As the dollar's fall continues, the US must decide between growth or curbing inflation

US trade deficit widens

Forget shopping, this could turn into a crash

As the dollar's fall continues, the US must decide between growth or curbing inflation Larry Elliott, economics editor

Monday December 4, 2006
Guardian

The last time the pound was at this level against the dollar was in the uneasy days of 1992 between John Major's April election victory and the cataclysm of Black Wednesday, when the markets realised that Britain's economic policy was based on smoke and mirrors.

With the economy deep in recession and unemployment heading to 3 million (again), Britain badly needed deep cuts in interest rates to stimulate growth. Yet the foundation stone for the government's anti-inflation policy was membership of the Exchange Rate Mechanism, which required rates to be kept high to defend the pound's value.

Policy was pulled in two directions at once but the government's credibility was at stake, so it talked tough and hoped the financial markets did not spot that it was acting weak. But the markets latched on immediately, sensing that Major and his chancellor, Norman Lamont, would not follow through on their blood-curdling public statements to do whatever it took to maintain the pound's ERM parity because that would have killed off any hopes of economic recovery. Once the markets woke up to the fact that the Tories were paper tigers, Black Wednesday was inevitable.

It's hard not to feel a sense of deja vu now, with the Federal Reserve facing a milder version of the dilemma that troubled the Treasury and the Bank of England 14 years ago. There are real differences between Britain then and the US now: the dollar is floating, rather than fixed; it is underpinned by its status as a global reserve currency; and the US economy has not been mired in recession for two years.

Even so, Ben Bernanke, the Fed's chairman, knows his credibility is on the line. Inflation is high enough to make the central bank nervous and that ought to mean the 18th rise in interest rates since the trough of 1%, taking them to 5.5%. But the deflating housing bubble is now affecting the rest of the economy. Friday's manufacturing snapshot was a lot weaker than Wall Street expected, with an index of below 50 suggesting that industry's output is falling.

Dean Baker, of the Centre for Economic Policy and Research in Washington, is predicting a recession in the next year, with the economy contracting by 0.7% and more than a million added to the dole queues. Most analysts are not that gloomy - at least not yet - but most expect this year's slowdown to persist through 2007 and to prompt the Fed to ease policy in the first half of next year.

So Bernanke's warning last week on the need for vigilance against inflation fell on deaf ears. The dollar fell because the markets do not believe the Fed will make good on its threat. Bernanke is wary of cutting rates for fear of looking soft on inflation; he is wary about raising rates for fear of weakening the economy. So, for now, he'll do nothing and hope that something comes up to get him out of the bind he's in. That doesn't always work: ask Major or Lamont.

Rebalancing

One lesson from the ERM experience is that a weaker dollar is not necessarily a bad thing. In the context of the US trade deficit, it is to be welcomed that the dollar is likely to get a lot cheaper. Sterling's devaluation in 1992 and four points off interest rates coupled with a tighter fiscal policy helped rebalance the UK economy, boosting production at the expense of consumption. A similar rebalancing is long overdue in the US.

Indeed, it is unclear why a $2 pound is being greeted with such enthusiasm on this side of the Atlantic. It makes a Christmas shopping spree in New York far cheaper but the British economy's problem is not that we shop too little but too much. Sterling's trade-weighted index hit a six and a half year high on Friday and the UK trade deficit is at about 5% of GDP. Economic fundamentals suggest the pound must go lower, just as it is obvious the dollar had to fall.

Bernanke's problem, however, is that there is the world of difference between a gentle but steady decline in the dollar and a pell-mell crash. A controlled depreciation would ease strains caused by global imbalances - US trade deficits, Asian trade surpluses - and insulate the US economy a little from the impact of a severe housing market downturn. A crash in the dollar would lead to turmoil on the world's markets, an increase in long-term US interest rates and a vastly increased risk of a hard landing.

One difficulty in analysing how the markets will react is that nobody is sure why the dollar has suddenly fallen out of favour. Some commentators say the trigger was the hint from China that it favoured diversifying reserves so they were less weighted towards dollars. But Beijing has said this regularly over the past three years but carried on buying US assets and thus propping up the dollar. There seems no logical reason why Asian central banks should start dumping greenbacks; not only would they be selling their US assets at a loss, it would make their exports more costly.

Carry trades

A greater risk is that private investors change their behaviour. Hedge funds could determine what happens next. One issue is the growth in carry trades, which is when money is borrowed in a country with low interest rates (such as Japan) and invested in a country with high rates (the US, say). This is lucrative for investors and supports the dollar but risky and attractive to speculators only if the currency in the country with high rates remains strong. If it doesn't, gains from the differential in rates are wiped out by the depreciating currency.

All in all, the prognosis is not good for the dollar. The economy is weak, policymakers seem paralysed and speculators look ready to stampede for the exit. Doing nothing is sometimes the least bad option; it is hard to see that it will be this time. There is a risk that the Fed will get badly behind the curve, and that every bit of gloomy economic news triggers more selling of dollars. Bernanke needs to start preparing the markets for rate cuts or he could be facing a real panic.

Guardian Unlimited © Guardian News and Media Limited 2006

The really rich and how much they own

World's richest 1% own 40% of all wealth, UN report discovers

· First ever study of global household assets
· 50% of world's adults own just 1% of the wealth

James Randerson, science correspondent
Wednesday December 6, 2006
Guardian

The richest 1% of adults in the world own 40% of the planet's wealth, according to the largest study yet of wealth distribution. The report also finds that those in financial services and the internet sectors predominate among the super rich.

Europe, the US and some Asia Pacific nations account for most of the extremely wealthy. More than a third live in the US. Japan accounts for 27% of the total, the UK for 6% and France for 5%.

The UK is also third in terms of per capita wealth. UK residents are found to have on average $127,000 (£64,000) each in assets, with Japanese and American citizens having, respectively, $181,000 and $144,000. All data relate to the year 2000.

The global study - from the World Institute for Development Economics Research of the United Nations - is the first to chart wealth distribution in every country as opposed to just income, for which more comprehensive date is available. It included all the most significant components of household wealth, including financial assets and debts, land, buildings and other tangible property. Together these total $125 trillion globally.

Anthony Shorrocks, director of the research institute at the United Nations University, in New York, led the study. He affirmed that the existence of a nest egg provided an insurance policy that helped people cope with unforeseen events such as ill health or a lost job. Capital allowed people to drag themselves out of poverty, he added. "In some ways, wealth is more important to people in poorer countries than in richer countries." It was more difficult in developing countries to set up a business because it was harder to borrow start-up funds, he said.
His team used detailed data from 38 countries, but had to rely on incomplete information from the rest.

The report found the richest 10% of adults accounted for 85% of the world total of global assets. Half the world's adult population, however, owned barely 1% of global wealth. Near the bottom of the list were India, with per capita wealth of $1,100, and Indonesia with assets per head of $1,400.

Many African nations as well as North Korea and the poorer Asia Pacific nations were places where the worst off lived.

"These levels of inequality are grotesque," said Duncan Green, head of research at Oxfam. "It is impossible to justify such vast wealth when 800 million people go to bed hungry every night. The good news is that redistribution would only have to be relatively small. Such are the vast assets of the rich that giving up a small part of their wealth could transform the lives of millions."

Madsen Pirie, director of the Adam Smith Institute, a free-market thinktank, disagreed that distribution of global wealth was unfair. He said: "The implicit assumption behind this is that there is a supply of wealth in the world and some people have too much of that supply. In fact wealth is a dynamic, it is constantly created. We should not be asking who in the past has created wealth and how can we get it off them." He said that instead the question should be how more and more people could create wealth.

Ruth Lea, director of the Centre for Policy Studies, a thinkthank set up by Margaret Thatcher, said that although she supported the goal of making poverty history she did not think increasing aid to poorer countries was the answer. "It's no use throwing lots of aid at countries that are basically dysfunctional," she said.

The UN report was issued as the Swiss magazine Bilan released a list of the richest Swiss residents. Ingvar Kamprad, the founder of Ikea, topped the list with an estimated fortune of $21bn.

Guardian Unlimited © Guardian News and Media Limited 2006

Red Wine Ingredient Increases Endurance, Study Shows

Note from the blogger: Oh yeah, the second of recent preliminary findings concerning a favorite libation... pass me the red wine for my second glass.



Red Wine Ingredient Increases Endurance, Study Shows

By NICHOLAS WADE

Published: November 17, 2006
A drug already shown to reverse the effects of obesity in mice and make them live longer has now been shown to increase their endurance as well.

Experts say the finding may open up a new field of research on similar drugs that may be relevant to the prevention of diabetes and other diseases.

An ordinary laboratory mouse will run one kilometer on a treadmill before collapsing from exhaustion. But mice given resveratrol, a minor component of red wine and other foods, run twice as far. They also have energy-charged muscles and a reduced heart rate, just as trained athletes do, according to an article published online in Cell by Johan Auwerx and colleagues at the Institute of Genetics and Molecular and Cellular Biology in Illkirch, France.

“Resveratrol makes you look like a trained athlete without the training,” Dr. Auwerx (pronounced OH-wer-ix) said in an interview.

He and his colleagues said the same mechanism seemed likely to operate in humans, based on analysis in a group of Finnish subjects of the gene that is influenced by the drug.
Their rationale for testing resveratrol was evidence obtained three years ago that it could initiate a genetic mechanism known to protect mice against the degenerative diseases of aging and prolong their life spans by 30 percent.

Dr. Auwerx, whose interest is in the genetic control of metabolism, decided to see whether resveratrol would offset the effects of a high-fat diet, specifically the disturbances known as metabolic syndrome that are the precursors of diabetes and obesity. In his report, he and his colleagues say very large doses of resveratrol protected mice from weight gain and developing the syndrome.

Dr. Auwerx attributes this in large part to the significantly increased number of mitochondria he detected in the muscle cells of treated mice.

