Virtually all economists agree that a massive economic stimulus package is necessary to prevent one of the most severe recessions (and potentially depressions) since the Great Depression of the 1930s.  However, the $800 billion stimulus bill working its way through congress is fatally flawed.

This battle must be won on two fronts.  First, we must fix the root of the problem, which is the housing crisis .  And second, we must stimulate spending which accounts for 2/3 of the US economic output.

The challenge with the current bill is that it spreads out the money over too many areas without addressing these two core investments.  There is but a small amount pledged to help homeowners (which does help address the root but insufficiently).  At the same time, there is a massive amount of spending to bail out the states, but that money isn’t going to into incremental programs that would stimulate the economy.  It’ll just help plug the massive state deficits without any incremental spending there.

Additionally, there are massive tax breaks spread across broad income brackets.  That’s frankly just a massive waste of money.  Do you really think someone is going to go out and have the confidence to start spending again because they have an extra $20 in their paycheck every 2 weeks?  That’s just absurd.

Rather, the stimulus spending should be solely on getting unemployment down or extending benefits for unemployed:

·         People without jobs aren’t going to spend (obviously). 

·         People collecting unemployment will spend since they have no choice.  That helps the economy, but it’s not sustainable long term.

·         People who get a new job created through government spending will not only create value for society through product work, but they will then have the confidence to spend their earnings and even finance some of their spending (an American pastime).

·         People who already have jobs will feel more confident to spend more when the labor market tightens.  That’s because (1) they will feel it is less likely they will lose their current job, and (2) they will feel even if they do lose their  current job there are others out there.

It’s all about confidence and pragmatism.  Fix the underlying cause, and get people working over the next 2 years.

Tax cuts are great and can stimulate long term growth.  But in the short term, it’s all about targeted programs to get people back to work.

The biggest enemy to the end of the financial crisis and the beginning of an economic recovery is Treasury Secretary Henry Paulson himself.  Let's forget for a minute that the decision by Paulson and Bernanke to let Lehman Brothers fail was the precipitating event leading to credit markets freezing up and the first round of financial panic.  Since then, the two have been working diligently to correct this collosal mistake.  But separating actions from words, we see that words are in fact much more potent.   

Since the end of September, every time Henry Paulson has opened his month, the Dow has dropped on average 196 points.  On days when he was silent, the Dow has dropped on average 28 points. 

So what's going on here? When the crisis started spiraling out of control after the Lehman failure, Henry Paulson and Ben Bernanke swiftly stepped in with bold action, taking over AIG, preventing further failures, and proposing an unprecedented bailout fund of $700 billion.  That was all somewhat re-assuring.  But when congress waivered, Henry Paulson's second monumental mistake was appealing directly to the public, telling them if he didn't get the package the US would face the next great depression.  

And the world responded.  "Great depression?" they gasped. Consumer confidence plummeted, as did consumer spending (which accounts for a stunning 2/3 of US GDP).  Corporations, in a mass panic, swiftly switched into a mode of panicked layoffs and cost cutting.  The banks, already spooked, continued to tighten their lending not just to consumers but to corporations and other banks as well. And ditto for the rest of the world.

 Economics is as much or more about confidence and psychology than it is about fancy macro or micro-economic theories.   So here we are.  Every time Henry Paulson opens his mouth, he spouts some more doom and gloom.  The US and world economies are in ful fledge panic.  Everyone, from gas station attendants to corporate CEOs are talking authoritatively about great depressions, cutting costs and spending, and general doom and gloom.

And it's a self fulfilling prophesy.  If people think there will be a depression, and change their behaviors accordingly, there will be.

 What we need now is for Henry Paulson to shut up and go about the business of stabilizing the economy quietly.  Silence is golden, and will pay of (literally) in gold. It's time for confidence to heal and markets to stabilize so that the next Treasury Secretary and the next administration can implement their own set of policies. 

Check here for recommendations for Mr Obama's economic bailout plan .   

