Making foreign policy decisions based on imperfect intelligence

Stephen Sestanovich is a senior fellow at the Council on Foreign Relations and a professor of international diplomacy at Columbia University. From 1997 to 2001 he was United States ambassador at large for the former Soviet Union.
In this intelligent NY Times Op-ed, Professor Sestanovich points out that key foreign policy decisions are often the product of imperfect intelligence and government officials’ reaction to it. Sensitive intelligence is often too weak to guide important decisions, and if the information fits what the governmental officials already believe — or what they want to do — it often gets too little scrutiny. He then relates a humorous story:

Most anyone who’s worked in government has a story – probably re-told often these days, given the Iraq debate – about facing a big decision on the basis of information that then turned out to be wrong. My favorite is from August 1998 when, with Bill Clinton just three days away from a trip to Moscow, the Central Intelligence Agency reported that President Boris Yeltsin of Russia was dead.
In 1998 the news that Mr. Yeltsin had died was, of course, no more surprising than the news, in 2003, that Iraq had weapons of mass destruction. It matched what we knew of his health and habits, and the secretive handling of his earlier illnesses. Nor was anyone puzzled by the lack of an announcement. Russia’s financial crash 10 days earlier had set off a political crisis, and we assumed a fierce Kremlin succession struggle was raging behind the scenes.
In the agonizing conference calls that ensued, all government agencies played their usual parts. The C.I.A. stood by its sources but was uncomfortable making any recommendation. National Security Council officials, knowing Mr. Clinton wasn’t eager for the trip, wanted to pull the plug immediately. The State Department (in this case, me) insisted we’d look pretty ridiculous canceling the meeting because Mr. Yeltsin was dead – only to discover that he wasn’t.
Eventually we decided that the Russians had to let the deputy secretary of state, Strobe Talbott, who was in Moscow for pre-summit meetings, see Mr. Yeltsin within 24 hours or the trip was off. Nothing else would convince us: no phone call, no television appearance, no doctor’s testimony. The next day Mr. Yeltsin, hale and hearty, greeted Mr. Talbott in his office, and two days later Bill Clinton got on the plane to Moscow.

When the trip was over, I phoned the C.I.A. analyst who had relayed the false report. He was apologetic – sort of. “You have to understand,” he said. “We missed the Indian and Pakistani nuclear tests last spring. We’re under a lot of pressure not to miss anything else.”

So, what do governmental officials do with such imperfect information?:

When policymakers have imperfect information about a serious problem (which is almost always), what should they do? The answer, then as now, is to shift the burden of proof to the other guy. If we had been denied that meeting with Mr. Yeltsin, it would hardly have proved that he was dead. But we would have canceled the trip all the same. Russian uncooperativeness – not our poor intelligence – would have left us no choice.

And how does that relate to the current debate over the Bush Administration’s decision to go to war in Iraq on the basis of imperfect intelligence?:

Going to war and canceling a trip are vastly different matters, but what the Bush administration did with Saddam Hussein in the run-up to war followed the same rule: it challenged him to prove that American intelligence was wrong, so that the responsibility for war was his, not ours.
Clearly, President Bush and his advisers did not expect Saddam Hussein to cooperate in this test, and might still have wanted war if he had. But even if the administration had handled other aspects of the issue differently, it would still have been necessary to subject Iraq to a test. In our debate about the war, we need to acknowledge that the administration set the right test for Saddam Hussein – and that he did not pass it.
When America demanded that Iraq follow the example of countries like Ukraine and South Africa, which sought international help in dismantling their weapons of mass destruction, it set the bar extremely high, but not unreasonably so. The right test had to reflect Saddam Hussein’s long record of acquiring, using and concealing such weapons. Just as important, it had to yield a clear enough result to satisfy doubters on both sides, either breaking the momentum for war or showing that it was justified.

But, some protest, does not this approach treat Saddam Hussein as guilty until proven innocent?:

They’re right. But the Bush administration did not invent this logic. When Saddam Hussein forced out United Nations inspectors in 1998, President Clinton responded with days of bombings – not because he knew what weapons Iraq had, but because Iraq’s actions kept us from finding out.

A decision on war is almost never based simply on what we know, or think we know. Intelligence is always disputed. Instead, we respond to what the other guy does. This is how we went to war in Iraq. The next time we face such a choice, whether our intelligence has improved or not, we’ll almost surely decide in the very same way.

The Bush Administration deserves much criticism on a variety of issues. However, its decision to go to war with Iraq — and its overall prosecution of tha war — are not issues that deserve the criticism that some politicos are heaping upon the Administration during this political season.
Hat tip to Bill Hesson for the link to this fine op-ed.

J.P. Morgan ups ante in Enron litigation

In announcing its second quarter results today, J.P. Morgan Chase & Co. announced that it has increased its total litigation reserve to $4.7 billion before taxes. The reserve covers Morgan’s contingent liability in the ongoing Enron civil litigation and other securities cases, including the company’s dispute with WorldCom investors.
Excluding the litigation reserve charge, J.P. Morgan Chief Executive William B. Harrison Jr. described the second-quarter results as “comparable to the prior year.” That’s a bit like saying that, except for the elephant in the middle of the room, the rest of the room remains quite neat and tidy.

