For most of the first hundred years of America’s history, foreign policy was not a primary concern. Even today, with some notable exceptions, foreign policy rarely animates the American electorate. Exit polls from the most recent election show that a mere one in ten voters based their vote primarily on foreign policy issues.

But President Obama has made his foreign policy a major priority. The president has surged in Afghanistan, negotiated with China, begun a new partnership with Russia , and attempted to engage in Israeli-Palestinian peace talks. As the new Republican Congress imperils any major domestic initiatives, the next two years may be characterized by even greater attention to foreign policy.

Yet the extent to which Obama’s efforts add up to a coherent “doctrine” remains an open question. Doctrines are based on a fundamental, systematically applied ideology or set of rules. It is difficult to judge doctrine from results. While the past two years have seen many increased efforts at engagement, there have been notable exceptions, particularly in Latin America. A president who entered office pledging dramatic change at home and abroad has also accepted many of his predecessor’s national security policies. Perhaps the Obama doctrine is what it is, except when it’s not.

That’s understandable, given that America’s relations with the world are more complex than ever before. As a result of high levels of debt, the United States may witness decreasing influence on the world stage. And the mood in the country appears to be increasingly non-interventionist. As such, it should be no surprise that even a president as internationally popular as Obama has run into trouble enacting his foreign policy agenda . The apparent lack of an “Obama doctrine” may speak less about the man than the political context in which he operates.

A pragmatic approach may be just what is needed. Traditional alliances are experiencing strain, as the American relationship with Japan illustrates. Likewise, even in an era of tight budgets, more can be done with less, for instance in the realm of foreign aid. These issues do not necessarily fit into an overarching doctrine, but consistency is not what presidents are ultimately judged on. Whether or not a true “doctrine” emerges, then, the Obama administration will have many opportunities to craft a successful foreign policy.

Chris Danello ’12 is the Covers Editor.

The Atlantic article is a reminder of just how long Harvard has served as an exemplar of American higher education. Over time, “the Harvard Model” would become shorthand for an academically ambitious, intellectually comprehensive institution of higher education.

At first glance, the outlook seems far worse now than in Greenough’s time. The cost of college has increased drastically; financial aid policies have failed to fill the gap and reforms have not saved the day. Yet many students gain little for the high cost, as high schools have often been unsuccessful at the task of preparing their students for college. One might hope for government-led reform, but gridlock in Washington has stalled efforts to provide citizenship to undocumented college students, despite broad support for the measure.

In his day, Greenough dismissed the contention that any change at Harvard was for the worse.  Today, likewise, complaints about loosened standards and grade inflation are probably overblown. Indeed, the modern university is in many ways at the point of reinvention. For example, carefully implemented class-based affirmative action policies can introduce new forms of diversity into the university environment.

Some changes are needed, of course, to bring the American university into the 21st century. The tenure system, public-university funding, and university curricula must reinvent themselves in order to stay true to their roots. For examples of failed reinvention, one might point to single-sex institutions that are looking for new relevance.

Ultimately, Greenough ended his article with an optimistic assessment: “Every subject enlarges the student’s mind, and stores this enlarged mind with knowledge. Surely such a requirement as this is a good foundation for a liberal education.” Today, when more students are looking beyond the liberal arts, one might quibble over that last phrase of Greenough’s. But the broader implication remains. Harvard has certainly changed over the past 118 years, but the system of higher education, designed to “enlarge the student’s mind,” still has to be at the foundation of American society.

Chris Danello ‘12 is the Covers Editor.

Revenues

Since the passage of the Sixteenth Amendment in 1913, the federal income tax has provided the greatest single source of revenue for the federal government. Over the past decade, income taxes have comprised approximately 45 percent of the government’s intake. Payroll taxes, the second largest revenue source, have raised about 36 percent. While income tax revenue is not earmarked for any specific purpose, payroll taxes finance entitlement programs, mainly Social Security and part of Medicare. The corporate tax, the estate tax, tariffs, and other revenues comprise the other 19 percent.

Revenues have declined from an all-time high of 20.6 percent of GDP in 2000 to a 50-year low of 14.8 percent in 2009. But these numbers are slightly misleading: 2000 saw the height of the Internet bubble, 2009 the bottom of the housing bust. In most years, federal revenue ranges between 17 and 19 percent of GDP, depending on the state of the economy.  The income tax and the corporate tax are more prone to economic fluctuation than payroll taxes. To wit, income tax revenues brought in $1.16 trillion in 2007, and just $915 billion in the midst of the recession two years later. Payroll tax receipts, by contrast, expanded from $869 to $890 billion, unchanged as a percentage of GDP.