Shhh....  If you listen carefully, you can hear Milton Friedman - the father of neo-conservative economic theory  -  turning over  in his grave. Milton, who believed markets to be rational, perfectly transparent, and generally smart enough to look after their own interests argued vigorously against government regulation or government intervention in economic policy. In Milton's world, corporations would be smart enough to avoid an economic crisis, and if one should occur, they would be able to pull themselves out of it.  Alas, the 2008 economic crisis seems to have successfully unsettled his basic premises and derailed a half century neo-conservative economic policy and dogma.  

Friedman's onetime idol and conceptual opposite was John Maynard Keynes .  Keynes was the most influential economist of the 30s and argued that in cases of catastrophic economic crises, corporations and markets may not be capable of pulling themselves out of the "death spiral", resulting in a recession or even depression much deeper with more severe societal dislocation than would otherwise be necessary.  In the most dire cases, strong government intervention was the only solution to ending economic collapse.   In fact, massive government spending and employment did successfully end the great depression.

So who is ultimately right?  They both were in a sense.  The challenge with Keynes was that he argued for consistent and regular government meddling in short-term economic swings, which ultimately led to the stagflation of the 70s.  Ultimately, Friedman was correct in the respect that short term meddling in unemployment rates and economic growth lead to unintended consequences.  But he - like Allan Greenspan - was wrong to think that corporations can operate at optimal efficiency without government regulation.  This being proven by the failure of:

• AIG: One of the largest insurers of the world
• Fannie Mae and Freddie Mac :  The largest mortgage originators of the world
• Lehman Brothers:  One of the largest investment banks
• Merrill Lynch (near failure):  The largest investment bank in the world
• Citigroup (near failure): One the the largest banks in the world  

So in a big picture sense the US government should:

• Recognize the situations where market and corporate irrational behaviors have the potential for massive negative consequences and put in effective regulation, so we can avoid the situations that create an economic crisis
• Generally stay out of the way of the economy where possible
• Keep an eye out for developing bubbles and "pop" them if necessary to avoid a massive economic crisis 
• And when all else fails, in the case of massive impending economic crisis and collapse, step in and vigorously manage the economy.

According to this plan, now that we're stuck in the worst case scenario - the most severe economic crisis and collapse since the great depression - what is called for is aggressive government action.

First Things First, "Why are we in an economic crisis?"

There are a couple underlying causes in the current collapse.  First, people were buying houses they couldn't afford and banks were irrationally lending those buyers money.  When this housing bubble collapsed, home prices started depreciating.  People couldn't afford their mortgages and stopped paying banks.  The banks were then left with a ton of bad debt on their books and started going bankrupt or teetering on the verge.  These same banks stopped lending money, and businesses started feeling the squeeze.  These businesses then started laying off workers.

All this was bad enough, but then Paulson famously and stupidly, and maybe famously stupidly, came out and started screaming about the next great depression.  At this point, consumers panicked and consumer spending - accounting for over 2/3 of the US economy - ceased.  This caused businesses who saw evaporating demand to start laying off.  Then more people who sensed their jobs were at risk started spending even less.  And so it continues today.

How do we fix the economic crisis?

It's quite simple, honestly.  First, the US government needs to do everything possible to stabilize the financial sector.  It's already working aggressively to stabilize the banking sector, which is a step in the right direction. 

Second, it needs to focus on jobs. The economy, especially the US economy, cannot recover until people feel secure in their income and start to spend again.  Period. Economic crisis is as much about emotion and psychology as reality, and that's the case here.  Historically speaking, that has meant massive public works projects that are in the national interest.  It's a short-term win-win.  The government makes investment in the long term competitiveness of the country.  At the same time, workers get job security and income and start spending again.  The good news is that we have no shortage of strategic projects that need investment:

• Massive mobilization to secure our energy independence and simultaneously save the planet from global warming .  We should make immediate and massive investments in nuclear power, solar, wind and other power generation plants.  At the same time, we should invest massively in more energy efficient technologies like hybrid cars, better insulation, etc.
• Tactical investments in our crumbling roads, bridges, etc, to the extent that it improves commercial transportation or improves the free flow of labor.
• Medical modernization .  The United States spends more per-capita on healthcare than anywhere else in the world but our life expectancy lags dozens of countries. We need to find ways to improve efficiency. 