Stros lose again

The Stros might as well be in “Groundhog Day.” The story goes like this:
Stros take lead.
Stros blow lead.
Stros lose.
Munro pitched well and deserved to win. However, Weathers and Harville stunk in relief and gave up a 4-1 lead. Bags and Ensberg had solo yaks and a couple of hits each, but the rest of the Stros hitters beyond Berkman remain tepid. Even Beltran is being affected, as his OBP fell to a pathetic .318. Bad hitting is contagious.
Andy Pettitte opens the Diamondback series on Wednesday in Phoenix. At least the Stros will be playing someone their speed in the D-Backs (31-63). The Stros are now only a game out of last place in the NL Central.

Continental posts quarterly loss

Houston-based Continental Airlines annonced that it posted a net loss of $17 million for the second quarter, citing weak domestic fare prices, high fuel costs and expenses associated with retiring aircraft.
Continental, which is the No. 5 U.S. carrier, reported net income for the year-earlier period of $79 million, or $1.10 a share, which was primarily due to war-related government subsidies. The latest quarter’s loss included a charge of $19 million for the retirement of leased MD-80 jets. Excluding that charge, Continental would have eked out a profit of $2 million during the quarter. Continental’s total revenue improved 13%, to $2.51 billion from $2.22 billion a year earlier, as passenger revenue improved 15.1% to $2.3 billion. The company’s consolidated load factor increased to 77.6% from 75.9%.
Continental has generally competed well against the rising tide of low-cost carriers as the company’s chapter 22 (i.e., two prior chapter 11 cases) case tends to focus management on lean operations. Nevetheless, management reported that the company will have to cut costs beyond its original projection of $900 million annually to offset lower than expected ticket prices and high fuel costs.
A day earlier, Delta Air Lines reported a higher-than-expected loss of $1.96 billion for the second quarter, with weak fares undercutting a surge in passengers that pushed traffic to its highest level since the summer of 2000. Delta is the prime prospect to be the next American carrier to land in chapter 11.

Lay PR campaign continues

According to this Houston Chronicle article, Ken Lay‘s criminal defense attorney, Mike Ramsey, is apparenly not happy that Enron Task Force lawyers had sent letters to U.S. District Judge Sim Lake in late May and mid-June indicating that they were going to indict Mr. Lay in the pending criminal case against former Enron CEO Jeffrey Skilling and former Enron chief accountant Richard Causey.
Mr. Ramsey is not happy because the Task Force lawyers, at the same time they were sending these letters to Judge Lake, were advising Mr. Ramsey that they had not decided whether they were going to indict Mr. Lay. Mr. Ramsey says that he would never have met with the prosecutors to attempt to persuade them not to indict Mr. Lay if he had known that they had already decided to indict Mr. Lay.
Mr. Ramsey presumably gave this information to the Chronicle with a straight face.

Dodgers edge Stros

Dan Miceli gave up the back-to-back homers in the eighth inning to allow the Dodgers to edge the Stros 7-6 in a wild game on Monday night at the Juice Box. The win was the Dodgers’ seventh straight win, 13th out of their last 14, and dropped new Stros manager Phil Garner‘s record to 1-3 since taking over from Jimy Williams during the All-Star break.
After the Stros took an early lead, the Dodgers scored four runs in the sixth inning, with three unearned because of two Stros errors, including another adventure in left field by Bidg, who is proving just how underrated Berkman was as a leftfielder. Ensberg cranked a dramatic three-run yak in the sixth to give Stros a 6-5 lead, leading to Miceli’s gopher balls in the eighth that put it away for the Dodgers.
Starter Brandon Duckworth had an amazing performance, somehow allowing only one run in 4 2/3rd’s while allowing six hits, one K, and four walks (hint: the Stros turned three DP’s behind him). After Duckworth’s latest tightrope performance, GM Gerry Hunsicker must have taken great pleasure in Carlos Hernandez‘s 7 inning, 10 K, no-hit performance on Wednesday night at AAA New Orleans.
Pete Munro takes the hill in game two of the Dodger series on Tuesday night at the Juice Box. Any bets on whether Hernandez takes the next non-Oswalt-Clemens-Pettitte start in the rotation?

The addictive nature of governmental subsidies

Edward Lotterman is a Twin Cities-based economist who writes a column for the Twin Cities Pioneer. In this column, Mr. Lotterman points out that the original good intentions of governmental subsidies have, over the decades, generated obsolescence:

News about subsidies for airlines and the U.S. cotton industry illustrate how addictive unsustainable or indefensible flows of money turn out to be.
Once a company, group or economic sector becomes used to above-market income of some type, stopping the flow is traumatic. This is particularly true when such income is incorporated into the price of some fixed resource.

First, Mr. Lotterman addresses U.S. government subsidies for cotton farmers:

The U.S. government subsidizes cotton production to the tune of some $3 billion per year. Virtually all the subsidy flows to fewer than 30,000 cotton farmers. At some $100,000 per producer, cotton is the most heavily subsidized of the major U.S. agricultural commodities.

