The real AIG fraud

There is one thing that I have learned about politics: when the political ruling class is in a big lather about something and screaming loudly for retribution and action, that means the real action is taking place elsewhere, in secret, and that all the fuss is to distract attention from the real scandal. This rule of thumb has never failed me, although sometimes it takes a while to find out what the true story is.

This instinct immediately kicked in when all the ballyhoo began about the $165 million in bonuses being paid to some AIG executives. This is just 0.1% of the money paid out (so far) to AIG and when I saw all the politicians getting into fits of righteous indignation, holding Congressional hearings, calling these executives all kinds of names, demanding the bonus money back, and threatening to use subpoenas and punitive laws to do so, I felt at once that it was all a smokescreen although I did not know what the smoke was covering. But I knew that soon enough, more knowledgeable people would reveal the truth, even though it would not get major coverage in the mainstream media, because the latter is a necessary part of the smoke-generating machine, and dutifully play their role by giving extensive coverage to all the grandstanding, while not investigating the real news.

Some new articles reveal what is actually going on. To understand what they say, you need to know that the term ‘counterparties’ refers to those firms that owned assets of dubious value that AIG had ‘insured’ against loss from their face value. (Note: I have explained before that this was not technically insurance, which is a highly regulated industry, but was essentially an unregulated scheme of private bets.) The taxpayer bailout money to AIG was used to pay off those obligations. But despite using public money and despite the government now owning nearly 80% of its shares, AIG had the nerve to refuse to reveal to the public the names of the companies that it had paid out money to and for what, leading to suspicions that, rather than protecting taxpayer interests, they had deliberately overvalued those assets in order to bail those companies out from their bad decisions. They finally revealed at least the names on Sunday night, a time when companies and governments release bad news hoping the public is not paying attention.

After months of stonewalling, government-controlled American International Group (AIG) finally revealed the names of the counterparties that were funneled $108 billion in taxpayer funds. The largest recipients of AIG bailout funds were European banks, Wall Street firms and, to a lesser degree, municipal governments.
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The fundamental concern is that favored firms may have been overpaid for assets using a large chunk of AIG’s $170 billion bailout package. Though it is now known who the counterparties are, AIG refused to itemize what exactly it is each of them brought to the table. As a result, it’s impossible to know if some firms got better deals than others, or if taxpayers got a raw deal all together.

Eliot Spitzer explains in Slate what is going on:

Everybody is rushing to condemn AIG’s bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG’s counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman’s collapse, they feared a systemic failure could be triggered by AIG’s inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG’s trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already. (my italics)
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The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.

Spitzer then goes on to ask some very pertinent questions about all the cozy insider dealing between AIG, Goldman Sachs, Paulson, Geithner (who has replaced Paulson as Treasury Secretary), and Benanke. He says that those questions should be asked under oath.

Economist Michael Hudson sheds more light on the deal:

Here’s the problem with all the hoopla over the $135 million in AIG bonuses: This sum is only less than 0.1 per cent – one thousandth – of the $183 BILLION that the U.S. Treasury gave to AIG as a “pass-through” to its counterparties. This sum, over a thousand times the magnitude of the bonuses on which public attention is conveniently being focused by Wall Street promoters, did not stay with AIG. For over six months, the public media and Congressmen have been trying to find out just where this money DID go. Bloomberg brought a lawsuit to find out. Only to be met with a wall of silence.

Until finally, on Sunday night, March 15, the government finally released the details. They were indeed highly embarrassing. The largest recipient turned out to be just what earlier financial reports had rumored: Paulson’s own firm, Goldman Sachs, headed the list. It was owed $13 billion in counterparty claims. Here’s the picture that’s emerging. Last September, Treasury Secretary Paulson, from Goldman Sachs, drew up a terse 3-page memo outlining his bailout proposal. The plan specified that whatever he and other Treasury officials did (thus including his subordinates, also from Goldman Sachs), could not be challenged legally or undone, much less prosecuted. This condition enraged Congress, which rejected the bailout in its first incarnation.

It now looks as if Paulson had good reason to put in a fatal legal clause blocking any clawback of funds given by the Treasury to AIG’s counterparties. This is where public outrage should be focused.