Demographic changes in coming decades are expected to cause major revenue challenges. The retirement of the baby boom generation will require a dramatic increase in expenditures on programs like Social Security and Medicare, but there will be proportionally fewer taxpayers to finance these programs. The Congressional Budget Office estimates that revenue will peak in 2019 before declining irrevocably. If Congress chooses to extend the Bush tax cuts, or if there is a recession between now and 2019, revenue will remain considerably lower.

Expenditures

Most analysis divides expenditure into two broad categories: discretionary and entitlement spending. Discretionary spending is set by an annual congressional budget resolution, while entitlements, which consist primarily of Social Security and Medicare, are established by a long-term legislative program and do not require renewal.

Both entitlement and discretionary spending have grown substantially over the past decade. Expenditures have risen from 18.2 percent of GDP in 2000 to an estimated 25.2 percent in 2010. Discretionary spending has grown at an annual rate of 4.5 percent from 2000 to 2009. Despite the common conception that military spending, which represents about half of discretionary spending, consumes the budget, defense expenditures represented just 18.7 percent of total spending in 2009; the military budget has increased at a pace similar to that of the rest of discretionary spending over the past decade.

While the expansion of discretionary spending is a problem, entitlement growth, which has been about 5.4 percent per year over the past decade, poses an even greater challenge.  The majority of entitlement expansion has been driven by increased expenses in Medicare and other income-security programs; while Social Security outlays have increased in absolute terms, the program has decreased from 22.7 to 19.3 percent of the budget over the past decade.

If demographic projections are any indication, the bulk of entitlement growth is yet to come. The CBO estimates that in ten years entitlement spending will reach 22 percent of GDP, about as much as the federal government spends on the entire budget today. Social Security spending is expected to increase by half of one percent of GDP, and health spending up to double that. And there is no end in sight. Without changes to the current laws, mandatory spending will reach 44 percent of GDP by 2080, greater than government’s share of the economy during World War II. Such analysis assumes discretionary spending will remain relatively flat. But if I continues to grow at its current pace, government spending will reach unprecedented heights.

Deficits and Debt

The federal deficit is simply the gap between the government’s expenditures and its revenues in a given year.  The government has run a deficit every year since 1969, save for a brief period between fiscal years 1997 and 2000. In 2009, the deficit stood at $1.4 trillion, the largest nominal figure in history. This represents 9.9 percent of GDP, the largest since the end of World War II in 1945.  The CBO estimates that the fiscal year 2010 deficit of $1.56 trillion, 10.6 percent of GDP, will be greater still.

As of 2009, the CBO reports that total federal debt stood at $11.9 trillion, 83.4 percent of GDP. Much of this debt is held by the federal government itself, most of it in the Social Security Trust Fund. The public holds debt worth 53 percent of GDP. Foreign nations own about half of that; China ranks highest among U.S. creditors with $868 billion in American securities, followed by Japan’s $787 billion, the United Kingdom’s $350 billion, and oil exporters’ collective $235 billion.

As dismal as these figures are, one should hasten to add that the deficit varies with the state of the economy, and the tremendous deficits of 2009 and 2010 stem largely from the current recession. For most of the past decade, for example, the economy was in much better shape than it is today; deficits peaked at 3.5 percent of GDP in fiscal year 2004, before declining to just 1.4 percent in 2007.

The years ahead will likely prove more daunting. The CBO estimates that deficits will decline from their 2010 high, but remain over 3.9 percent of GDP through 2014 and 2015.  The cause, simply put, is that the government is not raising enough tax revenue to pay for its spending promises. Mushrooming entitlement spending will cause deficits to rise virtually unabated, reaching catastrophic levels if health care costs are not controlled.

The unchecked growth of federal debt could have dangerous consequences. As Greece’s recent fate has demonstrated, the consequence of high debt means unwillingness of creditors to lend, and the potential onset of a crisis in which the government literally cannot fund its most basic operations. The borrowing required by such high deficits induces higher interest rates, which crowd out private sector investment, lowering growth rates and living standards.

It remains relatively unlikely that the United States could fall to Grecian levels, if for no other reason than that many of its creditor nations face the same demographic squeeze that  now threatens the American budget. On the other hand America is not Greece; it is far bigger and far more central to the global economy. Even a downgrade in America’s credit rating would send shockwaves around the world, devastate those who purchase government bonds, (essentially all American investors, as well as those who receive Social Security benefits) and could trigger a global financial crisis. Recognizing this, President Obama has convened a debt commission, tasked with reigning in the nation’s debt. The solutions will almost certainly be politically unpalatable, but may still prove the best hope of averting America’s dire fiscal future.