Finally, and most controversially, the economic crisis could be dramatically worsened if a major employer like GM, Ford or Chrysler failed.  Yes, these companies deserve to fail.  Just not right now.  

So Mr. Obama, you have inherited the worst economic crisis since the great depression.  But your path is clear.  Go forth and save the United States! 

As much as GM, Ford and Chrysler claim the recent crisis is the result of nothing more than the short term credit crunch, that claim is pure spin.  The truth is much colder and harder than that. 

• Fact: GM market share peaked 40 years ago when they controlled over half of all vehicles sold in the US.  They have lost market share nearly every single year since then, to the low 20s today .  
• Fact: Despite near unanimous agreement that fossil fuels are causing global warming, and the fact that the US was sending hundreds of billions of dollars a year to repressive middle eastern governments, some of which covertly funneled funds to terrorists, the “big three” automakers steadfastly opposed tighter fuel efficiency standards.
• Fact: If GM, Ford and Chrysler had adopted stricter fuel efficiency standards, they would have a fleet of more competitive cars instead of huge gass-guzzling cars that nobody wants to drive, and they wouldn’t need this bailout.
• Fact: Executives from the big three showed up to congressional hearings on their own private jets .  When asked to raise their hands if they would give up their private for the benefit of their company, not a one of them raised their hands.  This is more symbolic than anything, but it shows how out of touch with public opinion they are.

So while the automakers like to blame unions, the credit crunch, or basically anything except their own mismanagement for the current crisis, the blame lies firmly and directly at the executive management's feet.  After decades of building cars that nobody wanted, the chickens have come home to roost.

Should GM be allowed to go bankrupt?

Yes.  GM, Ford and Chrysler all deserve the situation they are in.  In fact, in normal economic conditions, they should be allowed to fail completely.  But these are not ordinary times, and a complete collapse of the US auto industry would be catastrophic to the US economy.  It is reasonably estimated that 3 million jobs would be lost in such a case.  The drag on the already imploding US economy may even be enough to push us from recession to depression.

The Age of Pragmatism

This is not the time for idealism.  It is the time for pragmatism.  Americans are thankful every day that we don’t live in a socialist economy.  So any assistance should conform to the following criteria:

• It significantly and substantially benefits the US economy.
• It holds executive management of the auto makers accountable for the failure of their businesses.
  
• The existing investors (shareholders and bond holders) should not receive any benefit from government intervention.  They took the risk in exchange for return, and this is an extreme example of what risk really means. 

Pragmatically speaking, this means a financial rescue package along the following lines

• Each company that receives assistance will first declare bankruptcy
• Shareholders' equity would be wiped out by issuing a very large number of new shares to the US government (along the lines of what happened at AIG, Fannie and Freddie).  Existing debt holders should be wiped out. 
  
• The top 2-3 layers of management and the board should be fired without severance.  A new reform minded CEO would be appointed to head the new company, and would report directly to the treasury secretary.
• Over the next 2-3 years, valuable parts of the business would be sold off, union contracts would be re-negotiated to ensure long term competitive cost structure, pension benefits would continue but at a reduced level.  The remaining core business would be structured to be profitable as a much smaller entity, producing roughly half the vehicles as today.
• At its core, the auto business is a fashion business .  And these companies need to make cars the public demands, which will be the focus of a 5 year turnaround plan.
• The US auto industry would adopt aggressive and tough fuel efficiency standards, re-tooling their plants to a higher reliance on hybrid, fuel cell and electric technologies.  Time lines would be aggressively shortened so that by 2015 we see major, quantum leap improvements in US fuel efficiency.
  
• All US government owned equity in GM, Ford and Chrysler would be sold back to the public by 2015, and the companies would be fully independent by that point.

This plan punishes those who deserve it, protects the US economy and some level of employment, accomplishes strategic goal of energy independence and reduction in global warming , and offers the potential windfall to tax-payers after successful completion.

“I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him back safely to the earth. No single space project in this period will be more impressive to mankind, or more important for the long-range exploration of space; and none will be so difficult or expensive to accomplish.”

It was a preposterous challenge, and the costs would be enormous.  But Kennedy insisted, and the nation responded.  On July 20, 1969, the dream was fulfilled when Apollo 11 landed on the moon.  The ancillary benefits were huge and far reaching.  Here’s a list of 79 of them.