Instead, the leading Congressional shepherds of the bailout legislation – along with Obama, who came out in his final, Friday night presidential debate with McCain strongly in favor of the bailout in Paulson’s awful “short” version – have been highlighting the AIG executives receiving bonuses, not the company’s counterparties.
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[What do] Sen. Schumer, Rep. Frank, Pres. Obama and other Wall Street sponsors gain from this public outcry? For starters, it depicts them as hard taskmasters of the banking and financial sector, not its lobbyists scurrying to execute one giveaway after another. So the AIG kerfuffle has muddied the water about where their political loyalties really lie. It enables them to strike a misleading pose – and hence to pose as “honest brokers” next time they dishonestly give away the next few trillion dollars to their major sponsors and campaign contributors.
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The uproar about AIG bonuses has effectively distracted attention from the AIG counterparties who received the $183 billion in Treasury giveaways. The “final” sum to be given to its counterparties has been rumored to be $250 billion, do Sen. Schumer, Rep. Frank and Pres. Obama still have a lot more work to do for Wall Street in the coming year or so.

To succeed in this work – while mitigating the public outrage already rising against the bad bailouts – they need to strike precisely the pose that they’re striking now. It is an exercise in deception.

The moral should be: The larger the crocodile tears shed over giving bonuses to AIG individuals (who seem to be largely on the healthy, bona fide insurance side of AIG’s business, not its hedge-fund Ponzi-scheme racket), the more they will distract public attention from the $180 billion giveaway, and the better they can position themselves to give away yet more government money (Treasury bonds and Federal Reserve deposits) to their favorite financial charities.
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The money can be recovered. And that’s just what Mr. Schumer, Mr. Frank and others don’t want to see the public discussing. That’s why they’ve diverted attention onto this trivia. It’s the time-honored way to get people not to talk about the big picture and what’s really important.

Barack Obama, Barney Frank, Charles Schumer, and other leaders of both parties are busy grandstanding about the bonuses to hide the fact that they are complete shills for the finance industry and that they have colluded in the outrageous giveaway of huge sums of taxpayer money to the big financial firms, using AIG as the conduit. It is basically a money laundering scheme, to hide the real beneficiaries, the big financial interests that both parties serve.

Our pro-business, one-party government at work, serving the needs of the people they really care about.

POST SCRIPT: Monkey business

Researchers find that some monkeys seem to teach their young children how to floss their teeth. This is remarkable because the ability to consciously teach others how to use tools properly is thought to be a capability that only the human species possesses.

In the name of Galt, go!

Yesterday, I wrote about the predictable opposition of the low-tax/no-tax zealots to the implementation of the sunset clause that will at the end of 2010 revert the tax rates to its 2000 values.

The most bizarre feature of this opposition has been those who are threatening to ‘go Galt’. Apparently they are taking their cue from John Galt, the hero of the Ayn Rand 1957 novel Atlas Shrugged, who inspired all the allegedly talented people, the leaders of business and arts and inventors and scientists, to show their disgust with the government burdening them with regulations and ‘taking’ their money in taxes for society’s benefit, by abandoning their prosperous careers and going on strike, even withdrawing to a remote enclave in Colorado called Galt’s Gulch. By withholding their talents from society, they caused society to crumble, teaching it the harsh lesson that the very gifted and talented must be left unfettered and tax-free so that their ambition is not shackled and their genius can flourish and thus society as a whole benefits.
[Read more…]

Phony tax arguments

I do my own taxes. They are not that complicated and the tax forms and instructions provided by the IRS are pretty clear and straightforward.

Basically, the system for most individuals is that you add up all your income to get your gross income, then subtract all the allowable deductions (personal and dependent deductions, state and local taxes, home mortgage interest, IRA and charitable contributions, etc.) and you are left with what is known as your taxable income. At the very least, a single person in 2008 would be able to claim the standard deduction of $5,450 and one personal exemption of $3,500, meaning that their taxable income would be $8,950 less than their gross income. If they put away another $5,000 in an IRA savings account, their taxable income gets further lowered by that amount and they pay even less in taxes.