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Receipts

Personal Income Tax Since the passage of the Sixteenth Amendment in 1913, the personal income tax has provided the federal government’s single largest source of revenue. The tax consists of six brackets, levying progressively higher rates on higher levels of income. For example, a taxpayer earning $5,000 of taxable income per year would pay only 10%, or $500, of his income. A taxpayer earning $50,000 would pay 10% of the first $8,375 of income, plus 15% of the next $25,624 (which is $34,000 – $8,376), plus 25% of the last $16,000, for a total liability of $8,681.10.  The following chart contains the fiscal year 2010 rates for single filers; note that different rates apply for married couples and heads of households.

Corporate Tax In addition to the income tax, the United States collects a progressive tax on corporate income at approximately similar rates. At 35%, the top bracket is the developed world’s second highest corporate tax rate. Revenues from the tax vary wildly during recessions, illustrated most recently by the halving of receipts from 2008 to 2009.

Payroll Tax The Federal Insurance Contributions Act tax, or FICA, funds two major entitlements, Social Security and Medicare Part A. The Social Security tax consists of two levees: one 6.2% tax on the first $106,800 of compensation from every employee, and a matching amount from the employer, for an effective 12.4% tax. Medicare costs both employer and employee 1.45%, for a total tax of 2.9%; this rate is scheduled to increase for individuals earning more than $200,000 per year as part of the Patient Protection and Affordable Care Act. Self-employed people pay the full 15.3%—both the employer and the employee share.  Smaller payroll taxes support unemployment insurance and retraining of displaced workers.

Excise Taxes Once the federal government’s sole source of revenue, tariffs and domestic excise taxes, such as those on gasoline and cigarettes and the recently enacted tax on the use of indoor tanning beds, now comprise a miniscule portion of federal receipts.

Estate Tax The federal government has for decades levied an estate tax on the wealth of deceased persons, as well as a gift tax on property transfers to prevent avoidance of the estate tax by giving away one’s property before death.  The estate tax is at 0% in 2010, having been phased out by the 2001 Bush tax cut, but is scheduled to revert to a 55% levy on all wealth in excess of $1 million at the beginning of 2011.

Other As the owner of large portions of land throughout the United States, particularly in the West and Southwest, the federal government derives funds from the sale of property. Other revenue sources range from passport processing fees to voluntary donations to the federal purse.

Expenditures

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Social Security The largest government program by dollar expenditure, Social Security has been a pillar of the federal budget since the 1930s. The program transfers income from current workers to retirees, orphans, persons with disabilities, and others. Its long-term solvency is uncertain. SEE ARTICLE

Medicare Created in the 1960s to provide health insurance to the elderly, Medicare remains one of the most visible and politically popular functions of the federal government. It has doubled in size over the past decade and shows no sign of slowing.

Medicaid A part of Lyndon Johnson’s Great Society, Medicaid offers health insurance to the poor who are too young to qualify for Medicare. It is administered individually by each state; the federal government sets national standards and doles out funding according to its Federal Matching Assistance Percentages guidelines.

Other Health Care Programs From the State Children’s Health Insurance Program to the Food and Drug Administration, the federal government does a great deal in health care outside the two major entitlement programs.

Unemployment Insurance Under the Federal Unemployment Tax Act, newly unemployed citizens receive a certain fraction of their previous wages for a period of time. A so-called automatic stabilizer, costs peak during recessions. While unemployment insurance typically grants benefits for 26 weeks, Congress has extended the program to some 99 weeks as a result of the current economic downturn.

Other Welfare Programs Food Stamps, Housing Assistance, Temporary Assistance to Needy Families, and smaller safety net programs such as job retraining and funding for social workers supplement welfare at the state level.

Federal Employee Retirement Benefits Pensions for past generations of government workers is likely to become a more significant budget item in the coming years. FERB represents the number of retired employees, times the average benefit paid to each, an amount that will grow exponentially as the Baby Boom generation passes age 65 beginning in 2011 and as life expectancy continues to increase.

Veterans’ Benefits The Department of Veterans’ Affairs provides a series of benefits for America’s service members, including heavily subsidized health care, college tuition benefits, and pensions.

National Defense America’s military remains by far the world’s largest in terms of absolute spending and ranks in the top 12 as a percentage of GDP. SEE ARTICLE

Wars in Iraq and Afghanistan The budgetary allocation for the wars in Iraq and Afghanistan and other post-9/11 operations has been roughly $1.15 trillion over the past decade. No precise data is available beyond 2010, as outlays will depend on policy choices made over the coming months.

