When Barack Obama directed the release of George W. Bush administration documents describing the brutal interrogation of terrorist suspects and defending the legality of those methods, his aim was to draw a line under the issue. He was right to want to, and the compromise he first proposed was a good one.

In releasing the memos the president in effect repudiated methods such as waterboarding, the slamming of prisoners against walls, confinement in boxes, and other practices. These techniques would not be used on Mr Obama’s watch.

At the same time he promised that there would be no prosecutions of interrogators, so long as they had acted in good faith and under guidance that the methods were lawful. And he implied, at least, that the same would go for the lawyers and other officials who had designed the earlier policy.

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On the other hand…

The government today faced a barrage of criticism after police released without charge the remaining 11 suspects arrested a fortnight ago in the north-west of England over an alleged terror plot.

The last two men to be released joined nine others given their freedom last night and one freed on 11 April.

Opposition parties, human rights lawyers and Muslim groups accused the government of mistreating the suspects and botching the anti-terror operation.

The shadow security minister Baroness Neville-Jones said: “It is very worrying that, following an investigation based on strong intelligence into what the prime minister described as a serious terrorist plot, the police have not been able to present sufficient evidence to the Crown Prosecution Service on which it could lay charges against any of the 12 arrested.”

Obama’s efforts to draw a line under the torture scandal—if that is what they were—have had the opposite effect. After promising that CIA interrogators would not be prosecuted, and after seeming to deflect calls for a commission to investigate what went on, the president now says that the attorney general must decide whether the officials who designed the policy should face trial. Also, though not actually calling for an investigative commission, he said that if one were somehow to appear, something along the lines of the 9/11 commission would be the right way to go.

It is not an outright U-turn—not by Obama, anyway. Commentators were possibly jumping to conclusions, helped by Rahm Emanuel, when they took the earlier statements to mean no prosecutions of anyone. Obama never actually said that, though what he said did seem to imply it.

Today I felt sorry for poor Robert Gibbs, whose job it was to explain that nothing had really changed. It was an impossible job and he made a hash of it.

During the grilling, NBC’s Chuck Todd raised the question I would have asked. If the attorney general needs to review whether policymakers broke the law, on the principle that everybody must be accountable, why promise no prosecutions of interrogators? Are CIA officers above the law? There is a distinction in what you might call ordinary justice, or plain common sense, between the architects and the subordinates, but I don’t know that the distinction in law is anything like so clear. “I was just obeying orders” is not regarded as a watertight defence.

Gibbs tied himself in knots, starting to say (I think) that if you break the speed limit inadvertently, because you have been told that you are within it by somebody who ought to know, you have not broken the law—which is untrue, of course. Sensing where that was going, he veered away, leaving the analogy like a cartoon character running frantically in mid-air.

Somebody else then asked, will the attorney general be looking at whether Bush and Cheney broke the law as well? Another good question. Gibbs had no answer.

I thought Obama’s original position—or what most people took to be his original position—was a reasonable outcome, all things considered. (So did the FT.) Ratify, as it were, the abandonment of brutal interrogations, and make it clear they will not be used again. Announce, in effect, that the country has learned its lesson. But do not seek to criminalize the designers or the interrogators for doing their best under extremely difficult circumstances. It appears this compromise cannot hold. And the reason it cannot hold is that Obama, having proposed it, either cannot or will not defend it.

Question. What happens if the people who framed the policy are prosecuted and acquitted?

Who can fail to be impressed by Barack Obama’s energy, or a little stunned by his self-confidence? Show this man a financial crisis, sufficient to occupy or overwhelm an ordinary president, and he sees the chance to “remake” – as he puts it – the entire US economy. You might dismiss that as rhetorical exuberance, but it becomes ever more apparent that his ambition is real. For good or ill, he means to do it.

In foreign policy, one sees the same disposition – the same appetite, the same willingness to bring new thinking to old problems. In recent days, the administration has conceived a spate of new approaches and initiatives.

Just as the financial breakdown is too small a domestic canvas, so Iraq and Afghanistan – where the US currently has most at stake and which constitute by themselves a crushing workload – are too mild a test. The White House has recently made approaches to Cuba and Iran, alongside diplomatic “resets” on Mexico and Latin America, Russia, China, the Middle East, Nato, global summitry, global warming, the international financial institutions and almost anything you care to name.

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My new column for National Journal discusses signs of improvement in the economy, and worries about two longer term issues: the need for substantial tax increases, as yet entirely unacknowledged by the tough-choice specialists in the White House, and the difficulty of unwinding the Fed’s extraordinary recent interventions. Referring to speeches this week by Obama and Bernanke, in which both pointed to signs of improvement, I say:

It is interesting that when Obama and Bernanke began to look beyond the immediate difficulties, they stopped reading from the same script.

The president talked about the need for fiscal discipline once the economic recovery is secure. Alluding to the Sermon on the Mount, he said this was to be one of the pillars of the “house upon a rock” that he hopes to build. Bernanke, in contrast, addressed the need in due course to reverse the Fed’s aggressive interventions in financial markets…

“For too long,” Obama complained yet again, “too many in Washington put off hard decisions for some other time, some other day.”

Tough choices will have to be made, he said. Yes, they will. When does he intend to start discussing them?

His 10-year budget leaves a permanent fiscal gap of 4 percent of national income a year — even after years of strong economic expansion, which the administration optimistically assumes, and despite the fact that the budget provides for half or less of the full cost of health care reform, as the White House admits. Entitlement reform as traditionally envisaged cannot close that gap. Nor can tweaking taxes by restoring “a sense of fairness and balance to our tax code by shutting down corporate loopholes and ensuring that everyone pays what they owe,” as Obama put it.