Fifty years later, no president has come close to harnessing the energy, determination, and spirit of the American people to achieve a great and unobtainable goal like the race to the moon. 

But now is the time.

The fact of the matter is, this nation, this continent, this planet is facing serious environmental change , that will have major economic, political, and human wellbeing consequences.  Of that there is no longer any serious doubt or debate.  I can think of no single issue with greater importance to human welfare that the United States should take a leadership position on.  To Kennedy, I say:

“This nation should reduce its per capita production of climate changing emissions from the highest in the industrialized world to the lowest in the industrialized world by 2020.”

I cannot think of a more difficult, more inspiring, or more important challenge for the world today.  I can already hear the critics starting to murmur:

“It will be disastrous to our economy.”

“It will make us uncompetitive.”

“It will raise the costs for the American consumer.”

I completely disagree.  Just like the space race spawned hundreds of industries and thousands of new technologies that have fueled our economy for five decades, this enormous challenge will do the same.  Is it possible to create technologies that reduce emissions and reduce costs?  Of course it is.  And THIS will be an enormously valuable and exportable product. The companies that sieze this challenge will be providing industrialized goods and technological solutions to the rest of the world for another 50 years. 

And it couldn’t come at a better time.  Despite decades of lax regulation, the US trade deficit has reached unprecedented heights.  It’s time to change this while doing the right thing for the planet.  Challeng the American people.  They will respond.

Machiavelli would be proud. Despite recurrently using the spread of democracy across the middle east as a justification for the Iraq war, the US continues to support dictators, tyrants, and coup-leaders worldwide.  Let's have a brief history lesson.  And I'm not talking about Eisenhower era support of Batista.  I'm talking about much more recent history.

Remember the failed coup attempt to overthrow the leftist, though legitimately elected, president of Venezuela Hugo Chavez in 2002?  The United States quickly came out in support of the coup leaders, but quickly back peddled when Chavez regained control after less than two days. 

Or how about Pakistan today.  Purvez Musharraf took power in a military coup in 1999, ousting democratically elected Prime Minister Nawaz Sharif, and suspending the constitution twice to maintain power, most recently in November 2007.  He has jailed dissidents, jailed a supreme court justice, and generally behaved as a military dictator.  As for the argument he is a strong ally in the war on terror, he only reluctantly agreed to oppose the Taliban under direct threat from the United States.  Additionally, scientists in his country provided materials and training for building a nuclear weapon to Libya.

The United States supported the Shah of Iran (Mohammad Reza Pahlavi), the last Shah of 2500 years of continuous monarchy rule.  According to Madeleine Albright, “In 1953 the United States played a significant role in orchestrating the overthrow of Iran's popular Prime Minister, Mohammed Massadegh… it is easy to see now why many Iranians continue to resent this intervention by America in their internal affairs.” While the Shah did succeed in modernizing his country and improving the rights of women, he also ousted and arrested political dissidents, which ultimately lead to popular unrest and his overthrow. Which brings us to Iraq….

Once the Shah was overthrown and the fundamentalists took control of the country, the US chose a very strange bed fellow to support in the middle east: Saddam Hussein .  Saddam was another brutal dictator who came to power 1979.  During the Iran-Iraq war, the US provided military and economic aid to Saddam.  Importantly, during this war, Iraq used chemical weapons against Iran.  Additionally, he used chemical weapons in a genocidal campaign against Iraqi Kurds.  Not exactly a role model for a US ally. Of course, relations soured when Saddam attacked and crippled a US warship.

Finally, in a quest to secure a steady supply of oil from the middle east, the US has formally supported the oppressive and corrupt Saudi family since the 1940s.  Despite the fact that it’s a monarchy, that women have little to no rights, that dissent is suppressed, that 15 of 19 hijackers in the 9/11 attacks were from Saudi Arabia, that there have been two major worldwide oil price shocks, the US still finds the Saudi family good friends.  It’s really astonishing. 

The list goes on.