In 2008, for a single person, the tax is computed as follows (see page 80):

On the amount of your taxable income that is $8,025 or less, you pay 10% of the amount.
On the amount over $8,025 and less than or equal to $32,550, you pay 15%
On the amount over $32,550 and less than or equal to $78,850, you pay 25%
On the amount over $78,850 and less than or equal to $164,550, you pay 28%
On the amount over $164,550 and less than or equal to $357,700, you pay 33%
On the amount over $357,700, you pay 35%

The size of each income tax bracket is adjusted each year for inflation.

This is what is meant by a progressive tax code, that the percentage of income that is taxed goes up the higher the bracket in which your top income level is. Your marginal tax rate is the percentage that is taxed on that portion of your income in the highest bracket. So the marginal rate for someone earning $50,000 is 25% (meaning that the portion of income over $32,550 is taxed at 25%), while for someone earning $250,000 it is 33%.

Because of this progressive structure, the actual percentage of your gross income that goes as taxes is much less than your marginal rate. For example, a single person who earns a gross income of $50,000 pays less than 11% of their gross income in taxes, even though their marginal rate is 25%, while a single person who earns a gross income $100,000 pays only about 18% of their gross income in taxes (assuming they take the standard and personal and IRA deductions) although their marginal rate is 28%. So when people say that they are ‘in the 25% tax bracket’, they are merely talking about their marginal tax rate, not the effective rate at which their entire income is taxed.

This is an important distinction between marginal and effective rates that some anti-tax advocates like to blur, by suggesting that small increases in marginal rates are a disincentive to earning, and that it makes good economic sense to limit your earnings so that you stay at a lower marginal rate. It is never the case that, by raising your taxable income so that you move into the next higher marginal tax rate, you will lower your after-tax income.

If you were earning $78,850 dollars (and thus your marginal rate was 25%), and by doing a little extra work you earned $1 more and that pushed you into the 28% marginal rate, only that last dollar would be taxed at the 28% rate, with all the other income unaffected. Your take home income would still increase by 72 cents. If you earn more, you get to keep more.

So-called ‘flat tax’ proposals, in which all income is taxed at the same rate, is regressive. The so-called ‘payroll taxes’ such as Social Security and Medicare are regressive taxes since they are flat taxes of 6.2% and 1.45% respectively on all income. In fact, the former is extremely regressive since that tax is not levied on income over an upper limit that is adjusted for inflation (and is $102,000 for 2008), which means that the more you earn over that limit, the lower the percentage of your income that you pay as tax.

The reason that a progressive tax structure is fairer is that poorer people pay a far greater proportion of their total income for basic necessities like food, clothing, shelter, and health care while the rich have far more disposable income to spend on luxuries. You do not want to heavily tax that portion of the income that goes to meet basic needs, hence the lower rate on the lower brackets.

When George W. Bush came into office in 2000, there were five income tax brackets:

On the amount of your taxable income that was $26,250 or less, you paid 15% of the amount.
On the amount over $26,250 and less than or equal to $63,550, you paid 28%
On the amount over $63,550 and less than or equal to $132,600, you paid 31%
On the amount over $132,600and less than or equal to $288,350, you paid 36%
On the amount over $288,350, you paid 39.6%

Even though these taxes were much lower than most years since 1933 (In 1945, the top marginal rate reached a peak of 94%), Bush and the Republicans pushed relentlessly for even lower tax rates, especially the top marginal rates that affected the very wealthy. By 2003, there were six income tax brackets (as now) but the rates for each bracket were reduced to 10%, 15%, 27%, 30%, 35%, and 38%.

Bush and the Republicans pushed for the even lower rates, which resulted in the current situation. All of these cuts largely benefited the wealthy since it lowered their top rates by more. In other words, they made the tax code more regressive. As a result of these tax cuts, a single person in 2008 earning a gross income of $50,000 saw a drop in their taxes of about $1,300 (compared with the 2000 rates) while someone earning $500,000 saw a drop of about $21,000. The loss in revenue due to the tax cuts that largely benefited the rich, coupled with the huge costs of the war in Iraq and Afghanistan, has resulted in the budget surpluses of 1998-2001 becoming deficits from 2002 onwards.

These tax cuts were sold as a temporary measure, and to help passage a sunset provision was added that was due to go into effect at the end of 2010, causing the rates to revert to their 2000 values. But it was entirely predictable that when the time came for the sunset provision to kick in, the tax cut zealots would start misleadingly squealing that we were getting a tax hike, rather than the truth that we were ending something that was meant to be a temporary measure. And we see this happening now.

