, but their monetary value is generally underpriced) and increasing the immediate costs of releasing carbon. The flexibility would also allow companies to decide themselves the best way to invest money: buy more carbon credits, reduce carbon emission by increasing efficiency or changing energy supplies, or acquiring more credits through the purchase and maintenance of natural areas, which would allow them to "grow" their own carbon credits. In the future, some companies might exist only on the basis of "producing" carbon credits through conservation. The number of credits in the system would be reduced each year in such a way that the price of carbon rises at a somewhat faster rate than inflation, but not so fast that it kills industry.

Cap and trade: Difficulties
Cap and trade is not without its political difficulties. Aside from cost concerns (which can be continually adjusted, by the way), senators from states that rely heavily on coal and other carbon-intensive industries don't like the idea. Cap and trade would hurt their states more than others. This is where the inefficient politics of earmarks comes in. It might be necessary to divert some of the proceeds from the cap-and-trade system back to the very states that pay most in the form of subsidies. This is perhaps not such a bad idea as long as the subsidies aren't flowing back into the very industries that are paying most. That would obviously be pointless. Instead, the money should be used to help states adapt. Besides, it is still unlikely that the demand for coal is just going to disappear - the carbon credits should not be so extreme. They should encourage a sustainable shift to greener methods. After all, we can't move away from coal if we have nowhere to move to. Coal will be made more expensive, but consumers will still pay for it until other possibilities arise. But those subsidies might help to make the shift for workers in those states affected easier.

This would still be OK. It is my feeling, however, that that should be the end of the subsidies. Once the market failure of negative carbon emission externalities is removed by the cap-and-trade plan, private investment will be able to provide the green solutions we need (after all, "necessity is the mother of invention"). I simply do not believe the government is good at picking the winning technologies. I also think private funds, not public ones, should be risked on the project. Big investments in infrastructure (like direct current transmission wires), due to their massive scope and scale, are an exception, as such a project can only succeed with government assistance. This doesn't mean that the government shouldn't help green technologies in other ways, for example by creating legislation conducive to the types of development needed (making it easier to get permits for windfarms and to use government land for them, for example). This way, the private sector can be steered to produce the technologies we desire, but will be encouraged to find the most efficient and cost effective technologies. This is something that happens less often when politicians, wedded to specific ideas and special interests, get involved. When a politician hears about something and turns it into a pet project, he or she is much less likely to abandon that project when it becomes apparent that it is destined to fail. CEOs are less sentimental.

Although Barack Obama might agree with the above plan (although he also plans to spend a lot more on subsidies than I would like), Congress looks set to mire the entire project in earmarks and subsidies that would drive up the cost of curbing emissions dramatically. In the end, such acts could end up getting repealed as their costs are seen. That would give green ideas in general a bad name, and that would be a real shame.

Oh yeah, and it's also time to divert agricultural subsidies into this project. They are not needed and they are hurting the poorest in developing countries. Agricultural subsidies currently cost more than a solar "Grand Plan" would cost. They are politically popular, but hurt many and are a total waste of money and a misallocation of resources. Get rid of them!

Detecting and Controlling Housing Bubbles

By Charles Kirchofer, Feb. 20^th, 2009

I had originally intended to devote this post to an idea of how to control housing booms and target specifically asset prices that are rising in an economy as an alternative to the blunt (and at times ineffective) tool of interest rate increases. However, upon researching the matter further, I discovered the mere detection of a housing bubble is more difficult than I'd originally thought. Everyone knows that bubbles very often remain unidentified until after they burst. There are always some people shouting warnings, but they are often the ones who had said it would happen every year - when it didn't. All too often, the investment and regulatory communities stop listening to the investor who cried "bubble!"