On the one hand, you could argue that this is simply Machiavelli in action.  The ends justify the means.  The US secures outcomes in its national interest, but has to stomach relations with a few unsavory people.  However, in almost all cases, US support of corrupt regimes has ended in disastrous consequences for our own national self interest.  Support the corrupt regime of Batista got us exasperated Cubans and 50 years of Castro .  Support of the corrupt Shah got us a hostage crisis and 30 years of an extremist government openly developing nuclear weapons.  Support of Iraq got us two wars in 20 years.  Support Saudi Arabia got us 2 oil shocks and the 9/11 terrorist attacks.

It’s time to take a different approach to foreign policy.  Instead of supporting whichever dictator suits our interests at any given moment, instead of propping up corrupt regimes, let’s have a more principled approach. 

Let’s stop meddling in the internal affairs of other countries.  It’s a hard habit to break, but it’s time we did.

Let’s encourage economic development around the globe.  Ultimately, economic growth leads to a middle class, which leads to less extremism, which leads to more political freedoms.

Let’s stop supporting corrupt regimes and dictators because they can help our interests in the short term.  That just leads to internal resentment and ultimately radicals overthrowing the government anyway.

Finally, let’s tie economic cooperation to human rights records.

It is important to consider factual abortion statistics for the pro abortion and pro life arguments. 

Abortion fact: there are a startling 42 million abortions worldwide every year.  Over a lifetime, that totals about 1 abortion for every woman on the planet, and in fact, nearly 1 in 2 women worldwide will have an abortion in their lifetime.  I don't care if you're pro-life or pro-choice, these numbers are sobering.  And let's get real for a minute.  Whether there are laws prohibiting abortion or not, there are going to be abortions.

Abortion fact: about 20 million women each year obtain abortions in countries where the practice is either illegal or restricted.  Abortion is our reality.

I can't really debate whether abortions should be legal under the "do the right thing" lens.  That there are strong pro choice and pro life arguments in the abortion debate is not the point. The problem with the abortion debate is that it is about beliefs. Pro lifers believe life begins at inception, while pro choicers believe life begins at some later point - often defined as the point of viability of the fetus.  And beliefs, by definition, are not provable. Depending on where you come out on this belief, you will argue that abortions are ethical or not.   

Whether you are pro-choice or pro-life, what is generally not debated is that having an abortion is an undesirable, difficult, emotional experience.  In an ideal world, there would be no abortions.  But these startling abortion statistics show the magnitude of the issue is huge.  We should therefore work together to reduce abortions and more specifically the underlying causes for abortions.  

What can we do?  The US government, pro-life groups, pro-choice groups and anti-aids groups should band together in a (somewhat uncomfortable) alliance and focus their resources on the following areas.

Sex education: Get real.  Teenagers and young adults have sex.  From a biological perspective, they are built to be reproducing by the time they hit their teens.  And the reason teenagers hate you?  Biological.  It's time for them to become independent contributors to the tribe, break away from the family, and start their own.  Now, we've evolved societally a lot since the last ice age, and thankfully our kids don't need to start hunting saber-tooth tigers at age 13 anymore.  Let me tell you from personal experience, the basic biological drives are still there.  In a MAJOR way.  As a 16 year old boy, I spent an amazing amount of time chasing girls and trying to get laid.  I was not in any way unique.   Have you ever read Romeo and Juliet?  This has been going on for the history of mankind.  There is NOTHING you can do to stop it.  That's not going to change.  According to a Rutgers article :

"Just over half of teenage girls have experienced first sexual intercourse by age 17. [5]  Teenage girls are sexually active for seven or eight years on average before marriage. Indeed, premarital sex has become something of a misnomer. Sex is increasingly detached from the promise or expectation of marriage."

Another study finds that about 7% of men and 20% of women are virgins when they marry. 

What we can change is the consequences.  And that starts with sex education.  You need to educate kids at a young age - starting at about 12 - about sex, their urges, the process and the disastrous CONSEQUENCES of unprotected sex. We need to have real, frank conversations about this.  And it doesn't start and end with a single day in a 7th grade health class (as it did with me).  This needs to be an ongoing, re-inforced message delivered over and over by schools, parents, public service announcements, etc, etc, etc.  It's about building a culture of awareness that if you're going to have sex, you BETTER have protected sex.