Mitochondria are the organelles in the body’s cells that generate energy. With extra mitochondria, the treated mice were able to burn more fat and thus avoid weight gain and decreased sensitivity to insulin, Dr. Auwerx said. He found their muscle fibers had been remodeled by the drug into the type more prevalent in trained human athletes.

Dr. Ronald M. Evans, an expert on the hormonal control of metabolism at the Salk Institute, said the report by Dr. Auwerx’s team had “shown very convincingly that resveratrol improves mitochondrial function” and fends off metabolic disease. He described the study as “very important, because it is rare that we identify orally active molecules, especially natural molecules, that have such a broad-based, positive effect on a problem which is as widespread in society as metabolic disease.”

Dr. Ronald Kahn, director of the Joslin Diabetes Center in Boston, said this research would focus more attention on a recently discovered group of enzymes called sirtuins that resveratrol is believed to affect.

Noting that he is a scientific adviser to Sirtris, a company developing drugs that activate sirtuins, Dr. Kahn said that “certainly drugs that act on this class of proteins have the potential to have major effects on human disease.”

Dr. Auwerx’s study complements one published this month by Dr. David Sinclair of the Harvard Medical School, who found that much more moderate doses of resveratrol protected mice from the metabolic effects of a high-calorie diet. Though his mice did not lose weight, they lived far longer than the undosed mice fed the same diet.

The two studies were started and performed independently, Dr. Auwerx said, though he obtained supplies of resveratrol from Sirtris, which was co-founded by Dr. Sinclair, and has become a scientific adviser to it.

A drug that prolongs life, averts degenerative disease and makes one into a champion athlete sounds almost too good to be true, especially if all or even some of its properties should turn out to apply to people.

Dr. Christoph Westphal, Sirtris’s chief executive, replied to this objection with a question, “Is it too good to be true that when you are young you get no disease?”

Dr. Westphal said he believed that the activation of sirtuins was what kept the body healthy in youth, but that these enzymes became less powerful with age. This is the process that is reversed by resveratrol and, he hopes, by the more powerful sirtuin activator drugs that his company has developed, though many years of clinical trials will be needed to prove they work and are safe.

The buzz over sirtuin activators has infected scientists who do research on the aging process, several of whom are already taking resveratrol. Dr. Sinclair has been swallowing resveratrol capsules for three years and has said his parents and half the members of his laboratory do the same. So does Dr. Tomas Prolla at the University of Wisconsin, who said, “The fact that investigators in the field are taking it is a good sign there is something there.”

But many others, including Dr. Leonard Guarente of M.I.T., whose 15-year study of sirtuins has laid the basis for the field, say it is premature to take the drug.

It was after working in his laboratory as a postdoctoral student that Dr. Sinclair found in 2003 that resveratrol was a sirtuin activator. Though resveratrol has long been known to be an ingredient of red wine and other foods, its presence there is minuscule compared with the doses used in experiments.

Dr. Sinclair dosed his mice daily with 22 milligrams of resveratrol per kilogram of weight, and Dr. Auwerx used up to 400 milligrams. No one can drink enough red wine to obtain such doses.

Of Mice & Men with 2 glasses of red wine

Red Wine Compound Promises Longevity, Study Finds
By Rob SteinWashington Post Staff Writer
Wednesday, November 1, 2006; 12:04 PM

A substance found in red wine protected mice from the ill effects of obesity, raising the tantalizing prospect the compound could do the same for humans and may also help people live longer, healthier lives, researchers are reporting today.

The substance, called resveratrol, enabled mice that were fed a high-calorie, high-fat diet to live normal, active lives despite becoming obese -- the first time any compound has been shown to do that. Tests found the agent activated a host of genes that protect against the effects of aging, essentially neutralizing the adverse effects of a bad diet on the animals' health and lifespan.

Although much more work is needed to explore the benefits and safety of the substance, which is sold over the counter as a nutritional supplement, the findings could lead to the long-sought goal of extending the healthy human lifespan, experts said. Preliminary tests in people are already underway.

"We've been looking for something like this for the last 100,000 years, and maybe it's right around the corner -- a molecule that could be taken in a single pill to delay the diseases of aging and keep you healthier as you grow old," said David A. Sinclair, a Harvard University molecular biologist who led the study. "The potential impact would be huge."

The findings triggered excitement among scientists studying aging, who hailed the findings as groundbreaking.

"This represents a likely major landmark," said Stephen L. Helfand, who studies the molecular genetics of aging at Brown University. "This really pushes the field forward. It's quite exciting."

The research, being published in tomorrow's issue of the journal Nature, helps explain a host of observations that have long intrigued researchers, including why French people tend to get fewer heart attacks and why severely restricting the amount of calories animals ingest makes them live longer.

"This gives us hope that the idea of harnessing the power of calorie restriction is not a fantasy and can be brought to reality," said Leonard Guarante, who studies the biology of aging at the Massachusetts Institute of Technology. "This could produce a whole new approach to preventing and treating the diseases of aging."

Previous research has shown that laboratory animals fed very low-calorie diets live significantly longer, which has prompted some people to try strenuous "caloric restriction" diets as a possible fountain of youth, even though its effectiveness in humans remains unproven.

In the hope of finding a drug that could harness the natural life-extending capabilities activated by caloric restriction, Sinclair and his colleagues identified a number of promising compounds, including resveratrol, which is found in red wine, grape skins and other plants. The compound, which increases the activity of enzymes known as sirtuins, prolonged the lifespan of every organism scientists have tested it on, including yeast, worms, fish and fruit flies.

To examine for the first time whether resveratrol could also extend longevity in mammals, Sinclair and his colleagues studied year-old mice, which are the equivalent of middle-aged humans. One third of the mice were fed a standard diet. Another third ate the equivalent of a junk-food diet -- one very high in calories with 60 percent of the calories coming from fat. The last third lived on the unhealthy diet combined with resveratrol.

After a year, the researchers found that both groups of mice that ate the junk food diet got fat, and those that did not get any resveratrol experienced a host of health problems, including the early signs of diabetes and heart disease. They tended to die prematurely.

But the mice that got resveratrol remained healthy and lived as long as the animals that ate a normal diet and stayed thin -- adding the equivalent of about 10 or 20 human years to their lifespan. Moreover, the hearts and livers of the animals getting resveratrol looked healthy, the activity of a host of key genes appeared normal and they showed some of the biological changes triggered by caloric restriction. They also appeared to have a better quality of life, retaining their activity levels and agility.

"It is really quite amazing," Sinclair said. "The mice were still fat but they looked just a healthy as the lean animals."

The researchers cautioned that the findings should not encourage people to eat badly, thinking resveratrol could make gluttony completely safe. They also noted that a person would have to drink at least 100 bottles of red wine a day or take mega doses of the commercially availably supplements to get the levels given to the mice, which may not be safe in humans.

But the findings indicate that resveratrol or molecules like it could have myriad benefits, and several aging researchers said the results tempted them to start using the supplements in the meantime.

"I'm usually a very cautious person," said Cynthia Kenyon of the University of California in San Francisco. "But I'm seriously thinking about taking resveratrol myself. It seems pretty wonderful."

"I actually told my mother she should take it," Helfand said. "I even went out and got her some."

The researchers are continuing to study the remaining living mice to gauge the full benefits, as well as other mice fed a normal diet or a calorie-restricted diet along with resveratrol to see whether the substance extends life in non-obese animals. So far the results appear promising, researchers said.

"This appears to have a lot of potential," said Rafael de Cabo of the National Institute on Aging, which helped conduct and fund the study.

Sirtris Pharmaceuticals, a Cambridge, Mass., biotech company that Sinclair helped start and that helped fund the mouse study, has already started testing a version of resveratrol on diabetic humans. Other companies are studying similar substances.

"For now, we counsel patience," wrote Matt Kaeberlein and Peter S. Rabinovitch of the University of Washington in an article accompanying the study. "Just sit back and relax with a glass of red wine . . . if you must have a Big Mac, fries and apple pie, we may soon know if you should supersize that resveratrol shake."


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From the Blogger.
As we head into midterm elections and the ambient noise increases as to what possible outcomes, and what changes may occur, keep it all in stride by sipping a glass or better yet two glasses of red wine of your favorite varietal with friends, familys, or lovers.

Fall is the season to begin the review of the year, and gather with loved ones to mark holidays. 2006 goes down for my friends and I as the year, we look forward to saying good riddance.

Hold onto hope for seeing a change in balance in the current presidential administration and congress.
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Liberals, Progressives, Populist.... The L word

A Wrong Turn Led to the "L-Word"

By E. J. Dionne Jr.
Tuesday, August 22, 2006; A15

Why are liberals the way liberals are? What is it about the L-word that has become so offensive to so many? It has become such a turnoff that countless liberals dare not admit to their own label.

At its best, liberalism is about the defense of the underdog, of minority rights, of social justice, of active but restrained government, of civil liberties, of openness and tolerance.

In their own defense, those who still admit to being liberals would argue that the very fact that they have stood up for minority rights -- including, heroically, for civil rights in the 1960s -- made them unpopular, sometimes with a majority of the country.

They also argue, correctly, that the demonization of their creed goes all the way back to those who opposed Franklin D. Roosevelt's program of reform at home and internationalism abroad. The reaction to FDR bred McCarthyism and the libelous charge that liberals were, at best, "squishy soft" on communism.

But liberalism has also become associated with elitism, arrogance and disdain for the values of average Americans. Think of the consumer preferences tossed at liberals from the right as epithets: brie, chablis (now updated to merlot), Volvos, lattes, vacations on Martha's Vineyard. Never mind that it's conservatives who want to eliminate inheritance taxes on those Vineyard mansions.

How all this happened is complicated, but some important clues are contained in the most important political book of 2006 that is not a book about politics at all.

David S. Brown's "Richard Hofstadter: An Intellectual Biography" offers us the life of one of our country's most revered historians. Hofstadter, the author of such enduringly popular works as "The American Political Tradition" and "The Age of Reform," shaped modern liberalism in ways that we must still grapple with today.