But then I thought, "geez, I knew it was a bubble... I think." Indeed, Alan Greenspan had even suggested that we might be looking at a bubble. The amount this concerned him was, we know now, not enough to mobilize him to avert a crisis. It's clear that he did not see the true nature of what was coming. Of course, the housing bubble was not the only cause of our current woes, but it was a main contributor to the intermediate causes, or so it would seem (to read more about other intermediate causes, as well as the deep cause, check out our other posts (some of them coming later as Mr. Mohr joins and moves his posts to this blog from my old geocities website). So why didn't regulators step in? Surely a bubble bursting with kind of pow must have been foreseeable?

So I started doing some research. This is what I found:

Sale Price of New US Homes		House price	Boom gain/			Ratio Houses
Year (Dec)	Median Price	inflation	Bust loss	CPI inflation	Boom CPI	to CPI boom
1980	$67,000.00	8.9%		13.52%
1981	$68,400.00	2.1%		10.38%
1982	$71,700.00	4.8%		6.13%
1983	$75,900.00	5.9%		3.21%
1984	$78,300.00	3.2%		4.32%
1985	$87,900.00	12.3%		3.56%
1986	$95,000.00	8.1%		1.86%
1987	$111,800.00	17.7%		3.65%
1988	$121,000.00	8.2%		4.14%
1989	$125,200.00	3.5%		4.82%
1990	$127,000.00	1.4%	189.6%	5.40%	4.72%	4 to 1
1991	$122,000.00	-3.9%		4.21%
1992	$126,000.00	3.3%		3.01%
1993	$125,000.00	-0.8%		2.99%
1994	$135,000.00	8.0%		2.56%
1995	$138,600.00	2.7%		2.83%
1996	$144,900.00	4.5%		2.95%
1997	$145,900.00	0.7%		2.29%
1998	$152,500.00	4.5%		1.56%
1999	$164,800.00	8.1%		2.21%
2000	$162,000.00	-1.7%		3.36%
2001	$180,200.00	11.2%		2.85%
2002	$197,600.00	9.7%	58.1%	1.58%	2.46%	2.6 to 1
2003	$196,000.00	-0.8%		2.28%
2004	$229,600.00	17.1%		2.66%
2005	$238,600.00	3.9%		3.39%
2006	$244,700.00	2.6%	24.8%	3.23%	3.09%	2.7 to 1
2007	$227,700.00	-6.9%		2.85%
2008	$206,500.00	-9.3%	-15.6%	3.84%
Sources:	http://www.census.gov/const/uspricemon.pdf
	http://www.measuringworth.com/calculators/inflation

OK, I know it's a lot of information, so I'll break it down now. Notice the column boom gain/bust loss. The inflation of house prices is staggering, especially when compared to consumer price inflation in the next column. What's even more noticeable is the growth during the boom of the 80s. During the 80s house prices rose by over 189% compared to a rise of just 47.2% in consumer prices in the same period. That's a ratio of more than 4 to 1! This of course ended in the Saving and Loan Crisis of the late 80s and early 90s. As a result, house prices remained stagnant in the early 90s, during which the U.S. also found itself in a recession. By 1993, however, things had recovered. Soon the recession was forgotten. There were small dips in house prices due to the 2000 dotcom crash and the 2002 recession in the wake of the September 11th attacks on the World Trade Center in New York. Otherwise, things were all up hill. Please note that I count the overall rise in house prices only during the boom years. The early 90s, therefore, have been left out. During the 2000 boom years, house prices grew, on average, around 2.6 times as fast as consumer prices. That's quick, but nothing like the rates seen in the '80s. After the brief dip in house prices after the 2002 recession, house prices began to rise yet again. We can see from the ratio, however, that they rose little faster than they did in the 1990s.

Looking at it this way, it is not surprising that many did not realize there was a housing bubble. What you may also notice, however, is that there are very few real "busts." I would hardly call one year where house prices fell only mildly a bust. You'll notice that from 1980 to 2006, house prices never fell for more than one year, and their largest fall in one year (December to December anyway) was 3.9%. It may therefore be more accurate to look at the whole situation from the late 1970s until 2006 as one long, nearly continuous housing boom interrupted by a few short breathers, most notably in the early '90s.