While I expected this kind of opposition to reverting to the 2000 rates, what took me by surprise was the sudden channeling by some people of their inner Ayn Rand and their plan to oppose the sunset provisions using a bizarre strategy based on, of all things, the plot of her novel Atlas Shrugged.

Next: Ayn Rand and ‘going Galt’.

POST SCRIPT: Civil liberties and internet censorship

Chris Hansen, senior national staff counsel for the ACLU, will be speaking at the Case Western Reserve University Law School Moot Court Room on Thursday, March 19th from 4:30-5:30 on the topic of “Civil Liberties and Internet Censorship.”
The event is free and open to the public. Call 216-472-2220 or go here for more details.

The colonial experience-4: The economic transformation

(For previous posts in this series, see here.)

Perhaps the biggest disruption caused by the British colonialists was the massive change in rural life and agricultural practices as a result of the conversion from a somewhat communal, subsistence form of agriculture, where much of the local resources used for food production (such as water supplies, grazing land for animals, and forests as a source of food and fuel) was held in common, to a plantation economy with strict private ownership.

Sri Lanka before colonial rule was a feudal country and in such systems land usage was controlled by the feudal lords or by tradition. The colonial powers, on the other hand, were mercantilist and later capitalist and in such systems, it was necessary to have clear rules about who owned what, especially land. Since many of the farmers in rural areas in Sri Lanka did not officially have title to the land they cultivated, the land being either held in common by the village or rights assigned by custom or by the feudal lords, it was easy for the central government to get ownership and convert that land into single crop plantations under the control of large British-owned companies.
[Read more…]

Jon Stewart takes on Jim Cramer, CNBC, and the financial news industry

Most people would have heard by now of the Daily Show-Jim Cramer face-off, but I want to comment on it anyway.

It all started when CNBC reporter Rick Santelli tried to fan outrage against Obama’s plan to rescue some homeowners from their current situation. Santelli went on the floor of the stock exchange and riled up the traders there by implying that their money was being used to bail out reckless homebuyers.

Stewart made fun of this cheap populism by running clip after clip of CNBC reporters touting the virtues of one company after another just before those companies went belly up. Several of those clips featured Jim Cramer, who has a daily show on the CNBC network.
[Read more…]

The colonial experience-3: The missionaries

(For previous posts in this series, see here.)

It is well known that in the colonies conquered by the Europeans, the Bible and the gun went hand in hand. Soon after a country was militarily overpowered, missionaries were often the next group to go in under their protection, even before merchants and traders. These missionaries were the first to establish a permanent presence in many areas of the country, setting up rudimentary medical facilities, classrooms, and churches. Although they did have the backing of the military, the missionaries were often personally courageous and even humane people, taking aid and a strange message to the remotest parts of a distant and foreign land and often having to deal with an initially suspicious and hostile population, and by doing so, winning souls for Jesus. Chinua Achebe’s novel Things Fall Apart gives a good description of this process at work in Nigeria.

Many of the missionaries with their schools and hospitals and social work represented the kinder, gentler face of colonialism, the velvet glove hiding the iron hand, and thus masking the basic exploitative nature of colonial rule. By preaching about Jesus, they sought to replace local religious myths and totems, that often represented local interests, with Christian myths and totems that were common to a larger group. They thus tried to create allegiance to a larger political entity than the village or tribe, and to get the local people to identify with the values of the colonists.

Many of the missionaries in Sri Lanka had the same attitude towards the locals that the administrators of the Indian schools in America had, that what was best for the Sri Lankan people was to suppress as much as possible local language and custom and have them adopt western ways. So successful were they that this attitude persisted long after the British formally left. Missionary schools taught by foreign priests and nuns continued to exist after we gained independence, and punishing students for not speaking English was also common in some Sri Lankan missionary schools.

Even during my own education, long after independence in a school set up by Anglican missionaries, the chaplains and some of the teachers were English, but they were generally progressive people who genuinely seemed to have the interests of the Sri Lankans at heart. (At least they seemed so to me when I was a schoolboy. It could have been the case that they were simply good actors. But I doubt it. To be really effective as a missionary, you have to be a true believer, convinced that you are truly serving god by converting the locals. While such people are misguided, they are usually incapable of willful deceit.)