Anyone who loves American history owes a debt to Hofstadter, and that would include me. I was blessed with two inspiring high school history teachers, Jim Garman and Norm Hess, who stoked my passion for the subject by introducing me to Hofstadter.

Along with thousands of students, I was entranced by Hofstadter's grace of expression, his gift for aphorism and his icon-smashing approach to America's heroes. He was a liberal who was as tough on progressives, populists and reformers as he was on right-wing mass movements, anti-intellectualism and the countryside's disdain for the city. To this day -- we can dream, can't we? -- I still aspire to Hofstadter's clarity and to his gift for synthesis.

But reading Brown is also a reminder of where Hofstadter may have misled the very liberal movement to which he was devoted. There was, first, his emphasis on American populists as embodying a "deeply ingrained provincialism" (Brown's term) whose revolt was as much a reaction to the rise of the cosmopolitan big city as to economic injustices.

Many progressives and reformers, he argued, represented an old Anglo-Saxon middle class who suffered from "status anxiety" in reaction to the rise of a vulgar new business elite. Hofstadter analyzed the right wing of the 1950s and early 1960s in similar terms. Psychological disorientation and social displacement became more important than ideas or interests.

Now, Hofstadter was exciting precisely because he brilliantly revised accepted and sometimes pious views of what the populists and progressives were about. But there was something dismissive about Hofstadter's analysis that blinded liberals to the legitimate grievances of the populists, the progressives and, yes, the right wing.

The late Christopher Lasch, one of Hofstadter's students and an admiring critic, noted that by conducting "political criticism in psychiatric categories," Hofstadter and his intellectual allies excused themselves "from the difficult work of judgment and argumentation."

Lasch added archly: "Instead of arguing with opponents, they simply dismissed them on psychiatric grounds."

This was, I believe, a wrong turn for liberalism. It was a mistake to tear liberalism from its populist roots and to emphasize the irrational element of popular movements almost to the exclusion of their own self-understanding. FDR, whom Hofstadter admired, always understood the need to marry the urban (and urbane) forms of liberalism to the traditions of reform and popular protest.

Hofstadter died of leukemia in 1970, much too young at the age of 54. Few writers have left behind so much good work, books steeped in the paradoxes and ironies of our national story. I'd like to think it's an honor to Hofstadter's legacy that we might subject his own history to the kind of revisionism he practiced with such skill. Liberals owe a debt to Hofstadter, and they owe themselves an argument with him, too.

postchat@aol.com

© 2006 The Washington Post Company

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Blogger Comment
The attribution of who is liberal hints at the class divide among L, P or P. The liberals cited here are upper middle class, old money-ed educated elites. Progressives have in the past come from the ranks of the "working" middle class. Populist -- almost wreaks of cult personality, the precint bosses of lore.

I appreciate the discussion of not "psychologizing" or in the writers term of "psychiatric grounds" the flaw in argument coming from a member of any group, it is dismissive" and argues from a perspective of pathology rather than true exchange taking place among intelligent or articulate individuals.

2 Ecomist Perspective --An Immigrant Equation

Friends, Family and Colleagues:

Of late, many have posited the question where I or any of us stand on the competing bills approved by the Senate and House of Representatives in Washington DC. Perhaps underlying this general querry, is it something of personal interest? are you in the fray? or simply an inquiry because it has been on the news often in the past months.

Attached is a recent New York Times article for your review and consideration. On first read, what I found striking with the two perspectives offerred are: a) the Coastal divide as it is represented meaning West/East, similarly Public (UC Berkeley) vs Private (Harvard, Brown), suggesting en elilte vs a more inclusive point of view; lastly, the weight of the question has been Mexicans as the predominant recent immigrant group and those who have been in the country i.e. those among us who arrived post 65 immigration reform or resulting from events unique to countries/society e.g. Cuba.

It seems at the moment, the yelling/counter yelling (not so much argument) has receded to a lower volume. It may allow us to take a breath, reexamine our own viewpoints, the ideology that we support or advance, and perhaps decide to take some action to further inform others of what the legislation means individually and perhaps as a family and broadly society. In addition to clarifying our own stand, it may illuminate what each of can do to in advancing a fair, well thought out policy or an interpretation of the law that is reasonable factoring our particular interest and a general good for our community.

The article is 15 pages long, so it is not lite reading. If you want to have an exchange over the summer, feel free to correspond via email.

Enjoy the summer that is upon us. Be well.

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The Immigration Equation

By ROGER LOWENSTEIN
Published: July 9, 2006
The day I met George Borjas, cloistered in his office at the John F. Kennedy School of Government at Harvard while graduate students from Russia, India, China and maybe Mexico mingled in the school cafe, sipping coffee and chattering away in all their tongues, the United States Senate was hotly debating what to do about the country’s immigration policy. Borjas professed to be unfazed by the goings-on in Washington. A soft-spoken man, he stressed repeatedly that his concern was not to make policy but to derive the truth. To Borjas, a Cuban immigrant and the pre-eminent scholar in his field, the truth is pretty obvious: immigrants hurt the economic prospects of the Americans they compete with. And now that the biggest contingent of immigrants are poorly educated Mexicans, they hurt poorer Americans, especially African-Americans, the most.

Borjas has been making this case — which is based on the familiar concept of supply and demand — for more than a decade. But the more elegantly he has made it, it seems, the less his colleagues concur. ‘‘I think I have proved it,’’ he eventually told me, admitting his frustration. ‘‘What I don’t understand is why people don't agree with me.'' It turns out that Borjas's seemingly self-evident premise — that more job seekers from abroad mean fewer opportunities, or lower wages, for native workers — is one of the most controversial ideas in labor economics. It lies at the heart of a national debate, which has been encapsulated (if not articulated) by two very different immigration bills: one, passed by the House of Representatives, which would toughen laws against undocumented workers and probably force many of them to leave the country; and one in the Senate, a measure that would let most of them stay.

You can find economists to substantiate the position of either chamber, but the consensus of most is that, on balance, immigration is good for the country. Immigrants provide scarce labor, which lowers prices in much the same way global trade does. And overall, the newcomers modestly raise Americans' per capita income. But the impact is unevenly distributed; people with means pay less for taxi rides and household help while the less-affluent command lower wages and probably pay more for rent.

The debate among economists is whether low-income workers are hurt a lot or just a little — and over what the answer implies for U.S. policy. If you believe Borjas, the answer is troubling. A policy designed with only Americans' economic well-being in mind would admit far fewer Mexicans, who now account for about 3 in 10 immigrants. Borjas, who emigrated from Cuba in 1962, when he was 12 (and not long after soldiers burst into his family's home and ordered them at gunpoint to stand against a wall), has asserted that the issue, indeed, is "Whom should the United States let in?"

Such a bald approach carries an overtone of the ethnic selectivity that was a staple of the immigration debates a century ago. It makes many of Borjas's colleagues uncomfortable, and it is one reason that the debate is so charged. Another reason is that many of the scholars who disagree with Borjas also hail from someplace else — like gardeners and seamstresses, a surprising number of Ph.D. economists in the U.S. are foreign-born.

Easily the most influential of Borjas's critics is David Card, a Canadian who teaches at Berkeley. He has said repeatedly that, from an economic standpoint, immigration is no big deal and that a lot of the opposition to it is most likely social or cultural. "If Mexicans were taller and whiter, it would probably be a lot easier to deal with," he says pointedly.

Economists in Card's camp tend to frame the issue as a puzzle — a great economic mystery because of its very success. The puzzle is this: how is the U.S. able to absorb its immigrants so easily?

After all, 21 million immigrants, about 15 percent of the labor force, hold jobs in the U.S., but the country has nothing close to that many unemployed. (The actual number is only seven million.) So the majority of immigrants can't literally have "taken" jobs; they must be doing jobs that wouldn't have existed had the immigrants not been here.

The economists who agree with Card also make an intuitive point, inevitably colored by their own experience. To the Israeli-born economist whose father lived through the Holocaust or the Italian who marvels at America's ability to integrate workers from around the world, America's diversity — its knack for synthesizing newly arrived parts into a more vibrant whole — is a secret of its strength. To which Borjas, who sees a different synthesis at work, replies that, unlike his colleagues, the people arriving from Oaxaca, Mexico, are unlikely to ascend to a university faculty. Most of them did not finish high school. "The trouble with the stories that American journalists write about immigration," he told me, "is they all start with a story about a poor mother whose son grows up to become. . . . " and his voice trailed off as if to suggest that whatever the particular story — that of a C.E.O., a ballplayer or even a story like his own — it would not prove anything about immigration. What economists aim for is to get beneath the anecdotes. Is immigration still the engine of prosperity that the history textbooks describe? Or is it a boon to business that is destroying the livelihoods of the poorest workers — people already disadvantaged by such postmodern trends as globalization, the decline of unions and the computer?

The Lopsided-Skill-Mix Problem
This spring, while militias on the prowl for illegal immigrants were converging on the Arizona border and, on the other side of the political fence, immigrant protesters were taking to the streets, I sampled the academic literature and spent some time with Borjas and Card and various of their colleagues. I did not expect concurrence, but I hoped to isolate what we know about the economic effects of immigration from what is mere conjecture. The first gleaning from the Ivory Tower came as a surprise. All things being equal, more foreigners and indeed more people of any stripe do not mean either lower wages or higher unemployment. If they did, every time a baby was born, every time a newly minted graduate entered the work force, it would be bad news for the labor market. But it isn't. Those babies eat baby food; those graduates drive automobiles.

As Card likes to say, "The demand curve also shifts out." It's jargon, but it's profound. New workers add to the supply of labor, but since they consume products and services, they add to the demand for it as well. "Just because Los Angeles is bigger than Bakersfield doesn't mean L.A. has more unemployed than Bakersfield," Card observes.