Transportation The Interstate Highway system remains the overwhelming priority of the Department of Transportation; over two thirds of federal transportation funds are devoted to its upkeep. Other expenditures include airports, air traffic control, and Amtrak.

Energy and the Environment The Department of Energy and the Environmental Protection Agency may seem strange budgetary bedfellows, but they receive similar amounts of federal funding. The majority of Energy’s budget supports energy production, and most EPA funding goes to land and water conservation purposes.

Housing Credit Normally an insignificant item, housing became a major policy focus in the wake of the real estate crash in the late 2000s. Funding shot up in 2009 as a result of the first-time homebuyer’s credit, a $4,000 tax credit intended to mitigate the effects of the declining housing market.

Education States are responsible for the majority of education spending, but the federal government has taken an increasingly prominent role. Approximately half of this budget funds higher education.

Law Enforcement The federal government plays a major role in American law enforcement through the FBI, the CIA, the Department of Homeland Security, the federal court and prison systems, and the U.S. Attorneys’ Offices.

Foreign Aid One of the least popular federal programs, foreign aid provides military and development assistance across the globe and constitutes a relatively small part of the budget. SEE ARTICLE

Agriculture Subsidies The number of farmers in the United States has declined drastically since the nineteenth century, but the budget of the Department of Agriculture continues to grow, boosted most recently by the Farm, Conservation, and Energy Act of 2008. Most subsidies provide both price floors and direct payments. To wit, the government pays farmers a certain amount per unit of crop, and offers the option to sell the crop to the government at a certain minimum price.

General Government Operations Congress funds its own activities, as well as those of the White House and the executive branch.

NASA With the cancellation of NASA’s proposed missions to the moon and Mars, the agency’s funding remains relatively flat, even as it transitions to a future of fewer manned missions.

Scientific Research The federal government sponsors a number of grants for primary research, primarily through the National Science Foundation. SEE ARTICLE

New Legislation The 2010 Patient Protection and Affordable Care Act consumes the majority of this budget item. The program will take full effect in 2014. SEE ARTICLE

Undistributed Offsetting Receipts Certain government programs are meant to self-finance, as with the logging rights sold by the Bureau of the Interior. When such a program produces more cash than its department needs to cover expenses, the surplus finances other government programs. The amount counts as negative expenditures rather than revenues since it results from business activities, rather than exercise of the government’s sovereign taxing power.

Net Interest The only item on the ledger that legislation cannot alter, net interest reflects the amount of debt outstanding, times the interest paid. Because interest (mostly) cannot be changed by fiat, the amount paid can swing wildly.

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In pure dollar terms, the $787 billion bill represents the single largest counter-recessionary effort in American history. With hundreds of billions of dollars in tax rebates, transfers to state and local governments, and direct federal spending, the stimulus appears a potent recovery package. Yet the effort has yielded mixed results. Despite the administration’s promise that it would keep unemployment under 8 percent, persistent layoffs have pushed the jobless rate near 10 percent—one point higher than the President’s prediction of today’s economy sans stimulus. Supporters contend that the recovery package prevented economic meltdown, yet the bill’s feeble results suggest otherwise. Its planners’ good intentions notwithstanding, ARRA suffers from structural deficiencies that keep it punching well below its budgetary weight.

The Unkindest Cut

Despite ARRA’s reputation as a gusher of spending, the largest component of the program is $288 billion worth of tax relief, largely in the form of a $400 per worker payroll tax credit for 2009 and 2010.  Unfortunately for ARRA’s designers, such one-time tax refunds are generally ineffective at inducing consumer spending. One University of Michigan study determined that beneficiaries of a similar provision in President Bush’s 2008 stimulus largely used the rebate to reduce their personal debt—helpful for consumer balance sheets but ineffective in generating the demand needed to stimulate the economy.

Economic theory suggests tax cuts are most effective when they permanently reduce rates, which generates expectations of higher future income. As J.D. Foster of the Heritage Foundation told the HPR, the ARRA rebate reduced people’s taxes without creating an incentive for increased consumer spending: just giving people checks “because they’re breathing,” he explained, does little to alter incentives.

Transfers for Fun and Profit

The largest segment of the bill’s actual outlays consists of transfer payments to state and local governments, for which it provided $144 billion, mostly during fiscal year 2009. While the federal government already subsidizes state budgets, having transferred roughly $500 billion to states in 2008, the stimulus created a new series of grant mechanisms, the most prominent of which is an $87 billion increase in the portion of Medicaid funded by the federal government.