Also of note is the steady fall in household saving rates (not in the table). These peaked in 1981 at somewhere around 12% and fell steadily through 2005, when they even became negative. For comparison, the rate in the 50s and 60s was around 7.5%.

So what's to make of all this? I have already alluded to my opinion (which isn't really anything new): We've witnessed one long, credit-fueled housing boom from the late 1970s until 2006. So what does this mean for regulatory policy?

It means the Federal Reserve and other regulators may have to start reacting to things other than inflation. Looking at the data, however, it's easy to see why they didn't realize this. The "end" of the 80s housing boom resulted in a couple years of housing market stagnation and relatively mild recession. The U.S. economy got through it with little difficulty. The same is even more true of the dotcom crash and the 2002 recession. After all, if the U.S. economy could snap right back into growth again after terrorist attacks on one of its largest financial centers and keep growing right through a war with rising oil prices, they must be doing something right.

So what should regulators react to and how? They should react to a whole myriad of things the Fed has been tracking all along (but not necessarily regulating) in addition to consumer price inflation; like house price inflation, household saving rates, and mortgage down payment requirements. I think the Fed might want to use interest rates to influence saving rates in the future. Saving rates as high as those in the early 80s, when combined with low inflation (unlike the early 80s), may be too high. Conversely, saving rates below 5%, even when inflation is low, might signal problems on the horizon. Much was said in this direction during the '90s and 2000s, but no one reacted because of uncertainty about just what the figures meant. I think now it would be reasonable for the Fed to raise interest rates during times of low inflation (and even fairly slow economic growth) to increase household saving rates if necessary to stop a credit-fueled rise in house prices or even stocks or other investments not counted in the consumer price index (a common measure of inflation). This goes along with my article on global imbalances in saving and borrowing, half of which begins at home (the borrowing part).

The other thing the regulators ought to look at is house price inflation. We've seen that house prices can inflate for decades without causing problems (at least right away). I postulate that house price inflation, despite relatively low consumer price inflation, coupled with declining household savings (certainly becoming critical when they drop below 3 to 5%) is a toxic mix to be steered against. For this (and for other types pf asset price inflation), I would recommend a more precise attack, possibly in addition to higher interest rates, to spur household saving. One possibility would be increased down payment requirements. Down payments averaged over 31% of the price of a home in 1982. From there they dropped steadily until reaching a low of 19.2% in 1994, a level that was again approached in 2007.

But it is perhaps not the average rate that is of greatest concern. So far house prices have not fallen so far that they've caused negative equity on the average. In spite of that, negative equity is occurring with alarming frequency, even if not to the "average" mortgage. Mortgages with no money down are a bad idea, particularly when the toxic mixture I mention above is present. In times when the conditions above are present, I would recommend setting down payment requirements up to as much as 20-30% for all mortgages, not just the average mortgage (and no exceptions or loopholes, which was the main problem recently, not that banks suddenly thought mortgages with no money down were necessarily good). This would serve to slow the inflation of the bubble, as houses become somewhat more difficult to buy. This reduces the incentive for speculation with real estate as well, another cause of many of the headaches. Finally, it would cushion the bursting of any bubble that managed to form by ensuring that any mortgages made are placed on a sound footing and that negative equity is avoided, thereby not providing an incentive for homeowners to just walk away. Of course, as I've mentioned in previous articles, teaser rates and the like should be outlawed (see Mr. Mohr's article on teaser rates for more information (move from old site pending)).

This outline is vague. I also am well aware that over-regulating the market could strangle it, preventing American families that otherwise might be able to buy a home from having one. That would certainly be unfortunate. As I'm not an expert on public economic policy details, I leave this to the experts to hopefully find the right balance. One thing is clear, however, the current balance isn't right.

How same-sex marriage destroys opposite-sex marriage, and what we can do about it.