In theory, if you added 10 percent to the population — or even doubled it — nothing about the labor market would change. Of course, it would take a little while for the economy to adjust. People would have to invest money and start some new businesses to hire all those newcomers. The point is, they would do it. Somebody would realize that the immigrants needed to eat and would open a restaurant; someone else would think to build them housing. Pretty soon there would be new jobs available in kitchens and on construction sites. And that has been going on since the first boat docked at Ellis Island.

But there's a catch. Individual native workers are less likely to be affected if the immigrants resemble the society they are joining — not physically but in the same mix of skills and educational backgrounds. For instance, if every immigrant were a doctor, the theory is, it would be bad for doctors already here. Or as Borjas asked pointedly of me, what if the U.S. created a special visa just for magazine writers? All those foreign-born writers would eat more meals, sure, but (once they mastered English, anyway), they would be supplying only one type of service — my type. Bye-bye fancy assignments.

During the previous immigrant wave, roughly from 1880 to 1921 (it ended when the U.S. established restrictive quotas based on country of origin), the immigrants looked pretty much like the America into which they were assimilating. At the beginning of the 20th century, 9 of 10 American adults did not have high-school diplomas, nor did the vast majority of immigrants. Those Poles and Greeks and Italians made the country more populous, but they did not much change the makeup of the labor market. This time it's different. The proportion of foreign-born, at 12 percent, remains below the peak of 15 percent recorded in 1890. But compared with the work force of today, however, the skill mix of immigrants is lopsided. About the same proportion have college degrees (though a higher proportion of immigrants are post-graduates). But many more — including most of the those who have furtively slipped across the

Mexican border — don't have high-school diplomas.

The latest estimate is that the United States has 11.5 million undocumented foreigners, and it's those immigrants — the illegal ones — who have galvanized Congress. The sponsor of the House legislation, Representative James Sensenbrenner, a Republican from Wisconsin, says bluntly that illegals are bad for the U.S. economy. His bill would require employers to verify the status of their workers from a national database and levy significant penalties on violators. But H.R. 4437 isn't primarily an economics bill — it's an expression of outrage over the porousness of America's borders. Among many other enforcement measures, the bill forces the U.S. to build hundreds of miles of fencing on its Southern border.

The Senate bill is irreducibly complex (more than 800 pages), but basically, it seeks to cure the problem of illegals by bringing them in from the shadows. Those already here would be able to continue working and get on track toward a more normalized status. In the future, employers could bring in guest workers — what Senate draftsmen refer to hopefully as temporary workers — as long as they paid them the going wage.

This latter bill, the product of an alliance between John McCain and Edward Kennedy, isn't really an economics bill, either, at least not the way economists see it. Its premise is that if you legalize undocumented people and reinforce the borders, then whatever negative impact immigrants have on the labor market will go away. The theory is that newly minted green-card holders, no longer having deportation to fear, will stick up for their rights and for higher wages too. Interestingly, some big labor unions, like the Service Employees International Union, are supporters. But economists are skeptical. For one thing, after the U.S. gave amnesty to the nearly three million undocumented workers who were in the country in 1986, their wages didn't budge. Second, economists, as you might expect, say market forces like supply and demand, not legal status, are what determine wages.

It baffles some economists that Congress pays so little heed to their research, but then immigration policy has never been based on economics. Economic fears played a part in the passage of the exclusionary acts against Chinese in the late 19th and early 20th centuries, and in the 1920's of quotas (aimed in particular at people from southern and eastern Europe), but they were mostly fueled by xenophobia. They were supplanted in the Civil Rights era by the Immigration and Nationality Act of 1965, which ended quotas and established a new priority based on family reunification. That law, also sponsored by Kennedy, had nothing to do with economics, either. It made the chief criterion for getting in having a relative who was already here.

If economists ran the country, they would certainly take in more immigrants who, like them, have advanced degrees. (The U.S., which is hugely dependent on foreigners to fill certain skilled occupations like scientific research and nursing, does admit a relative handful of immigrants each year on work visas.) Canada and Australia admit immigrants primarily on the basis of skills, and one thing the economists agree on is that high earners raise the national income by more than low earners. They are also less of a burden on the tax rolls.

With the exception of a few border states, however, the effect of immigration on public-sector budgets is small, and the notion that undocumented workers in particular abuse the system is a canard. Since many illegals pay into Social Security (using false ID numbers), they are actually subsidizing the U.S. Treasury. And fewer than 3 percent of immigrants of any stripe receive food stamps. Also, and contrary to popular wisdom, undocumented people do support local school districts, since, indirectly as renters or directly as homeowners, they pay property taxes. Since they tend to be poor, however, they contribute less than the average. One estimate is that immigrants raise state and local taxes for everyone else in the U.S. by a trivial amount in most states, but by as much as $1,100 per household per year in California. They are certainly a burden on hospitals and jails but, it should be noted, poor legal workers, including those who are native born, are also a burden on the health care system.

Parsing the Wage Gap
Economists focus on Mexicans not because many are undocumented but because, relative to the rest of the labor force, Mexicans have far fewer skills. And Mexicans and other Central Americans (who tend to have a similar economic background) are arriving and staying in this country at a rate of more than 500,000 a year. Their average incomes are vastly lower than those both of native-born men and of other immigrants.

Native-born workers: $45,400 All immigrants: $37,000 Mexican immigrants: $22,300

The reason Mexicans earn much less than most Americans is their daunting educational deficit. More than 60 percent of Mexican immigrants are dropouts; fewer than 10 percent of today's native workers are.

That stark contrast conveys, to economists, two important facts. One is that Mexicans are supplying a skill level that is much in demand. It doesn't just seem that Americans don't want to be hotel chambermaids, pick lettuce or repair roofs; it's true. Most gringos are too educated for that kind of work. The added diversity, the complementariness of skills, that Mexicans bring is good for the economy as a whole. They perform services that would otherwise be more expensive and in some cases simply unavailable.

The Americans who are unskilled, however, must compete with a disproportionate number of immigrants. One of every four high-school dropouts in the U.S. was born in Mexico, an astonishing ratio given that the proportion of Mexicans in the overall labor force is only 1 in 25. So it's not magazine writers who see their numbers expanding; it's Americans who are, or would be, working in construction, restaurants, household jobs, unskilled manufacturing and so forth.

That's the theory. But economists have had a hard time finding evidence of actual harm. For starters, they noticed that societies with lots of immigrants tend, if anything, to be more prosperous, not less. In the U.S., wages in cities where immigrants have clustered, like New York, have tended to be higher, not lower. Mississippi, on the other hand, which has the lowest per-capita income of any state, has had very few immigrants.

That doesn't necessarily mean that immigrants caused or even contributed to high wages; it could be they simply go where the demand is greatest — that their presence is an effect of high wages. As statisticians are wont to remind us, "Correlation does not imply causation." (The fact that hospitals are filled with sick people doesn't mean hospitals make you sick.) Maybe without immigrants, wages in New York would be even higher.

And certainly, wages of the unskilled have been a source of worry for years. From 1970 to 1995, wages for high-school dropouts, the group that has been the most affected by immigrants, plummeted by more than 30 percent, after adjusting for inflation. Look at the following averages (all for male workers):

College graduates: $73,000 People with some college: $41,000 High-school grads: $32,000 Dropouts: $24,800

These figures demonstrate a serious problem, at least if you care about wage inequality, and a quick glance at this list and the previous one shows that native-born dropouts are earning only a shade more than Mexicans working in this country. But that hardly proves that cheap Mexican labor is to blame. For one thing, economists believe that other factors, like the failure of Congress to raise the minimum wage, globalization (cheap Chinese labor, that is) and the decline of unions are equally or even more responsible. Another popular theory is that computer technology has made skilled labor more valuable and unskilled labor less so.

Also, when economists look closely at wage dispersion, the picture isn't wholly consistent with the immigrants-as-culprits thesis. Look again at the numbers: people at the top (college grads) make a lot more than average but from the middle on down incomes are pretty compressed. Since only dropouts are being crowded by illegal immigrants, you would expect them to be falling further behind every other group. But they aren't; since the mid-90's, dropouts have been keeping pace with the middle; it's the corporate executives and their ilk at the top who are pulling away from the pack, a story that would seem to have little to do with immigration.

This isn't conclusive either, Borjas notes. After all, maybe without immigrants, dropouts would have done much better than high-school grads. Economists look for the "counterfactual," or what would have happened had immigrants not come. It's difficult to tell, because in the real world, there is always a lot more going on — an oil shock, say, or a budget deficit — than the thing whose effect you are studying. To isolate the effect of immigrants alone would require a sort of lab experiment. The trouble with macroeconomics is you can't squeeze your subjects into a test tube.

Marielitos in Miami, Doctors in Israel and Other Natural Experiments

The academic study of immigration's economic effects earned little attention before the subject started to get political traction in the 1980's. Then, in 1990, Borjas, who was on the faculty at the University of California at Santa Barbara, published a book, "Friends or Strangers," which was mildly critical of immigration's effects.

That same year, David Card realized that a test tube did exist. Card decided to study the 1980 Mariel boat lift, in which 125,000 Cubans were suddenly permitted to emigrate. They arrived in South Florida with virtually no advance notice, and approximately half remained in the Miami area, joining an already-sizable Cuban community and swelling the city's labor force by 7 percent.

To Card, this produced a "natural experiment," one in which cause and effect were clearly delineated. Nothing about conditions in the Miami labor market had induced the Marielitos to emigrate; the Cubans simply left when they could and settled in the city that was closest and most familiar. So Card compared the aftershocks in Miami with the labor markets in four cities — Tampa, Atlanta, Houston and Los Angeles — that hadn't suddenly been injected with immigrants.

That the Marielitos, a small fraction of whom were career criminals, caused an upsurge in crime, as well as a more generalized anxiety among natives, is indisputable. It was also commonly assumed that the Marielitos were taking jobs from blacks.