The grants followed political and economic logic. Since constitutional mandates in every state except Vermont require a balanced budget, additional aid from the federal government, which can deficit spend, allows states to avoid raising taxes or cutting jobs. Either of these actions, as Harvard professor Theda Skocpol explained, would “negate a great deal of what the federal stimulus is meant to do.”

At first glance, ARRA appears to have proven relatively successful in preventing public sector layoffs. Only 231,000 state and local government jobs have been cut since Aug. 2008, a quarter to a fifth the rate of job losses in the private sector. While some of this disparity can be explained by the differing natures of the public and private sectors—governments rarely go bankrupt, for instance—the stimulus has likely helped.

Nonetheless, transfers have not proven a panacea. While ARRA will continue dispensing funds through 2012, most states have already reached the limits of their federal grants. Heritage’s Foster notes that the additional aid may have created a culture of dependency among state governments, noting that many “frittered the money and time away” while assuming the federal government would underwrite any budget shortfalls. Unless Congress approves President Obama’s June 2010 request for an additional $50 billion to prevent layoffs of state employees and strings along further fixes until the recession ends, or unless tax revenues magically increase, state and local payrolls will soon face the chopping block.

A Democrat’s Wishlist?

The remainder of the bill, some $350 billion, consists of federal direct expenditures on a series of programs. The funds appropriated range from an $11 billion earmark for an electrical “smart grid” to a $50 million grant for the National Cemetery Administration, with most of the spending going to smaller grants rather than multibillion-dollar “megaprojects.” Conservatives have unsurprisingly seen this category as proof that ARRA consists of political projects of dubious economic merit, decrying such stimulus-funded programs as a study paying subjects to smoke marijuana and drink malt liquor and a guardrail for a nonexistent lake.

Yet the meme of stimulus-as-pure-waste is likely overstated. Skocpol highlights appropriations for environmental weatherproofing, electronic recordkeeping in the health sector, and the wildly successful Race to the Top education reform among the bill’s positive legacies. Economists may debate the comparative efficiency of government versus private sector spending, but for those who believe in the former, many expenditures were likely worth the cost.

A more trenchant criticism lies in when the money will be spent. Because of the significant lag-time in project construction, somewhere between one third and one half of federal direct expenditures will occur in the years 2011 and 2012, when the economy will look quite different than it did when ARRA passed. The Center for American Progress’s Michael Ettlinger acknowledges a major goal of the stimulus was to “get the money out fast,” a test ARRA largely fails.

Lessons Learned?

Since its passage in early 2009, the vast majority of Americans have been critical of ARRA. A 2010 CNN poll found that 74 percent of Americans believe stimulus money “has been wasted,” and six in ten believe the bill consisted mostly of “projects that were included in the bill for purely political reasons and will have no economic impact.” Both numbers, the poll drily noted, stood much higher than the year before.

While concerns on the right that the stimulus has produced socialism are largely exaggerated, the apparent ineffectiveness of much of ARRA’s spending should put to rest assertions that it saved the economy single-handedly. Yet the fallout may cause future policymakers to seek the most politically safe—and least effective—means of fiscal stimulus. If so, ARRA’s greatest cost may be its legacy of ineffective temporary programs that do little to stimulate short-term growth.

China’s banking regulator told lenders last month to conduct a new round of stress tests to gauge the impact of residential property prices falling as much as 60 percent in the hardest-hit markets, a person with knowledge of the matter said.

Banks were instructed to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively, the person said, declining to be identified because the regulator’s requirement hasn’t been publicly announced. Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent.

By means of background, Chinese real estate was one of the best preforming sector in the world economy for most of 2009 and early 2010.  The cause may have been anything from a lack of space in major cities, a comparative distaste for the volitile Shanghai stock market, or pure bubble mentality. Regardless, prices have increased by about 70% in major Chinese cities (the  countryside has largely been exempt from the mania).

In one sense, today’s news is not much of a surprise. The Beijing government has been skeptical of the real estate bubble, and has done its best to jawbone the market down. Indeed, the news may be the dog-in-the-nighttime sense that the banking regulator is ordering a stress test, rather than an selloff of the real estate loans, or raising capital requirements.

That said, the news may be important in several different ways. Anyone not Rip-van-Winkling through the past three years understands how a bursting bubble, particularly a real estate collapse, can devastate a financial sector and the general economy. Indeed, China’s banks don’t stand on a strong reserve of capital (via Marginal Revolution, the incredible admission that 20% of loans to local governments default). It’s not hard to see how this could provide a major source of pressure both for China’s banks, and for the central government which implicitly underwrites them.