By preaching Christianity with its idea that what happens in this world is not important, that what really counts is the health of your soul and that your reward is in heaven, they promoted a message of acquiescence to colonial rule and thus sought to blunt the appeal of those who argued for revolting against the occupiers. That dynamic has always been there, with religion undermining the message that redressing injustice and exploitation in this world is an important goal and that people should unite to overthrow their oppressors whether they be their own people or foreign rulers.

We saw that same thing happen with the slaves in the US. Their adoption of Christianity probably resulted in greater acceptance and endurance of their suffering under the slave owners. The slaves were encouraged to seek consolation by looking forward to their rewards in heaven and not seek justice on Earth, thus blunting the efforts of those who argued that they had a right to a good life here and now and that slavery was an abomination.

I have written before about how Christianity has been systematically used as a cover for political and economic exploitation. Religion has been a wonderful ally to those seeking to maintain the status quo.

It is not an accident that religious missionaries were among the first groups of people to follow colonial conquerors and received the full patronage and protection of the colonial rulers. The famous African quote “When the missionaries came to our country they had the Bible and we had the land. They said ‘let us pray’ and we closed our eyes to pray. At the end of the prayer, they had the land and we had the Bible” captures accurately how religion served the interests of the colonial powers.

Next in the series: The economic transformation created by the colonists.

POST SCRIPT: I don’t get Twitter

Although I signed up for a Twitter account a long time ago to see what it was all about, I have never used it. But I get messages that people have signed up to follow my “tweets”, as the messages (limited to 140 characters) are called. I completely share Tom Tomorrow’s bafflement as to why anyone would want to follow me, or anyone else for that matter, on Twitter.

Jon Stewart doesn’t understand the appeal of these new networking crazes either.

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Are Facebook and MySpace killing religion?

There was welcome news in a recent survey (sent to me by Bill, a reader of this blog) that found that the number of people professing themselves to be Christians in America has declined while the numbers of nonbelievers has risen significantly.

According to the ARIS survey, compared to results in 1990, “The percentage of Americans claiming no religion, which jumped from 8.2 in 1990 to 14.2 in 2001, has now increased to 15 percent…”Many people thought our 2001 finding was an anomaly,” [survey co-author Ariela] Keysar said. “We now know it wasn’t. The ‘Nones’ are the only group to have grown in every state of the Union.””

Furthermore, “Only 1.6 percent of Americans call themselves atheist or agnostic. But based on stated beliefs, 12 percent are atheist (no God) or agnostic (unsure), while 12 percent more are deistic (believe in a higher power but not a personal God). The number of outright atheists has nearly doubled since 2001, from 900 thousand to 1.6 million. Twenty-seven percent of Americans do not expect a religious funeral at their death.”

This confirms what I have said many times in the past, that many people are effectively and functionally atheists, even though they may shy away from explicitly adopting the label. I am pretty confident that even this survey is underestimating the number of nonbelievers due to the reluctance of people admit to it.

Correspondingly “The percentage of Christians in America, which declined in the 1990s from 86.2 percent to 76.7 percent, has now edged down to 76 percent.”

The good news is that the main result of the survey that the number of nonbelievers has risen significantly has been widely reported in the media. USA Today, in a long article with charts and graphs, said that “this category [nonbelievers] now outranks every other major U.S. religious group except Catholics and Baptists. In a nation that has long been mostly Christian, “the challenge to Christianity … does not come from other religions but from a rejection of all forms of organized religion,” the report concludes.” The Washington Post also made the increased numbers of nonreligious people its lede.

Such media reports will, I think, further encourage those who already harbor secret feelings that the tenets of religion make no sense to become more open about expressing their doubts.

So what could be the source of this decline in religiosity? Here’s my theory: Facebook. Not only Facebook but other social networking sites like MySpace that are exploding on the internet. All these sites are filling a niche that once used to be largely the preserve of churches, which was a place to meet like-minded people. If you moved to a new location, joining a religious group was often the best way to get to know others like you. A Sri Lankan friend of mine used to live in a small town in central Ohio. The people were friendly but almost the first question that was posed to her was to ask her what church she belonged to. When she said she was a Buddhist, they were a little nonplussed. But with the internet, it becomes far easier to find affinity groups and so the utility of churches as a meeting place and networking center has declined.