But Card documented that blacks, and also other workers, in Miami actually did better than in the control cities. In 1981, the year after the boat lift, wages for Miami blacks were fractionally higher than in 1979; in the control cities, wages for blacks were down. The only negative was that unemployment rose among Cubans (a group that now included the Marielitos).

Unemployment in all of the cities rose the following year, as the country entered a recession. But by 1985, the last year of Card's study, black unemployment in Miami had retreated to below its level of 1979, while in the control cities it remained much higher. Even among Miami's Cubans, unemployment returned to pre-Mariel levels, confirming what seemed visible to the naked eye: the Marielitos were working. Card concluded, "The Mariel influx appears to have had virtually no effect on the wages or unemployment rates of less-skilled workers."

Although Card offered some hypotheses, he couldn't fully explain his results. The city's absorption of a 7 percent influx, he wrote, was "remarkably rapid" and — even if he did not quite say it — an utter surprise. Card's Mariel study hit the cloistered world of labor economists like a thunderbolt. All of 13 pages, it was an aesthetic as well as an academic masterpiece that prompted Card's peers to look for other "natural" immigration experiments. Soon after, Jennifer Hunt, an Australian-born Ph.D. candidate at Harvard, published a study on the effects of the return migration of ethnic French from Algeria to France in 1962, the year of Algerian independence. Similar in spirit though slightly more negative than the Mariel study, Hunt found that the French retour had a very mild upward effect on unemployment and no significant effect on wages.

Rachel Friedberg, an economist at Brown, added an interesting twist to the approach. Rather than compare the effect of immigration across cities, she compared it across various occupations. Friedberg's curiosity had been piqued in childhood; born in Israel, she moved to the U.S. as an infant and grew up amid refugee grandparents who were a constant reminder of the immigrant experience.

She focused on an another natural experiment — the exodus of 600,000 Russian Jews to Israel, which increased the population by 14 percent in the early 1990's. She wanted to see if Israelis who worked in occupations in which the Russians were heavily represented had lost ground relative to other Israelis. And in fact, they had. But that didn't settle the issue. What if, Friedberg wondered, the Russians had entered less-attractive fields precisely because, as immigrants, they were at the bottom of the pecking order and hadn't been able to find better work? And in fact, she concluded that the Russians hadn't caused wage growth to slacken; they had merely gravitated to positions that were less attractive. Indeed, Friedberg's conclusion was counterintuitive: the Russians had, if anything, improved wages of native Israelis. She hypothesized that the immigrants competed more with one another than with natives. The Russians became garage mechanics; Israelis ran the garages.

Measuring the Hit to Wages
By the mid-90's, illegal immigration was heating up as an issue in the United States, prompting a reaction in California, where schools and other public services were beginning to feel a strain. But academics were coalescing around the view that immigration was essentially benign — that it depressed unskilled native wages by a little and raised the average native income by a little. In 1997, a panel of the National Academy of Sciences, which reviewed all of the literature, estimated that immigration during the previous decade had, at most, lowered unskilled-native wages by 1 percent to 2 percent.

Borjas didn't buy it. In 1999 he published a second, more strident book, "Heaven's Door." It espoused a "revisionist" view — that immigration caused real harm to lower-income Americans. Borjas argued that localized studies like Mariel were flawed, for the simple reason that labor markets in the U.S. are linked together. Therefore, the effects of immigration could not be gauged by comparing one city with another.

Borjas pointed out, as did others, that more native-born Americans started migrating out of California in the 1970's, just as Mexicans began arriving in big numbers. Previously California was a destination for Americans. Borjas reckoned that immigrants were pushing out native-born Americans, and that the effect of all the new foreigners was dispersed around the country.

The evidence of a labor surplus seemed everywhere. "If you wanted a maid," he recalled of California during the 90's, "all you had to do was tell your gardener, and you had one tomorrow." He felt certain that Mexicans were depressing unskilled wages but didn't know how to prove it.

After Borjas moved East, he had an inspiration. It was easy to show that high-school dropouts had experienced both lower wage growth and more competition from immigrants, but that didn't settle the point, because so many other factors could have explained why dropouts did poorly. The inspiration was that people compete not only against those with a like education, but also against workers of roughly the same experience. Someone looking for a first job at a McDonald's competes against other unskilled entry-level job seekers. A reporter with 15 years' experience who is vying for a promotion will compete against other veterans but not against candidates fresh out of journalism school.

This insight enabled Borjas to break down the Census data in a way that put his thesis to a more rigorous test. He could represent skill groups within each age as a point on a graph. There was one point for dropouts who were 10 years out of school, another for those who were 20 years and 30 years out. Each of these points was repeated for each decade from 1960 to 2000. And there was a similar set of points for high-school graduates, college graduates and so forth. The points were situated on the graph according to two variables: the horizontal axis measured the change in the share of immigrants within each "point," the vertical axis measured wage growth.

A result was a smattering of dots that on casual inspection might have resembled a work of abstract art. But looking closer, the dots had a direction: they pointed downward. Using a computer, Borjas measured the slope: it suggested that wages fell by 3 to 4 percent for each 10 percent increase in the share of immigrants.

With this graph, Borjas could calculate that, during the 80's and 90's, for instance, immigrants caused dropouts to suffer a 5 percent decline relative to college graduates. In a paper published in 2003, "The Labor Demand Curve Is Downward Sloping," Borjas termed the results "negative and significant."

But what about the absolute effect? Assuming businesses did not hire any of the new immigrants, Borjas's finding would translate to a hefty 9 percent wage loss for the unskilled over those two decades, and lesser declines for other groups (which also received some immigrants). As we know, however, as the population grows, demand rises and business do hire more workers. When Borjas adjusted for this hiring, high-school dropouts were still left with a wage loss of 5 percent over those two decades, some $1,200 a year. Other groups, however, showed a very slight gain. To many economists as well as lay folk, Borjas's findings confirmed what seemed intuitive all along: add to the supply of labor, and the price goes down.

To Card, however, what seems "intuitive" is often suspect. He became a labor economist because the field is full of anomalies. "The simple-minded theories that they teach you in economics don't work" for the labor market, he told me. In the 90's, Card won the prestigious Clark Medal for several studies, including Mariel and another showing that, contrary to theory, raising the minimum wage in New Jersey (another natural experiment) did not cause fast-food outlets to cut back on employment.

In a recent paper, "Is the New Immigration Really So Bad?" Card took indirect aim at Borjas and, once again, plumbed a labor-market surprise. Despite the recent onslaught of immigrants, he pointed out, U.S. cities still have fewer unskilled workers than they had in 1980. Immigrants may be depriving native dropouts of the scarcity value they might have enjoyed, but at least in a historical sense, unskilled labor is not in surplus. America has become so educated that immigrants merely mitigate some of the decline in the homegrown unskilled population. Thus, in 1980, 24 percent of the work force in metropolitan areas were dropouts; in 2000, only 18 percent were.

Card also observed that cities with more immigrants, like those in the Sun Belt close to the Mexican border, have a far higher proportion of dropouts. This has led to a weird unbalancing of local labor markets. For example, 10 percent of the work force in Pittsburgh and 15 percent in Cleveland are high-school dropouts; in Houston the figure is 25 percent, in Los Angeles, 30 percent. The immigrants aren't dispersing, or not very quickly.

So where do all the dropouts work? Los Angeles does have a lot of apparel manufacturers but not enough of such immigrant-intensive businesses to account for all of its unskilled workers. Studies also suggest that immigration is correlated with a slight increase in unemployment. But again, the effect is small. So the mystery is how cities absorb so many unskilled. Card's theory is that the same businesses operate differently when immigrants are present; they spend less on machines and more on labor. Still, he admitted, "We are left with the puzzle of explaining the remarkable flexibility of employment demand."

Card started thinking about this when he moved from Princeton in the mid-90's. He noticed that everyone in Berkeley seemed to have a gardener, "even though professors are not rich." In the U.S., which has more unskilled labor than Europe, more people employ housecleaners. The African-American women who held those jobs before the war, like the Salvadorans and Guatemalans of today, weren't taking jobs; they were creating them. { The Personal Is Economic } Though Card works on immigration only some of the time, he and Borjas clearly have become rivals. In a recent paper, Card made a point of referring to the "revisionist" view as "overly pessimistic." Borjas told Business Week that Card's ideas were "insane." ("Obviously I didn't mean he is insane; he is a very bright guy," Borjas clarified when we talked. "The idea that you can add 15 or 20 million people and not have any effect seems crazy.") Alan B. Krueger, an economist who is friendly with each, says, "I fear it might become acrimonious." Card told me twice that Borjas's calculations were "disingenuous." "Borjas has a strong view on this topic," Card said, "almost an emotional position."

Card is more comfortable with anecdote than many scholars, and he tells a story about his wife, who teaches English to Mexicans. In one class, she tapped on a wall, asking a student to identify it, and the guy said, "That's drywall." To Card, it signifies that construction is one of those fields that soak up a disproportionate number of Mexicans; it's a little piece of the puzzle. "Even when I was a kid in Ontario 45 years ago," he notes, "the tobacco pickers were Jamaicans. They were terrible jobs — backbreaking." Card is a political liberal with thinning auburn air and a controlled, smirky smile. His prejudices, if not his emotions, favor immigrants. Raised by dairy farmers in Guelph, Ontario, he remembers that Canadian cities were mostly boring while he was growing up. The ones that attracted immigrants, like Toronto and Vancouver, boomed and became more cosmopolitan. "

Everyone knows in trade there are winners and losers," Card says. "For some reason it doesn't stop people from advocating free trade." He could have said the same of Wal-Mart, which has put plenty of Mom-and-Pop retailers out of business. In fact, any time a firm offers better or more efficient service, somebody will suffer. But the economy grows as a result. "

I honestly think the economic arguments are second order," Card told me when we discussed immigration. "They are almost irrelevant."