Nonetheless, even the best case scenario of China muddling through the property woes may well be a worse case scenario for the global economy. Broadly speaking, a major challenge for the next couple of years is lack of demand in the global economy. Thanks to the past decade, the American consumer and government alike need to pay down debt, rather than engage in consumption. Europe is demographically in the process of retirement and asset liquidation. The idea that Asia needs to consume more is neither innovative nor particularly insightful. Yet it remains the world economy’s best hope for growth ahead.  If the real estate fallout means a slowdown of China’s growth, Americans can expect this Great Recession to become even greater.

In the Pentagon’s defense, the article quotes one spokeswoman:

Addressing the drastic drop in Medal of Honor awards, she cited changes in the nature of warfare, noting that the enemy forces of Vietnam and earlier wars typically engaged in “close conflict” with U.S. forces, whereas today’s “non-uniformed insurgents” rely on “remotely detonated improvised explosive devices (I.E.D.’s), suicide bombers and rocket, mortar and sniper attacks” — all tactics, her statement implied, that create fewer opportunities for U.S. soldiers to demonstrate the traditional valor of close-quarters combat.

As a matter of personal opinion, I find the insinuation lacking, even somewhat offensive. Yes, the era of “whites of their eyes combat” has largely been supplanted by that of the IED. But fewer opportunities does not mean neither opportunity nor act of courage. It seems ridiculous to assert that only six soldiers since 2001 have gone “conspicuously by gallantry and intrepidity at the risk of his life above and beyond the call of duty,” and that lying on a grenade is not one such action.

Nonetheless, the article struck me for another incongruity. Despite all that has changed in warfare since the advent of the Congressional Medal of Honor, the standards for judging true heroism seem only the greater. As Zoepf contends, “The standard for awarding the Medal of Honor has always been “incontestable proof of the performance of service,” but critics charge that in recent years the standard for “incontestable” must have been raised.” The attitude leads to such sorry spectacles as forensic pathological investigations as to whether the subject soldier was fully conscious when he shoved the grenade beneath his chest. The goal of technological innovation seem then to draw ever more fine distinctions between the voluntary and the accidental hero. This insistence on finding new forms of relative rankings is a powerful position.

Yet the military stands far and away alone in this fight. Perhaps the example most prominent in my mind (and you can draw on that what you will) is that of grade inflation at good schools. The best argument for the effect is one of absolute standards; technology and improved student bodies have enabled more A quality work now than ever before, and grading should reflect the fact that better work is being done now than every before. This argument may not be totally convincing, but it is compelling, and it has won the day at most schools.

I suppose the conservative in me should applaud the Pentagon for its refusal to hand out medals like baubles, to insist on ever-higher standards, and recognize intent as much as effect. Taken to an extreme, the grade inflation philosophy of only needing to surpass some absolute threshold to recieve a certain awards, be it an A or a medal, leads to situations in which all participants are above average. It is true that the military’s reluctance to dole out its awards has undoubtedly only increased their already heightened resonance when they do.

Nonetheless, the result seem a comprehensive solution to the wrong problem. Grades are, by definition, only useful in relative terms. It doesn’t matter if I say you have an A in math and I a B, or you a } and I an *; either way, you’re the one who should be hired to do the taxes. By contrast, heroism is not a zero-sum game. Your valor does not take away from mine, any more than my happiness detracts from yours. Only when the nation recognizes this valor in all its absolute forms, can we hope to achieve a polity in which valor is no longer necessary.

It seems appropriate that the HPR should now take on the task of examining American religion. After all, Harvard has seen it all when it comes to religion. The College was first established as a school for Congregational ministers. As the history of the University’s founding puts it, “After God had carried us safe to New England … one of the next things we longed for and looked after was to advance learning and perpetuate it to posterity; dreading to leave an illiterate ministry to the churches, when our present ministers shall lie in the dust.”

Yet by 2008, the tide had turned to such an extent that the Committee on General Education refused to require undergraduates to take courses in the field of “Reason and Faith,” settling for the blander and more general “Culture and Belief.”

If Harvard is any guide, the stature of religion in America appears weaker than ever before. The number of religiously unaffiliated Americans has grown precipitously, and their influence seems  poised to increase (p. 6). And American Christianity is not the only religion facing a seeming crisis; Muslim Americans, for instance, are struggling with a racial divide in their community (p. 12).

Nonetheless, the history of American religion is one of innovation and renewal, just like the history of the nation itself. Religion may have to change, but by no means will it be lost to the public sphere. Indeed, a new generation of evangelical Protestants has found in their faith the motivation to tackle new issues of social justice, while de-emphasizing the confrontational moral issues that defined their parents’ political involvement (p. 10). Such a balancing act has been inherent to American religion, from the past to the present day (p. 13).