This does not mean that religion will go away. Most people will still feel the need for something transcendental in their lives, especially the need for rituals to mark landmarks like birth, coming of age, marriage/commitment, and death. I suspect that churches and priests will end up largely serving those sporadic needs, with regular weekly religious services becoming sparsely attended by aging populations.

ARIS survey co-author Barry Kosmin, director of the Institute for the Study of Secularism in Society and Culture at Trinity College in Hartford, Conn. says that today, “religion has become more like a fashion statement, not a deep personal commitment for many.”

Over time, the US is likely to become like the Scandinavian countries. The people there belong to churches (mostly Lutheran) but do not think of the church as the place to ask the big existential questions of life, meaning, and death. They are not even much bothered by those questions at all. The church is seen as simply a place that conducts ceremonies.

And contrary to American ideas that a country without religion would be a depraved one, this article by Peter Steinfels, in the February 27, 2009 issue of the New York Times (thanks to reader Chris) says, “It is also well known that in various rankings of nations by life expectancy, child welfare, literacy, schooling, economic equality, standard of living and competitiveness, Denmark and Sweden stand in the first tier.”

Phil Zuckerman, a sociologist and author of a book on religion in Denmark and Sweden called Society Without God (New York University Press, 2008), says that he found “a society — a markedly irreligious society — that was, above all, moral, stable, humane and deeply good.”

The people were not anti-religion probably because in those countries religion is not the powerful negative force that it is in the US. There is no sense in being hostile to something that is largely irrelevant. But the secular nature of their religion is clearly evident.

The many nonbelievers [Zuckerman] interviewed, both informally and in structured, taped and transcribed sessions, were anything but antireligious, for example. They typically balked at the label “atheist.” An overwhelming majority had in fact been baptized, and many had been confirmed or married in church.

Though they denied most of the traditional teachings of Christianity, they called themselves Christians, and most were content to remain in the Danish National Church or the Church of Sweden, the traditional national branches of Lutheranism.

At the same time, they were “often disinclined or hesitant to talk with me about religion,” Mr. Zuckerman reported, “and even once they agreed to do so, they usually had very little to say on the matter.”
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This indifference or obliviousness to religious matters was sometimes subtly enforced. “In Denmark,” a pastor told Mr. Zuckerman, “the word ‘God’ is one of the most embarrassing words you can say. You would rather go naked through the city than talk about God.”

One man recounted the shock he felt when a colleague, after a few drinks, confessed to believing in God. “I hope you don’t feel I’m a bad person,” the colleague pleaded.

Social conformity or not, Mr. Zuckerman was deeply impressed with the matter-of-fact way in which many of his interviewees spoke of death, without fear or anxiety, and their notable lack of existential searching for any ultimate meaning of life.

This is the way America is going. The churches will still be there. The priests and rabbis and imams will still be there. But god, whose only purpose is to allay fears of death by fostering the delusion of a life after this one, will have largely disappeared.

POST SCRIPT: What if god disappeared?

Thanks to Machines Like Us.

The colonial experience-2: The (mostly) bad

(For previous posts in this series, see here.)

While many of the things introduced by the British had beneficial features, almost every one had its own negatives, apart from the introduction of universal suffrage. The reason was that each of these things was not created exclusively for the benefit and advancement of the local population but to increase the ability of the colonial powers to control the population and exploit the country’s natural resources for the benefit of England, especially a climate that was ideally suited for the growing of food and spices. Any benefits that did accrue to the locals were incidental.

For example, although the new road and rail networks provided greater mobility for the population, that was not their primary intent. Instead they were designed to facilitate the transport of the products of the new cash crop plantations to the coastal ports for export. One can see even now how the winding rail lines through the central hill areas follow the path of the plantations. These systems, along with the telephone and telegraph systems, also enabled easier access to, and thus greater control of, the entire country to the small band of British colonial officers based in the urban centers, enabling them to keep tabs on what was going on.

Also, while the police and army consisting of Sri Lankans brought about greater security for people, they could, and were often used to suppress opposition, especially as the independence movement started to grow in strength.