Card's implication is that darker forces — ethnic prejudice, maybe, or fear of social disruption — is what's really motivating a lot of anti-immigrant sentiment. Borjas, a Hispanic who has written in blunt terms about the skill deficits of Mexicans, in particular arouses resentment. "Mexicans aren't as good as Cubans like him," Douglas S. Massey, a demographer at Princeton, said in a pointed swipe.

Borjas lives an assimilated life. He has a wife who speaks no Spanish, three kids, two of whom study his mother tongue as a foreign language, and a home in Lexington, a tony Boston suburb. Yet his mind-set often struck me as that of an outsider — an immigrant, if you will, to his own profession.

When I asked the inevitable question — did his exile experience influence his choice of career? — he said, "Clearly it predisposed me." The seeds of the maverick scholar were planted the year before he left Cuba, a searing time when the revolution was swinging decisively toward Soviet-style communism. His family had owned a small factory that manufactured men's pants. The factory was shut down, and the family made ready to leave the island, but their departure was delayed by the death of Borjas's father. The son had to attend a revolutionary school, where the precepts of Marxism-Leninism were drilled into the future economist with notable lack of success. One day he marched in the band and drummed the "Internationale" in front of Fidel Castro and the visiting Yuri Gagarin, the Soviet cosmonaut. "Since that year I have been incredibly resistant to any kind of indoctrination," he told me — an attitude that surfaces in wry references to the liberal Harvard environs as the "People's Republic of Cambridge" and to American political correctness in general.

Borjas's family arrived with virtually no money; they got some clothing from Catholic Charities and a one-time stipend of, as he recollects, $100. His mother got a factory job in Miami, where they stayed several years. Then the family moved to New Jersey. He at tended Saint Peter's College in Jersey City and got his Ph.D. at Columbia.

I asked him whether the fact that he was Cuban, the most successful Latin subgroup, had affected his views of other Hispanics. "Look, I've never been psychoanalyzed," he said with an air of resignation, as if he were accustomed to hearing such loaded questions. One thing Borjas shares with Card is a view that others treat immigration emotionally. But Borjas takes comfort not in anecdote but in empiricism. As he said to me often, "The data is the data."

Immigrants Can Be Complementary
Economists on Card's side of the debate recognize that they at least have to deal with Borjas's data — to reconcile why the local studies and national studies produce different results. Card shrugs it off; even 5 percent for a dropout, he observes, is only 50 to 60 cents an hour. Giovanni Peri, an Italian working at the University of California, Davis, had a more intriguing response. Peri replicated Borjas's scatter diagram, and also his finding that unskilled natives suffer a loss relative to, say, graduates. He made different assumptions, however, about how businesses adjust to the influx of new workers, and as a result, he found that the absolute harm was less, or the gain was greater, for all native-born groups. By his reckoning, native dropouts lost only 1 percent of their income during the 1990's.

Peri's theory is that most of the wage losses are sustained by previous immigrants, because immigrants compete most directly with one another. It's a principle of economics that a surplus in one part of the production scheme raises the demand for every other one. For instance, if you have a big influx of chefs, you can use more waiters, pushing up their wages; if you have a lot of chefs and waiters, you need more Sub-Zeros, so investment will also rise. The only ones hurt, in this example, are the homegrown chefs — the people who are "like" the immigrants.

Indeed, workers who are unlike immigrants see a net gain; more foreign doctors increases the demand for native hospital administrators. Borjas assumes that a native dropout (or a native anything) is interchangeable with an immigrant of the same skill level. Peri doesn't. If enough Mexicans go into construction, some native workers may be hurt, but a few will get promotions, because with more crews working there will be a greater demand for foremen, who most likely will be natives.

Natives have a different mix of skills — English, for instance, or knowledge of the landscape. In economists' lingo, foreigners are not "perfect substitutes." (Friedberg also observed this in Israel.) In some cases, they will complement rather than compete with native workers. Vietnamese manicurists in California cater to a lower-price, less-exclusive market than native-run salons. The particular skills of an Italian designer — or even an economist — are distinct from an American's. "My work is autobiographical to a large extent," notes Peri, who got into the field when the Italian government commissioned him to study why Italy was losing so many professionals. The foreigners he sees in California are a boon to the U.S. It astonishes him how people like Sensenbrenner want to restrict immigration and apply the letter of the law against those working here.

This is a very romantic view. The issue is not so much Italian designers as Mexican dropouts. But many Mexicans work jobs that are unappealing to most Americans; in this sense, they are not exactly like natives of their skill level either. Mexicans have replenished some occupations that would have become underpopulated; for instance, 40,000 people who became meat processors immigrated to the U.S. during the 1990's, shoring up the industry. Without them, some plants would have raised wages, but others would have closed or, indeed, relocated to Mexico.

Are All Dropouts the Same?
I talked to half a dozen vintners and a like number of roofing-company owners, both fields that rely on Mexican labor, and frequently heard that Americans do not, in sufficient numbers, want the work. In the case of the vineyards, if Mexicans weren't available, some of the grapes would be harvested by machine. This is what economists mean by "capital adjusting." If the human skills are there, capital will find a way to employ them. Over the short term, people chase jobs, but over the long term jobs chase people. (That is why software firms locate in Silicon Valley.)

If you talk to enough employers, you start to gather that they prefer immigrant labor over unskilled Americans. The former have fewer problems with tardiness, a better work ethic. Some of this may be prejudice. But it's possible that Mexican dropouts may be better workers than our dropouts. In Mexico, not finishing high school is the norm; it's not associated with an unsuitability for work or even especially with failure. In the U.S., where the great majority do graduate, those who don't graduate have high rates of drug use and problems with the law.

The issue is charged because the group with by far the highest rate of incarceration is African-American dropouts. Approximately 20 percent of black males without high-school diplomas are in jail. Indeed, according to Steven Raphael, a colleague of Card's at Berkeley, the correlation between wages and immigration is a lot weaker if you control for the fact that so many black men are in prison. But should you control for it? Borjas says he thinks not. It's pretty well established that as the reward for legal work diminishes, some people turn to crime. This is why people sold crack; the payoff was tremendous. Borjas has developed one of his graphs to show that the presence of immigrants is correlated with doing time, especially among African-Americans. Incarceration rates, he notes, rose sharply in the 70's, just as immigration did. He doesn't pretend that this is the whole explanation — only that there is a link. Card retorts: "The idea that the way to help the lot of African-Americans is to restrict Mexicans is ridiculous." Black leaders have themselves mostly switched sides. In the 20's, A. Philip Randolph, who led the Pullman Porters, spoke in favor of immigration quotas, but the civil rights establishment no longer treats immigration as a big issue; instead it tends to look at immigrants as potential constituents. (One person who takes issue with the prevailing view is Anthony W. Williams, an African-American pastor in Chicago who is running for Congress against Representative Jesse Jackson Jr. Black leaders have forsaken their mission, he told me. "Immigration will destroy the economic base of the African-American community.")

In the spring, as the Senate Judiciary Committee was trying to parse these issues into a piece of legislation, Borjas and Card were invited to air their views. Each declined, in part because they don't think politicians really listen. As if to prove the point, the effort to write a joint bill has stalled, following Sensenbrenner's announcement that the House intends to stage a series of public hearings on immigration around the country over the summer. There will be a lot said about border control, many heartfelt stories and probably very little about natural experiments.

The economists do have political opinions, of course. Borjas leans to a system like Canada's, which would admit immigrants on the basis of skills. He also says that, to make sure the problem of illegals does not recur, the U.S. should secure its borders before it adjusts the status of its present illegals.

Advocates of a more open policy often cite the country's history. They argue that the racists of bygone eras were not only discriminatory but also wrong. Card, for instance, mentioned an article penned by a future U.S. senator, Paul Douglas, titled "Is the New Immigration More Unskilled Than the Old?" It was written in 1919, when many people (though not Douglas) held that Jews, Slavs and Italians were incompatible with the country's Anglo and Teutonic stock. Nativism has always been part of the American scene, and it has tended to turn ugly in periods when the country was tired of or suspicious of foreigners. In 1952, quotas were maintained in a law sponsored by Senator Pat McCarran, a prominent McCarthyite. There remains today a palpable strain of xenophobia in the anti-immigrant movement. Dan Stein, president of the Federation for American Immigration Reform, remarked to me, rather meanly, "If someone comes here from China and they go swimming in a dangerous river, a sign in English is enough, but the Mexicans want it in Spanish." Ninety years ago, some signs were in German, as were 500 newspapers on American soil.

But U.S. history, as Borjas observes, can be read in two ways. For sure, earlier waves of immigrants assimilated, but America essentially closed the gate for 40 years. Antipathy toward Germans during World War I forced German-Americans to hide all traces of their origins. The quotas of the 1920's were reinforced by the Depression and then by World War II. The country had time to let assimilation occur.

A reverse process seems to be occurring with Mexican-Americans. Very few Mexicans came north in the decades after 1920, even though they were relatively free to do so. As recently as 1970, the U.S. had fewer than one million Mexicans, almost all of them in Texas and California. The U.S. did bring Mexican braceros to work on farms during the 1940's, 50's and 60's. The program was terminated in 1964, and immigration officials immediately noticed a sharp rise in illicit border crossings. The collapse of the Mexican economy in the 70's gave migrants a further push. Finally, Mexicans who obtained legal status were (thanks to the 1965 reform) able to bring in family members.

The important point is that, ultimately, there was a catalytic effect — so many Mexicans settled here that it became easier for more Mexicans to follow. One story has it that in a village in central Mexico people knew the price of mushrooms in Pennsylvania sooner than people in the next county over. Even if apocryphal, it illustrates what economists call a network effect: with 12 million people born in Mexico now dispersed around the U.S., information about job-market conditions filters back to Mexico with remarkable speed.