[C]otton farmers have become used to streams of income that apparently are unsustainable over the longer term. Ending the flow is financially and politically troublesome . . .

The goal of [cotton subsidies] was to improve incomes for small farmers. Cotton subsidies did little to accomplish this. In fact, they contributed to the concentration of cotton production into fewer and fewer hands. As Ricardo would have predicted, most of the subsidies flowed into higher prices for that farmland especially suited for growing cotton. After paying the high prevailing rental or purchase price for good land, a new cotton farmer would enjoy only moderate income even with the subsidy.
Our country should do away with cotton subsidies, not as a favor to producers on other continents, but because they are economically wasteful and unjust.

And, as Professor Ribstein has previously pointed out, Mr. Lotterman observes that governmental subsidies of airlines has had much the same effect:

Established airlines got quasi-monopolies when the government regulated routes and fares. Increases in costs such as fuel or salaries eventually got passed along to consumers in the form of higher ticket prices. Significantly fewer people flew then than now and those who did were either business and government travelers or higher income people. As economists would say, demand was inelastic. Higher fares did not reduce ticket sales greatly.
In this environment, pilot salaries grew inexorably compared to the levels that would have prevailed in a free-market situation. At the end of World War II, pilots did not earn substantially more than bus drivers or locomotive engineers. Twenty-five years later, many earned two to five times as much.
All this began to collapse when former President Jimmy Carter initiated deregulation of the airline industry by appointing economist Alfred Kahn to head the Civil Aeronautics Board. In the intervening quarter-century, the real cost of air travel has plummeted and the proportion of the population flying has grown tremendously. Many of the once-famous carriers ? Pan Am, Braniff, Eastern, TWA ? have bitten the dust while Northwest, United, Delta and others struggle financially.
Some analysts predict that eventually all of the “legacy” carriers that existed before 1978 will go under. Corporate names may survive, but all the shareholder equity and employee pension claims will turn to dust.

Mr. Lotterman concludes by predicting that the subsidies will eventually end and that the industries will eventually shake out, but then makes the following insightful observation:

Adjustment will come and it will be painful for pilots and for cotton farmers, especially those who purchased land in recent decades. The net effect will be to make our society more efficient and fair.
The whole process would be less traumatic, however, if we had not let cotton subsidies and airline salaries grow to the inordinate levels in the century just ended.

To which Arnold Kling (hat tip for the link) asks the following question:

Can you think of examples of industries that once were subsidized that now are thriving subsidy-free?

Protecting Lance

Kirk Bohls provides this Austin American-Statesman (free online registration required) article profiling the two men who are providing bodyguard services for Lance Armstrong during his current Tour de France expedition. The entire column is interesting, spiced by the following two comments:

Asked if it’s a grueling assignment since Lance is somewhat of a rock star, [one of the bodyguards] corrected, “Lance is a rock star.”
[A]lthough he does get paid for this work. And how much does he make, trying to keep half of France off Lance’s back?
“Not enough,” he said with a wide grin. “Not enough.”

I mentioned this article to one of my teenage daughters, and she responded regarding Armstrong:

“Oh, you mean the guy who is Sheryl Crow‘s boyfriend?”

Breaking the rules of white collar defense

Robert Shapiro, the L.A.-based criminal defense attorney who put together O.J. Simpson‘s criminal defense team, writes this Wall Street Journal ($) op-ed today in which he takes issue with a number of tactics that Martha Stewart and her defense team took in defending Martha. Mr. Shapiro is particularly critical of Martha’s belief that she could personally persuade prosecutors that she had not lied about the stock sale and, in so doing, makes this salient point about litigating with the government:

While everyone entertains the fantasy of being publicly and dramatically vindicated by a “not guilty” verdict, the fact is that as a defendant the odds are stacked against you at trial. In white-collar cases, particularly federal ones, prosecutors tend to be very experienced, highly skilled, and extremely able. What’s more, they are backed up by almost unlimited investigative resources, as well as by laws that give them ready access to financial records. In short, the playing field is hardly level.

Stros win first for Garner

The Rocket won his first game in three weeks and the Stros jacked three solo yaks in a 5-3 win over the Padres at the Juice Box on Sunday, stopping a four-game losing streak and giving Phil Garner his first win as the Stros’ skipper.
Clemens was his usual reliable self, retiring 16 consecutive batters starting with the final out of the first. The win was his 321st career victory, moving three behind Nolan Ryan and Don Sutton, who share 12th place on the all-time win list. Clemens allowed two runs and four hits in seven innings, striking out five and walking just one.
Beltran, JK and Bidg cranked the taters, and out machine junior Adam Everett came through with a two-out, two-run single in the bottom of the seventh to seal the win.
Pete Munro and Brandon “Gopherball” Duckworth start the first two games of the upcoming Dodger series at the Juice Box, so a winning streak does not look promising. This Stros team simply does not hit well enough to get by with below average pitching, which is what the Stros will generally receive from Munro and Duckworth.