The goal of any colonial power is very simple and unambiguous: to exploit the resources of the conquered country for the benefit of the ruling classes in the conquering country. The ultimate mechanism for achieving this is also simple: raw power. But power only takes you so far for so long. To achieve long-term dominance one needs to win the allegiance, or at least the acquiescence, of significant sectors of the local population. So while the foundation of achieving the political and economic goals of the colonialists lay with brute force (they had the guns after all), the task of winning the hearts and minds of the people to feel positive about their subjugation by their foreign rulers fell largely, though not exclusively, to the missionaries.

By setting up schools and churches, these people sought to create an important class of people: those who were of the local population but who identified more with the interests of the colonial power. They did this by giving benefits such as land and titles and leadership positions in legislative and administrative bodies to those who were willing to use them to advance British interests. Over time, this group became identified as being ‘national’ leaders, even though they spoke English, wore western dress, lived a western lifestyle, and had little in common with the people they supposedly represented.

This is not to say that all the colonialists were cynical exploiters. Many of them, especially at the middle and lower levels, probably were genuinely interested in the welfare of the ‘natives’ (as we were so quaintly called) and sought to improve their lives by bringing modernity to what they perceived as backward people. This is probably more true of those missionaries and educators (and often the same person played both roles) who built churches and schools with the goals of saving the heathen from hell and replacing their pagan beliefs with what they saw as belief in the one true god. I have little doubt that most of these people sincerely thought that teaching children English and making them adopt western ways of life in terms of clothing, speech, and lifestyles was a good thing.

It is not unlike what happened with Native American children in the US who were forcibly removed from their families on the reservations and sent to distant boarding schools where they were systematically stripped of all their traditional cultural connections and forced to adopt the majority white culture. In those schools, children were, for among other things, forced to cut off their long hair and were punished if they were caught speaking in their own languages and not in English.

Many of the people who implemented what we now condemn as a woefully wrong-headed and cruel policy did so out of the best of intentions, thinking that the only way to save the Indians from what they saw as the wasteland of life on the reservation was to have them adopt the ways of white people. The Olympic gold medal-winning athlete Jim Thorpe is probably the best known of all of them. He attended Carlisle School in Pennsylvania, which had as its founding principle: “Kill the Indian and save the man.”

But while bribes and coercion can result in some people being willing to serve the interests of their colonial masters, to achieve the best results you need to have local people who think that the ways of the colonial powers are truly better and that by advancing those interests, they are also advancing the interests of the local people. You need to win the hearts and minds of a significant group of the local population.

This is where the missionaries came in, as I will discuss in the next post in this series.

POST SCRIPT: How not to win hearts and minds

A US soldier excoriates Iraqi police recruits. (Very strong language advisory.) I wonder how the interpreter deals with the constant stream of profanity. Does he gloss over it? Censor? Literally translate? Translate idiomatically?

The power of the internet

The internet has had one major positive effect and that is that it has reduced the power of the establishment media to control the public discourse. It used to be the case that once you had achieved a position of authority in the media, you could say pretty much what you wanted and, as long as it conformed to the desired narrative of the pro-war/pro-business one party system, you could not be challenged. This enabled the discussion on important topics to be limited to within a very narrow spectrum of views, so that whatever view prevailed within that spectrum, the underlying status quo remained untouched.

It used to be the case that those informed people who read something in the paper or heard on the news that they knew was wrong had very few options, other than (say) writing a letter to the editor, which the paper had the option of refusing and which had only a marginal effect anyway.

Take for example this anecdote from Noam Chomsky’s book Understanding Power (2002) about a column George Will wrote in 1982 (thanks to Jonathan Schwarz).