Now that the network is established, the exodus feels rather permanent; it is not a wave but a continuous flow. This has led to understandable anxiety, even among economists, about whether Mexicans will assimilate as rapidly as previous groups. Although second-generation Mexicans do (overwhelmingly) speak English, and also graduate from high school at far higher rates than their parents, Borjas has documented what he calls an ethnic "half-life" of immigrant groups: with each generation, members of the group retain half of the income and educational deficit (or advantage) of their parents. In other words, each group tends toward the mean, but the process is slow. Last year he wrote that Mexicans in America are burdened if not doomed by their "ethnic capital," and will be for several generations. In "Heaven's Door," Borjas even wrote forgivingly of the quota system enacted in the 20's, observing that it "was not born out of thin air; it was the political consensus . . . reached after 30 years of debate." These are distasteful words to many people. But Borjas does not advocate a return to quotas. His point is that

Americans shouldn't kid themselves: "National origin and immigrant skills are so intimately related, any attempt to change one will inevitably change the other."

The Limits of Economics
Economists more in the mainstream generally agree that the U.S. should take in more skilled immigrants; it's the issue of the unskilled that is tricky. Many say that unskilled labor is needed and that the U.S. could better help its native unskilled by other means (like raising the minimum wage or expanding job training) than by building a wall. None believe, however, that the U.S. can get by with no limits. Richard B. Freeman of Harvard floated the idea that the U.S. simply sell visas at a reasonable price. The fee could be adjusted according to indicators like the unemployment rate. It is unlikely that Congress will go for anything so cute, and the economists' specific prescriptions may be beside the point. As they acknowledge, immigration policy responds to a host of factors — cultural, political and social as well as economic. Migrant workers, sometimes just by crowding an uncustomary allotment of people into a single dwelling, bring a bit of disorder to our civic life; such concerns, though beyond the economists' range, are properly part of the debate.

What the economists can do is frame a subset of the important issues. They remind us, first, that the legislated goal of U.S. policy is curiously disconnected from economics. Indeed, the flow of illegals is the market's signal that the current legal limits are too low. Immigrants do help the economy; they are fuel for growth cities like Las Vegas and a salve to older cities that have suffered native flight. Borjas's research strongly suggests that native unskilled workers pay a price: in wages, in their ability to find inviting areas to migrate to and perhaps in employment. But the price is probably a small one.

The disconnect between Borjas's results and Card's hints that there is an alchemy that occurs when immigrants land ashore; the economy's potential for absorbing and also adapting is mysterious but powerful. Like any form of economic change, immigration causes distress and disruption to some. But America has always thrived on dynamic transformations that produce winners as well as losers. Such transformations stimulate growth. Other societies (like those in Europe) have opted for more controls, on immigration and on labor markets generally. They have more stability and more equality, but less growth and fewer jobs. Economists have highlighted these issues, but they cannot decide them. Their resolution depends on a question that Card posed but that the public has not yet come to terms with: "What is it that immigration policy is supposed to achieve?"

Roger Lowenstein is a contributing writer. He has written cover articles for the magazine about Social Security and pensions.

Former top judge says US risks edging near to dictatorship

· Sandra Day O'Connor warns of rightwing attacks· Lawyers 'must speak up' to protect judiciary
Julian Borger in Washington
Monday March 13, 2006
Guardian

Sandra Day O'Connor, a Republican-appointed judge who retired last month after 24 years on the supreme court, has said the US is in danger of edging towards dictatorship if the party's rightwingers continue to attack the judiciary.

In a strongly worded speech at Georgetown University, reported by National Public Radio and the Chicago Daily Law Bulletin, Ms O'Connor took aim at Republican leaders whose repeated denunciations of the courts for alleged liberal bias could, she said, be contributing to a climate of violence against judges.

Ms O'Connor, nominated by Ronald Reagan as the first woman supreme court justice, declared: "We must be ever-vigilant against those who would strong-arm the judiciary."

She pointed to autocracies in the developing world and former Communist countries as lessons on where interference with the judiciary might lead. "It takes a lot of degeneration before a country falls into dictatorship, but we should avoid these ends by avoiding these beginnings."

In her address to an audience of corporate lawyers on Thursday, Ms O'Connor singled out a warning to the judiciary issued last year by Tom DeLay, the former Republican leader in the House of Representatives, over a court ruling in a controversial "right to die" case.

After the decision last March that ordered a brain-dead woman in Florida, Terri Schiavo, removed from life support, Mr DeLay said: "The time will come for the men responsible for this to answer for their behaviour."

Mr DeLay later called for the impeachment of judges involved in the Schiavo case, and called for more scrutiny of "an arrogant, out-of-control, unaccountable judiciary that thumbed their nose at Congress and the president".

Such threats, Ms O'Connor said, "pose a direct threat to our constitutional freedom", and she told the lawyers in her audience: "I want you to tune your ears to these attacks ... You have an obligation to speak up.

"Statutes and constitutions do not protect judicial independence - people do," the retired supreme court justice said.
She noted death threats against judges were on the rise and added that the situation was not helped by a senior senator's suggestion that there might be a connection between the violence against judges and the decisions they make.

The senator she was referring to was John Cornyn, a Bush loyalist from Texas, who made his remarks last April, soon after a judge was shot dead in an Atlanta courtroom and the family of a federal judge was murdered in Illinois.

Senator Cornyn said: "I don't know if there is a cause and effect connection, but we have seen some recent episodes of courthouse violence in this country ... And I wonder whether there may be some connection between the perception in some quarters, on some occasions, where judges are making political decisions yet are unaccountable to the public, that it builds up and builds up to the point where some people engage in violence."

Although appointed by a Republican, Ms O'Connor voted with the supreme court's liberals on some divisive issues, including abortion, making her a frequent target for criticism from the right. After announcing that she intended to retire last year at the age of 75, she was replaced in February this year by Samuel Alito, who is generally regarded as being more consistently conservative.

In her speech, Ms O'Connor said that if the courts did not occasionally make politicians mad they would not be doing their jobs, and their effectiveness "is premised on the notion that we won't be subject to retaliation for our judicial acts".

Guardian Unlimited © Guardian Newspapers Limited 2006

Two-Thirds of Katrina Donations Exhausted

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Bloggers' Note: Following the money trail. Washington Post article attempts to untangle the money web, supporting accountability, and keeping Katrina front and center in its coverage.
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Two-Thirds of Katrina Donations ExhaustedCharities Faced With Difficult Decisions and Countless Requests as They Spend What Is Left

By Jacqueline L. Salmon and Leef SmithWashington Post Staff WritersMonday, February 27, 2006; A01

Six months after Hurricane Katrina laid waste to the Gulf Coast, charities have disbursed more than $2 billion of the record sums they raised for the storm's victims, leaving less than $1 billion for the monumental task of helping hundreds of thousands of storm victims rebuild their lives, according to a survey by The Washington Post.

Two-thirds of the $3.27 billion raised by private nonprofit organizations and tracked by The Post went to help evacuees and other Katrina victims with immediate needs -- cash, food and temporary shelter, medical care, tarps for damaged homes and school supplies for displaced children.

What's left, say charities and federal officials, will need to be stretched over years to rebuild lives and reconstruct the social fabric of the Gulf Coast -- from job training to mental health counseling to rebuilding the homes of the poor to reestablishing arts organizations and paying clergy as they wait for their congregations to return.

The Post survey, the first detailed examination of the largest outpouring of charity in the nation's history, also found the following:
· The American Red Cross, which was criticized for slow distribution of donations after the Sept. 11, 2001, terrorist attacks, has given out 84 percent of its Katrina and Rita donations.
· 50 cents of each donated dollar went out in cash to victims.
· 6 percent of contributions came in the form of supplies -- building materials, food, water, clothing, heavy equipment -- donated mostly by corporations.
· 56 percent of remaining donations are controlled by faith-based organizations. They include such well-known institutions as Catholic Charities USA and the Salvation Army but also such lower-profile groups as the United Methodist Committee on Relief and United Jewish Communities.

What remains to be done goes well beyond even the staggering costs of rebuilding infrastructure -- projects estimated to require nearly $200 billion in government aid over the long term.

"There are many, many needs that the federal government cannot cover," said Don Powell, a former Federal Deposit Insurance Corp. chairman who was named coordinator of the Gulf's long-term recovery by President Bush in November. Many are "the crucial part of life that we all depend on," he said. "It's not public works. It's not water, sewage or utilities. It's the soul of our life."

No one has put a price tag on restoring the "soul" of a region after such devastation, but the current charitable resources of about $960 million, as calculated by The Post, will not be sufficient, Powell said.

The line between what the government pays for and what charities will cover is blurred. Even though many Gulf Coast residents are eligible for federal assistance for some housing costs, plenty of other residents will not qualify, say charities, who predict they'll have to pick up the slack.

Also, the law that governs federal spending after a disaster strictly limits how much can go to private entities -- places of worships and arts groups, mental health services, youth programs and child-care centers.

The desolate fiscal situations in Mississippi and Louisiana leave those states in no position to cover what the feds cannot. Charity officials say their organizations will try to step into that breach.

For weeks after the storm, Americans and their employers poured hundreds of millions of dollars into charities, churches, synagogues and other religious organizations. Thousands of truckloads of supplies were sent to the Gulf Coast.

The speed of the charitable inflow after Katrina topped the torrid pace of donations after the Sept. 11 attacks, when donations hit the $1 billion mark in six weeks and ultimately rose to $2.8 billion, according to Indiana University's Center on Philanthropy.

Donations to Katrina, in contrast, hit $1 billion in three weeks.
Even so, Katrina presents far broader challenges -- simply because the money must be spread over so many more victims.

"Even if we doubled, tripled or quadrupled what we have, we still wouldn't be able to meet the need," said Gary Lundstrom, director of projects for Samaritan's Purse, which is rebuilding homes along the Mississippi coast and in Louisiana's ravaged St. Bernard Parish with much of its $34 million.

Despite the charitable outpouring, some victims feel shortchanged. And there is often a disconnect between the realities of how much has been contributed and the vastness of the need.