By Charles P. Kirchofer, Oct. 29^th, 2008

The religious right is always telling us that same-sex marriage destroys marriage for everyone else. I just couldn't wrap my head around that, but today I figured it out. The religious right has simply had problems with the word "destroy." The following are a series of questions and answers that lead me to the correct definition of destroy that the religious right must be using. I then offer a solution as a sort of compromise.

Does the marriage of a same-sex couple cause your marriage no longer to be recognized by the state? No.
Does the marriage of a same-sex couple cause your marriage no longer to be recognized by god? No.
Hmm, still seems fairly undestroyed. Maybe it's the "fabric of the American family" itself that is somehow damaged.

Does same-sex marriage make you more likely to divorce your husband or wife? No, unless you're gay too, I would imagine, but then we need to be having a different conversation.
Does same-sex marriage make you beat your kids? No, I don't see a connection there. If same-sex marriage has led you to beat your children, please feel free to describe the incidents in the comments section and explain what led you to the beatings. Please don't forget to include your real name and home address (note, comment postings are not made in confidence).
Does same sex marriage make you love your own family less? I assume not.

Hmm, that must not be what they're talking about either. If you went to court and told the judge your neighbor destroyed something of yours, you'd have to show that it was indeed destroyed and if and how your neighbor did it. Let's try an example that will get us closer.

Plaintiff: Your honor, my neighbor destroyed my car.
Judge: The evidence I have here shows your car looks to be in mint condition. Is it in some way damaged?
Plaintiff: Yes!
Judge: ...how? Does it no longer run?
Plaintiff: No, it still runs.
Judge: Then what is the nature of the damage?
Plaintiff: Yeah, it's destroyed, the car is worthless!
Judge: Why is the car worthless? It looks fine and still drives. I fail to see the problem. How did the defendant destroy or damage your car? What exactly is it that the defendant has done?
Plaintiff: He bought one just like it, your honor.

Sound familiar?

I remember that when Cabbage Patch dolls were first introduced, they were extremely valuable, because they were rare. The destruction unleashed upon heterosexual marriage must therefore be a reduction in its exclusivity! That means the rarer marriage is, the more it's worth! Marriage is a commodity for the religious right, and the religious right is a cartel! Now I understand.

So what can we do to solve this? I propose we make an exchange as a compromise. We allow gays to marry, but provide divorce lawyers free of charge. That way the number of divorces will rise, ensuring that marriages remain as valuable a commodity as the religious right would like them to be. Then they can continue life with the knowledge that they belong to an exclusive club of owners of a rare good: marriage. That must be why divorce rates are so much higher in red states:

Red States			Blue States
State	Divorce Rate		State	Divorce Rate
IA	3,9		MA	2,4
NM	6,0		RI	3,2
OH*	4,5		VT	4,0
NV	9,0		NY	3,3
FL*	5,9		MD	3,5
CO	5,1		HI	4,2
MO	4,9		IL	3,7
VA	4,6		CT	2,8
WV	5,0		CA	4,3
AR	7,1		ME	4,4
AZ	5,8		DE	4,8
NC	5,1		NJ	3,0
TN	6,6		WA	5,6
LA	3,6		OR	5,3
SC	4,2		MN	3,6
GA	5,2		MI	4,1
KY	5,8		PA	3,3
MS	5,7		NH	4,4
MT	4,9		WI	3,4
IN	6,4		Mean	3,86
SD	4,2
TX	5,4		w/o OH, FL, PA, NV
AL	6,2		Red mean	5,3
KS	4,7		Blue mean	3,89
ND	3,4
AK	5,5
OK	6,7
NE	4,0
ID	6,2
WY	6,5
UT	4,7
Mean	5,4

Sources: http://www.divorcereform.org/94staterates.html
and http://electoral-vote.com/evp2006/Info/red-blue.html

Notice also the results when I removed the swing states (Ohio, Florida, and Pennsylvania) and Nevada (with the volume of weddings in Las Vegas, it would be unfair to include Nevada (divorce rate 9.0) in the mean). The result: the red states still have a significantly higher rate of divorces. I guess the religious right's plan for marriage exclusivity is well under way!