And, if evidence were needed that faith can still play a vital role not just in individual lives but in public service, one need look no further than the involvement of faith-based organizations in the delivery of foreign aid (p. 8). Religion has not just a long past in America, but an interesting future as well.

Chris Danello ‘12 is the Covers Editor.

In policy terms, this isn’t big news. The CBO estimates the bill will cost some $15 billion, a fortune to you and I, but a pittance in Washington terms. In any case, the moneys allocated pale in comparison to the $500-600 billion worth of stimulus which has yet to be spent. Moreover, it’s not clear that the legislation will do much to improve the overall unemployment picture. The centerpiece of the bill is a $1000 tax break for businesses for every  new hire. This sounds like reasonable policy, and will clearly effect hires at the margin, but the simple fact remains that a thousand dollars is not a great deal of money, all things considered. Considering that the average  income in 2009 was around $40,000 for a full-time worker, it’s hard to imagine that many new jobs will be created by what amounts to a “first six days free” promotion. At the same time, businesses potentially face many times these cost in under the Democratic agenda. This regulatory uncertainty fosters lower unemployment, as firms wait to see what the cost of labor will become. If Congress were really dedicated to reducing costs of hires, they’d drop health care, financial reform, and cap and trade.

Still, I’m not particularly interested in these partisan arguments. The more fascinating component of today’s vote was its lopsidedness. Over the past year, Democrats have struggled to attract Republican votes on just about every issue, be it health-care, financial regulation, even innocuous (though bloated) department appropriations. Yet the final vote picked up 13 Republicans, over a quarter of the caucus. Their motivation was strong polls–Quinnipac shows a support/oppose ratio of 72/22 for a $100 billion bill. The political calculations would  seem to mandate grudging Republican support, even if the ideological case is a little less clear.

Realty proves a little bit tricker. Just yesterday, the cloture vote passed on a narrower 62-30 margin. Six Republicans: Roger Wicker and Thad Cochran of Mississippi, Lamar Alexander (TN), James Inhofe (OK), George LeMieux (FL), and Lisa Murkowski (AK) all switched their votes from no on cloture to yes on final passage. In addition, Richard Burr (NC) and Orrin Hatch (UT) sat out the cloture  vote but gave their ayes to the bill.

Substantively, these positions are functionally incompatible. In the traditions of the modern senate, a vote for cloture is a vote for the underlying bill. Senate procedure is not always the easiest to explain–pace John Kerry–but the public seemed to be growing more aware of cloture’s effects on the legislative process. Indeed, the Republican strategy of uniformly obstructing cloture depended on their members not being able to vote for cloture, then against the underlying bill. That so many defected is sign that members still believe they can have it both ways: supporting the leadership on the vote that counts, and voting for the popular thing on the vote for the TV ads.

Even so, there’s a pretty major difference between can and should. Voting against cloture but for the bill may be politically convenient, and even a politically plausible contortion. Still, it’s not the tactic of a governing party–for at the end of the day, to govern, one has to pick a side and stick to it. Today’s vote may not be terrific for those who put faith in an informed electorate, increasingly savvy to political tricks. It’s worse for Republicans, if they are to retake the Senate this November.

Photo credit: Library of Congress flickr stream

Boring is Best in Financial Reform

The most famous story of Wall Street is of an out-of-town visitor brought to Lower Manhattan and shown the dazzling boats of the bankers and brokers. “But where are the customers’ yachts?” the visitor inquires. The perception of Wall Street as the embodiment of rapacious waste continues to haunt the American psyche. Amidst the deepest recession since World War II, politicians from Andrew Cuomo to Ron Paul have found finance an easy target; yet their sharp critiques have gone mostly unheeded. While President Obama speaks of the need to reform the financial sector, Democratic legislation does not suggest drastic changes. Nonetheless, many of the proposed reforms will still prove ineffective or implausible, meaning true financial reform will rely upon boring, yet effective, capital requirements.

A Revised History of the Crisis

Even before the United States emerged from the 2008 credit crunch, popular perception already attributed much of the blame to the unregulated financial sector. This narrative is simple, succinct, and misleading. As the Heritage Foundation’s David John told the HPR, “There is no simple answer that includes a significant portion of the 2008 crisis.” John described factors from massive foreign surpluses of investment capital, to homeowners expecting endless double-digit returns as far more integral to the credit crunch than any government policy.