Johnnie and Hurley Smith clung to their bedroom skylight to survive Katrina after eight feet of water inundated their home in Biloxi, Miss. They got $1,000 from the Red Cross to use for daily expenses such as lodging and food, and $100 and a new mattress from the Salvation Army. They also ate Salvation Army and Red Cross meals, and their wrecked home was gutted by a church group.

Nevertheless, Johnnie Smith, 57, says she wishes a little more of the billions in donations had come her way.

"I should have been given more assistance," said Smith, a real estate agent who is still unable to work and needs therapy to deal with the trauma of Katrina. (Her husband, Hurley, is retired.) "There was a lot of money donated, and there is still a lot of money being donated."

Some small groups along the coast complain that the big charities are ignoring them.

Saving Our Selves Coalition, a grass-roots recovery group, relies on funds from smaller organizations and individuals.

"I would hope that the [big charities] won't move like our federal government is moving," said the group's founder, LaTosha Brown. "We're six months out, and people are still up in the air. The resources are not getting to the communities."

Charities are braced for hard decisions as they spend what is left. In December, 1,000 Gulf Coast ministers jammed into a New Orleans hotel ballroom for an agonizing debate over whether $20 million donated to faith organizations by the Bush-Clinton Katrina Fund should be divided among many organizations or focused on a few.

Their decision: Rather than funding a "full dinner" for a limited number of groups, many organizations should receive a "sandwich," said the Rev. William Gray III, co-chairman of the fund's ministerial advisory committee.

Disillusioned by the sluggish government response to the storm, some nonprofit organizations are choosing to spend private dollars on projects that might otherwise be publicly funded.

The Baton Rouge Area Foundation has hired planners and other consultants at a cost of $15 million to devise a blueprint for development in southern Louisiana, a task normally taken on by the Federal Emergency Management Agency. It also is spending $1.2 million on consultants to map out a regional health care system. The foundation has yet to raise all the needed cash, having exhausted the millions in relief funds it raised earlier.

"We can do it, and we can do it much better" than the federal government, said John Davies, chief executive of the foundation.
And many homeowners and renters are turning to nonprofit groups after failing to qualify for government aid.

"We've been swamped" with inquiries, said Ken Meinert, senior vice president for Habitat for Humanity's Operation Home Delivery project, which is rebuilding 1,000 houses along the coast with the $80 million it has raised. It hopes to raise additional money to build another 1,000 residences.

Catholic Charities USA hopes to build 5,000 housing units for the poor in New Orleans, some of it on church-owned land, leveraging its money with loans and grants, said the Rev. Larry Snyder, the group's chief executive.

The group has so far disbursed $58 million of the $142 million it collected to 76 Catholic Charities agencies and other organizations in 29 states for counseling, job placement and housing.

New Orleans resident Tyler Jones, 45, who lost everything in the storm, said Catholic Charities provided his family with medical care, money for clothes, counseling and other support to get their lives back on track. "They restored my faith and my hope by helping me," said Jones, a New Orleans sheriff's deputy.

In its survey, The Post identified 15 charities that collected the most money, based on a database from the Center on Philanthropy of 141 charities raising money for hurricanes Katrina, Rita and Wilma.

It asked for the amounts collected and how much has been disbursed. It also obtained breakdowns of how much had gone for short-term relief and amounts remaining for long-term recovery.

Some of that money is causing tension on the Gulf Coast.

Doctors struggling to rebuild practices are clashing with emergency clinics set up after the hurricane. The physicians say the free medical care is diverting paying patients from their practices.

For much the same reason, International Aid, a Michigan group that raised $50 million in cash and supplies, has stopped distributing food now that many grocery stores have reopened.

There comes a point, said the Rev. Myles Fish, the group's chief executive, when "you don't want to harm the local economy, so you've got to discontinue the free stuff."

Some charities that have focused on the more immediate needs of the storm's victims are winding down.

The American Red Cross announced earlier this month that it had received enough donations to cover the $2.1 billion cost of its operation and asked donors to give to other hurricane-relief groups.

It is, however, reserving $194 million for its local chapters for long-term recovery, it said.

Other groups focused on longer-term programs are just gearing up.
The United Methodist Committee on Relief, an arm of the United Methodist Church, hasn't completed its strategic plan for the $69.6 million it raised from church collection plates. The group also has a $60 million contract from FEMA.

UMCOR's plan will focus on "case management," assigning paid personnel and volunteers to help the neediest victims get back on their feet over the next four to six years, said Kristin Sachen, UMCOR's assistant general secretary, who oversees the group's relief efforts.

"It is slower," said Sachen of her group's efforts. "It is not emergency work. It is long-term recovery."

Staff researcher Derek Willis contributed to this report.
© 2006 The Washington Post Company

A Link: Dubai Ports and Secretary Snow (Bush Secretary of Treasury)

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Blogger's Note: I appreciate the article for connecting the dots. Good investigative reporting includes assimilating seemingly minute points of information and seeing if a picture emerges. This article accomplishes that end.
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It's just yet another blurry line -
David Lazarus
Sunday, February 26, 2006
SF Chronicle

Say what you will about the propriety -- and national- security implications -- of having a government-owned Middle Eastern company manage major U.S. ports.

What's even more remarkable is that once again President Bush is forced to defend a controversial deal involving a corporate entity linked to a senior member of his administration.

To date, the gold-medal winner in potential corporate-political logrolling has been Vice President Dick Cheney, whose former employer, Halliburton, has received millions of dollars in government contracts in Iraq and elsewhere.

Now we have as silver medalist Treasury Secretary John Snow, who previously served as head of transportation giant CSX Corp. The company sold its global port assets to Dubai Ports World for $1.15 billion a year after Snow left for the White House.

Snow's Treasury Department was the government agency that subsequently vetted and approved the $6.8 billion sale of a British company to state-run Dubai Ports World. The Dubai conglomerate in turn will take over the British firm's management of six U.S. ports.

The Treasury Department says Snow played no role in CSX's dealings with Dubai Ports World.

"If people do look into it, they'll see in fact there's absolutely no personal interest or relationship on the part of Secretary Snow with business activities at CSX Corp.," Tony Fratto, a Treasury spokesman, told reporters last week.

But the situation once again highlights how blurry the line separating political and corporate interests has become. This is the danger of having former CEOs running the country, especially when they come from powerful industries like oil and transportation.

"The potential for conflict of interest is greater today than it's ever been," said Kirk Hanson, executive director of the Markkula Center for Applied Ethics at Santa Clara University.

The concern, he said, lies not just in an official's affiliation with a former employer but also in the fact that the official typically maintains relationships with executives who remain with the company.

Snow may have had nothing to do with CSX selling its ports division to the Dubai company, Hanson observed. But it's likely that Snow knows high-level people who now work for the Mideast firm.

Dubai Ports World's general counsel, George Dalton, and its head of business development, Matt Leech, came to the company from CSX.

"As more Republican and Democratic officials move into private-sector jobs and then move back into the public sector, you'll see more and more cases like this," Hanson said.

Some critics of the deal, not unreasonably, have noted that two of the 19 hijackers behind the Sept. 11, 2001, attacks on the World Trade Center and Pentagon were from the United Arab Emirates.

Moreover, 11 of the hijackers -- all Saudis -- flew to the United States from Dubai. And U.S. officials say that Dubai played a central role in Osama bin Laden's financial network prior to the attack.

Last but not least, Dubai was also used by the man called the father of Pakistan's nuclear program, Abdul Qadeer Khan, to quietly provide nuclear technology to Iran and Libya.

On the other hand, Dubai serves as a base for U.S. military activities in the region and is credited by the Bush administration with being an ally in efforts to combat terrorism.

Bush, who has staked his presidency on national-security issues, told reporters last week that he's comfortable with Dubai Ports World overseeing commercial aspects of some of the largest ports in the United States.

"If there was any chance that this transaction would jeopardize the security of the United States, it would not go forward," he insisted.

"This is a company that has played by the rules, that has been cooperative with the United States, a country that's an ally in the war on terror, and it would send a terrible signal to friends and allies not to let this transaction go through."

What kind of signal does it send, though, to have yet another top administration official linked to yet another controversial corporation entrusted with vital (and profitable) aspects of the nation's defense?

Snow pocketed $33.2 million when he divested his CSX holdings before joining Treasury in 2003.

He got an additional $8 million in deferred compensation a year later and will receive annual pension payments of $79,129.

Snow parlayed a stint as head of the National Highway Traffic Safety Administration in 1976-77 to become a lobbyist for the Chessie System railway, which merged with the Seaboard Coast Line in 1980 to form CSX.

He was named president of the company in 1988, chief executive a year later and chairman in 1991. He remained with CSX until Bush tapped him for the Treasury post.

Snow sold CSX's shipping division, CSX Lines, to none other than the Carlyle Group in 2002 for $300 million.

Carlyle is a prominent Washington investment firm that in past years has counted among its associates the likes of former President George H.W. Bush, former Secretary of State James Baker and the bin Laden family (spawning a raft of conspiracy theories).

In 2004, Carlyle turned around and sold off CSX Lines (now called Horizon Lines) to another investment firm, Castle Harlan, for $650 million. Castle Harlan was co-founded by John Castle, a prominent Republican donor.

A few months later, CSX said it was selling its international terminal business to Dubai Ports World, making the Mideast company one of the leading operators of maritime facilities.

And now Dubai Ports World is set to assume management of docks in New York, New Jersey, Baltimore, New Orleans, Miami and Philadelphia -- with the blessing of Snow's Treasury Department.

Daryl Koehn, executive director of the Center for Business Ethics at Houston's University of St. Thomas, said that even if Snow played no role in any of these events, citizens are right to be concerned.

"There's a smell test that has to be passed in these cases," she said. "The appearance of a conflict can be just as bad as a real conflict when it comes to the trust people place in government."

David Lazarus' column appears Wednesdays, Fridays and Sundays. Send tips or feedback to dlazarus@sfchronicle.com.
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