Distribution of free birth control:  The thing about sex is that it's a completely natural and beautiful part of life.  And it's even more beautiful if this act doesn't result in an unwanted pregnancy.  It's so unbelievably simple.  Wear a condom.  This simple act would reduce by 99% the number of abortions annually.  The pro-life groups should be handing our condoms on the streets if they really want to do something about abortions.

This is where it gets really, really strange.  Many (most?) of the opponents of abortion rights are also the opponents of sex education and the distribution of free contraceptives.  That, in my opinion, is stunningly hypocritical and stupid.  Let's focus on the goals and the results.  Over a lifetime, that's on average 1 abortion for every woman in the world.  HORRIFIC!  START HANDING OUT CONDOMS TODAY!!!!!

So look, should abortions be legal?  Illegal?  It doesn't matter, because it won't dramatically change the number of abortions performed worldwide.  Let's get real about the fact that young adults have sex, most abortions are from young adults, and that there are things we can do about it TODAY. 

DEBATE 

While ultimate power in Iran has rested with the religious fundamentalist Ayatollah Ali Khamenei, the fact that a radical like Ahmadinejad was popularly elected by the Iranian people is disheartening. Though perhaps not as disheartening to re-electing George Bush.

So the knee-jerk conclusion is that Iran is a population of radical Islamists which poses a serious threat to the western way of life. But dig a bit deeper, and you see that this is not the case, and worse, the United States has contributed significantly to the rise of Mr Ahmadinejad.

Failed US Policies in Iran

In fact, the radicalism in Iran has to a significant extent been exacerbated by misguided US policies and meddling.

As I wrote in my article “in support of dictators and tyrants ”,

The United States supported the Shah of Iran (Mohammad Reza Pahlavi), the last Shah of 2500 years of continuous monarchy rule. According to Madeleine Albright, “In 1953 the United States played a significant role in orchestrating the overthrow of Iran's popular Prime Minister, Mohammed Massadegh… it is easy to see now why many Iranians continue to resent this intervention by America in their internal affairs.” While the Shah did succeed in modernizing his country and improving the rights of women, he also ousted and arrested political dissidents, which ultimately lead to popular unrest and his overthrow.

In other words, we were supporting a monarch who had repressed political dissidents, which led to the radical 1979 Islamist revolution. The US then needed to form a counterweight to Iran’s power in the Middle East:

Once the Shah was overthrown and the fundamentalists took control of the country, the US chose a very strange bed fellow to support in the middle east: Saddam Hussein. Saddam was another brutal dictator who came to power in 1979. During the Iran-Iraq war initiated by Iraq, the US provided military and economic aid to Saddam. Importantly, during this war, Iraq used chemical weapons against Iran. In total, between 500,000 and 1,000,000 Iranians died in this war supported in part by the United States. Not exactly a role model for a US ally.

So you can see how the Iranian’s would be a bit negative towards the west. And in fairness, in the years since 1979, Iran has actively supported groups hostile to the United States and Israel (e.g., Hesbollah). So the aggressive US stance towards Iran is understandable. But ultimately, it has been more than ineffective. It has been counter-productive.

Rise of the moderates in Iran

By 1997, there was something of a counter-revolution brewing. The Iranian population, weary of oppressive and restrictive Islamic rule, elected the moderate reformer Mohammad Khatami as president on the strength of the younger voters and women in a repudiation of Islamic fundamentalism.

Importantly, Khatami developed and presented the theory of Dialogue Among Civilizations:

Basically, laying the ground for peaceful, constructive debate among nations; providing a context in which civilizations can learn from each other’s strengths and weaknesses; replacing fear, blame, and prejudice with reason, fairness, and tolerance; and facilitating a dynamic exchange of experiences among culture, religions, and civilizations aimed at reform and amelioration. Khatami believes that such dialogue would strike a balance between the two extremes of self-denial, unquestioning imitation, and surrender and hatred, irrational rejection, and execration. (Source: Wikipedia)

Not exactly what I would call a radical. The United Nations adopted this theory and declared 2001 as the year of “Dialogue among Civilizations.”