[A] few years ago George Will wrote a column in Newsweek called “Mideast Truth and Falsehood,” about how peace activists are lying about the Middle East, everything they say is a lie. And in the article, there was one statement that had a vague relation to fact: he said that Sadat had refused to deal with Israel until 1977. So I wrote them a letter, the kind of letter you write to Newsweek—you know, four lines—in which I said, “Will has one statement of fact, it’s false; Sadat made a peace offer in 1971, and Israel and the United States turned it down.” Well, a couple days later I got a call from a research editor who checks facts for the Newsweek “Letters” column. She said: “We’re kind of interested in your letter, where did you get those facts?” So I told her, “Well, they’re published in Newsweek, on February 8, 1971″—which is true, because it was a big proposal, it just happened to go down the memory hole in the United States because it was the wrong story. So she looked it up and called me back, and said, “Yeah, you’re right, we found it there; okay, we’ll run your letter.” An hour later she called again and said, “Gee, I’m sorry, but we can’t run the letter.” I said, “What’s the problem?” She said, “Well, the editor mentioned it to Will and he’s having a tantrum; they decided they can’t run it.” Well, okay.

Mind you, in 1982, Chomsky was already a very eminent and well-known figure, both as a linguist and political analyst who was, outside the United States, one of the most famous and admired intellectuals. It will probably surprise many Americans that in the rest of the world Noam Chomsky is a household name in intellectual circles whose writings are regularly published in mainstream newspapers and magazines. And yet even that was not enough clout to enable him correct a direct falsehood by Will. That was the end of that.

Now fast-forward to 2009. Zachary Roth at Talking Points Memo tells the story in which the still-deceptive Will writes a column on February 15 in which he denies global warming, and as evidence says “According to the University of Illinois’ Arctic Climate Research Center, global sea ice levels now equal those of 1979.”

The Arctic Climate Research Center immediately issued a contradiction on its website, saying:

We do not know where George Will is getting his information, but our data shows that on February 15, 1979, global sea ice area was 16.79 million sq. km and on February 15, 2009, global sea ice area was 15.45 million sq. km. Therefore, global sea ice levels are 1.34 million sq. km less in February 2009 than in February 1979. This decrease in sea ice area is roughly equal to the area of Texas, California, and Oklahoma combined.

It is disturbing that the Washington Post would publish such information without first checking the facts.

This denial was picked up by bloggers who gave the ACRC statement wide publicity. Many bloggers wrote to the editor of the WP asking for a retraction. Will and the editor of the WP editorial page, the awful Fred Hiatt, went into their traditional mode of operation when their narrative is contradicted, which is to either stonewall and ignore the critics, or stick to their guns and act as if they are immune from error and that no one should dare challenge their oracular wisdom. After all, that policy worked so well back in 1982 when even the efforts of people like Chomsky to point out their errors could be thwarted.

But the world has changed. The blogs kept hammering at the story, and the WP and Will got blasted with thousands of people writing to the paper and their website and to their new ombudsman demanding that the paper issue a correction. The paper’s ombudsman Andrew Alexander initially replied saying that he had questioned the editorial page editors about this and they had said they had checked the facts in Will’s column and were satisfied that they were valid. But this bland self-serving assertion drew an even greater negative response.

The ombudsman then investigated the matter personally and wrote a column on March 1, 2009 in which he tried to find reasons to excuse their famous columnist but had to conclude that Will and the WP editors had at best been very sloppy in their checking of the facts. He said, “Opinion columnists are free to choose whatever facts bolster their arguments. But they aren’t free to distort them.”

Will this new experience of prompt and widespread public reaction make people like Will more cautious about making ungrounded assertions? Unlikely. People like Will have got so used to being venerated as sages that he will find it hard to change his attitude that what he says cannot be challenged. But the editors who are responsible for vetting his writings might now exercise more diligence and that is a good thing.

Welcome to the world of the internet, George Will and Fred Hiatt. You cannot get away with distortions that easily anymore.

POST SCRIPT: Great card trick by Ricky Jay

I love magic tricks. They are the best evidence against the claims of charlatans who say they have paranormal powers. (Thanks to Crooks and Liars.)

The colonial experience-1: The (mostly) good

In a comment on my earlier post on portrayals of the developing world in western culture, Jared raised a really interesting point about his odd experience of taking a class on “British Colonialism in India” and finding that, while he was the only non-Indian student, he was also the only one who seemed to think that the practices of the British colonialists were not altogether benign. He was rightly surprised that although we now tend to look on colonialism as a bad thing, the descendents of the very people who were colonized, the ones most likely to have been aware of, and even scarred by, the negatives of it seemed to take a much more positive view of it. He wondered why this was so, and the next series of posts gives my long-winded answer to his question.
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