Some experts nonetheless contend that regulatory failure exacerbated the downturn. Speaking to the HPR, Doug Elliott of the Brookings Institution claimed that, “The government did make some serious mistakes…and better regulation would have reduced the level of damage.” As Elliot explained, commercial banks had long been limited to borrowing up to 16 times their capital, and investment banks somewhat more. Yet in 2004, the Securities and Exchange Commission permitted investment banks to leverage up to 40 times their asset base. Meanwhile, commercial banks discovered new ways to leverage, notably with Structured Investment Vehicles. The effect was to make banks both more profitable and more exposed to a downturn; a three percent loss, for instance, bankrupts a 40 times leveraged position. Yet short of banning SIVs altogether, regulating them would have proven difficult because their existence relied on being outside the regulatory structure. Elliott thus sees leveraging and SIVs as symptoms of a fundamental problem, arguing, “We had twenty good years in the markets. Individuals and investors learned that risk wasn’t scary and that taking risks was a lucrative thing to do. … The problem was that people assumed that it would continue forever.”

Taming the Finance Beast

In hopes of dampening the next era of complacency, the White House has called for the creation of a Consumer Financial Protection Agency designed to prohibit certain financial products, such as subprime loan prepayments. Proponents like Harvard Law Professor Elizabeth Warren argue that the CFPA would benefit financial institutions and consumers by limiting the mortgages and material with which Wall Street self-destructed. Yet George Mason Law Professor Todd Ziwiki disagrees, telling the HPR that, “Consumer protection did not cause the [2008] crisis and it won’t stop the next crisis.” Even if consumer protection does not equate to financial protection, however, it has occupied a significant fraction of congressional action on the issue. David John attributed this incongruity to the fact that, “Congress as a mechanism reacts to pressure from constituents. Constituents don’t understand capital requirements, but focus on the fact that they signed something, and something unpleasant happened.” Thus, additional mortgage disclosure requirements substitute for substantive financial regulations.

Washington’s responses to the crisis beyond the CFPA are an equally mixed bag. Most prominently, Federal Reserve Chairman Ben Bernanke has argued for a “super-regulator” over the financial sector to end the practice of multiple agencies imposing differing regulations on the same jurisdiction. Bob Litan of the Kauffman Foundation, an organization promoting entrepreneurship, explained to the HPR that, “Before, financial institutions were able to play one agency off of each other. AIG, for example, went to the Office of Thrift Supervision, and was able to go berserk.” The super-regulator would end the practice of ‘regulatory shopping,’ searching for the most lax regulator. Bernanke’s proposal has nonetheless drawn opposition, not least from the heads of the current regulatory agencies, who fear a diminution of their power. As Litan put it, “The CFPA is a backlash against the Fed and a super-regulator.”

More acceptable to all stakeholders may be House Banking Committee Chairman Barney Frank’s proposal for a systematic risk regulator to monitor general levels of risk in the economy. Litan agrees that, “It can’t hurt to have a systemic risk monitor, someone to warn people that there are bubbles being formed. …I prefer adjustment in loan to value ratios when you see bubbles being formed, but I worry you could have a regulator criticized for taking away the punch bowl at the party.”

Party’s Over

Indeed, Litan’s worry that investors will scorn regulation that curtails markets reflects larger concerns about the political implications of reform. It would have been an unpopular bureaucrat who proposed to halt the rising tide of the housing market in 2005, and the calls would likely have gone unheeded. Moreover, even if regulators have the will to sanction, they might lack the ability to distinguish. As Ziwiki pointed out, Washington has a poor history of regulating financial firms; according to him, “The SEC doesn’t work is because its regulators get captured.” In other words, the competent regulators get hired to work for the industries they were regulating, while the second-tier people remain behind.

Thus the most effective reforms may paradoxically be the easiest to apply. Increasing capital requirements may seem far less innovative than overseeing all levels of risk in the economy, yet the simplicity of the measure is its greatest appeal. More capital might not have saved insolvent firms, but it would certainly have nudged them toward fewer risks. Indeed, as John pointed out, “It makes perfect sense to try to deal with too-big-to-fail [companies] through capital standards,” thereby sidestepping questions of regulating the complex securities that neither regulators nor bank CEOs truly grasp. In Litan’s words, “I feel that the market does a reasonable job when you give it the right incentive, and capital requirements are a good signal.”

Wall Street and Washington have long been intertwined, dating back to at least 1912. Again and again, financial crisis has prompted new and diverse approaches to regulation, yet America is no closer now to ending boom and bust than when the regulatory climate first shifted. Because many of the administration’s current regulation proposals will ultimately prove ineffective or politically infeasible, increasing capital requirements may be the best option of a bad lot. This simple regulation won’t guarantee the customers their own yachts, but perhaps capital requirements may still save their 401(k)’s.