Khatami pursued pro-western policies like denationalizing state industries and removing commodities subsidies. According to the World Bank, "after 24 years marked by internal post-revolutionary strife, international isolation, and deep economic volatility, Iran is slowly emerging from a long period of uncertainty and instability."

Recent US Interactions with Iran

In 2003, the Iranian government reached out to the US in an attempt to begin the process of settling some differences between the countries. Included was an offer to disarm Hezbollah and turn it into a political organization, and assist the US in stabilizing Iraq.

So what did the US do during this period? If ever there was an opportunity to support a reformer in Iran, to help Khatami succeed in the face of obstacles, this was it. Instead, George W. Bush refused the offer, and labeled Iran (and Iraq and North Korea) the “Axis of Evil.” We continued to isolate them economically and politically.

At the same time, Khatami’s “policies of reform led to repeated clashes with the hard-line and conservative Islamists in the Iranian government, who control powerful governmental organizations like the Guardian Council, whose members are appointed by the Supreme Leader .” Ultimately, Khatami was unsuccessful in pushing his major reforms past the government of the Ayatollah.

That the US hard line in the face of Khatami’s olive branch weakened his position in Iran is clear. Conversely, it is possible that positive US engagement could have ultimately given him the political capital to succeed with his other reforms.

The rise of Ahmadinejad

After two terms in office, Khatami wasn’t elligible to run for a third term. At the same time, the “Council of Guardians” – controlled by the Ayatolla – disqualified almost all reformist candidates. Between the general population’s frustration at the lack of reform progress and the absence of any credible reformist candidates, the conservative party was elected and Ahmadinejad came to power.

Painted Into A Corner

So here we are. Iran is a country of people weary of Islamic extremism, but which is controlled by a radical Islamist government which supports Hesbollah and is trying to acquire nuclear weapons.

Let’s face it, the two traditional US policies in these situations – economic isolationism and military intervention - have utterly failed.

Our history with economic blockades and isolation is extensive and unsuccessful. For example, Cuba has been under US economic embargo for over 50 years now. Fidel Castro has outlasted 8 US presidents and his brother has now taken the reigns of power. The only people who have suffered are the Cubans .

Is it time to invade Iran? Recent history shows that not only is this foolhardy (we can’t even control Iraq after 7 years), it would not be possible without a MASSIVE mobilization and draft.

Is it time to bomb Iran? Tactically that’s possible and would likely be an effective way to temporarily halt their nuclear ambitions. But it would likely lead to further radicalization of the Iranian population at a time when they are hungry for moderation. And it would also likely lead to other consequences: Overt Iranian support of terrorist groups opposing the US and galvanization of OPEC nations in their quest to extort extreme prices from the world oil market that they control.

So it seems that the US has created a monster and we have no realistic policies to successfully combat it.

A New Way Forward

There is a better way, and it applies equally to Iran, Cuba and other nations. Surprisingly, Nixon showed how when he opened up the doors to economic cooperation with China. Thirty years later, China is a booming capitalistic society with much broader individual freedoms and opportunities as a result. They still have their issues, but they are unquestioningly moving in the right direction.

It’s very simple. If a country has a poor, uneducated, desperate population, it’s both easy to control them and foster extremism. Look at the Palestinian territories. Do you think they are fundamentally crazy enough to want to blow themselves up in suicide missions? No. They are poor, their families are impoverished, and they are desperate. While their solution is the wrong one, it is perhaps a foreseeable outcome.

Conversely, economic growth is the single most important step towards individual liberties. It is fairly straightforward for a government to oppress an uneducated, poor middle class. However, once a country achieves prosperity and a large, educated middle class, it is virtually impossible to effectively suppress individual and political freedoms long term.

So the United States should engage politically and economically with Iran. We should have open diplomatic relations, we should be willing to sit down without arrogance and pre-conditions, and begin the process of dialogue. We should find common ground where we both benefit. We should open economic ties and encourage the growth of the Iranian economy. We should pursue policies that benefit the moderates within the country. And we should work to tie this progress to restricting Iran’s nuclear expansion.

Not only is this a viable path forward. It is the ONLY path forward with a probable successful outcome.