To crank out that exhausted cliche even as he invokes the need for new honesty, the president must be either severely deluded or far more cynical than most people suppose. Make no mistake: His budget arithmetic calls for higher taxes — much higher. That 4 percent of national income, which deliberately understates the fiscal hole, is equivalent to approximately half of what the current federal income tax collects. The president knows it is going to take a lot more than doing a few extra audits and closing a few loopholes to solve that problem. One hopes he does, anyway. So far, while constantly invoking the need to face difficult choices, he refuses to frame the one that matters most: How much are people willing to pay for the new things he wants the government to do?

Restoring fiscal balance is a huge challenge for the future, one the Obama administration is not yet willing to face. The Fed will have to confront a different and less obvious test, but one of equally daunting dimensions.

Bernanke has undertaken an extraordinary range of interventions to support the economy. They extend far beyond the Fed’s traditional monetary policy tools, and they blur, if not erase, the line separating monetary policy and fiscal policy. Partly to evade congressional scrutiny of Treasury’s actions, partly to get the cost of supporting the banks and shadow banks off the government’s balance sheet, the Fed has committed trillions of dollars to reviving the market for securitized loans and supporting particular institutions or lines of business…

The great danger — one that the financial markets have not begun to grapple with — is that the two issues will merge. Persistent and irreparable budget imbalance, plus a central bank as fiscal partner, is a formula for surging inflation. There is no sign of it yet: With demand so depressed, deflation is still the greater danger.

But it is not too soon to start thinking about the problem, and preparing people for the increases in taxes that will eventually be needed to avert it.

You can read the rest of it here.

Despite my reservations about the term, at least as used by Bill Gates, “creative capitalism” pretty well encompasses two new and notable books I would draw to your attention.

The first is The Beautiful Tree by James Tooley, an unsung hero of development policy. Tooley is a teacher and a professor of education, who these days spends most of his time in Hyderabad, India. His speciality as both scholar and practitioner is ultra-low-cost private education in the world’s poorest countries. Given the pitiful standards of most state-run schools for the poor in the third world, this is a crucial sector, and in many cases a thriving one. Yet its existence was denied in official aid circles until Tooley began publishing his findings. In fact, such was the reluctance to accept the implications of his work, the role played by such schools was denied even after he began describing it in detail.

Orthodox opinion on developing-country education for the poor holds that  parents are too ignorant to know a good school when they see one, and that a decent education is impossible to provide on the minimal budgets available to private schools serving poor students. In country after country, Tooley found that both claims are false. Official attitudes are now changing, he says, but slowly. The book is a memoir of his travels and researches, and a thorough examination of the issues. Everyone interested in development should read it. (Try the first half-dozen pages on Amazon and see if you aren’t hooked.) In the US it is published by the Cato Institute.

Tooley’s book is about entrepreneurial education in unpromising conditions, not philanthropy.  In contrast, Philanthrocapitalism by Matthew Bishop (a former colleague of mine at The Economist) and Michael Green is about marrying entrepreneurial methods to charity. That of course is what Gates has done with his foundation (though he appears to mean something different again by “creative capitalism”). The book describes how an emphasis on results, cost-effectiveness and accountability, backed by billions of philanthropic dollars, is changing the way charity works–and the way much official aid works, as well.

Shame that the book launch gatherings in DC clashed last night; I turned up for the one that invited me first. Sorry, Matthew.

Here is a review of John Taylor’s new book on the financial crisis: “Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis”. I complain that it is too short and too tightly focused on the issue that Taylor sees as most important, namely the Fed’s too-easy monetary policy in the years leading up to the breakdown. On the other hand, since many commentators ignore that issue almost entirely, you might say he is just redressing the balance. In any event, it’s good, and I recommend it highly.

The literature on the causes of the economic breakdown will soon be vast. Amid the stacks, this new book by John Taylor, Stanford professor and author of the celebrated Taylor rule of monetary policy, is worth noticing. It combines seriousness, brevity and accessibility - and it advances a distinctive argument. Its theme is that monetary policy errors, rather than “any inherent instability of the private economy”, first caused the crisis and then made it worse.

Unsurprisingly, the Taylor rule has a central role in the analysis. The author has long expounded the view that predictable, rules-based economic policy gets better results than an approach that surprises economic agents or leaves them guessing about what the government intends. The Taylor rule was originally intended as a recommendation to central banks about the conduct of monetary policy and later recognised as a way to predict how central banks actually behave.

The rule says central banks should set the short-term interest rate equal to one-and-a-half times the inflation rate; plus half of the gap between actual and trend gross domestic product; plus one. For example, if the inflation rate is 5 per cent and the output gap 3 per cent, the Taylor rule says make the interest rate 10 per cent: one-and-a-half times 5, plus a half of 3, plus 1. The rule is derived from monetary-policy models that describe how the economy reacts to changes in interest rates. By the late 1980s and early 1990s, the US Federal Reserve was observed to be following the rule, with notable success.

The crisis that began in 2007 and worsened in 2008 was caused, Taylor says, because the Fed abandoned the rule earlier in the decade. Between 2002 and 2004 interest rates were cut even though the rule required them to be raised. In 2004 and 2005 the gap between the actual and the recommended interest rate was between two and three percentage points. Taylor describes a model simulation in which interest rates followed the Taylor-rule path during this period instead of diverging from it so markedly. The housing boom would have ended in 2003 instead of 2006, he says; house prices and levels of mortgage debt would not have risen so high. In short, monetary policy was the primary cause of the boom and subsequent bust.

The rest of the review is here

How much misery can a policy cause before it is acknowledged as a failure and reversed? The US “war on drugs” suggests there is no upper limit. The country’s implacable blend of prohibition and punitive criminal justice is wrong-headed in every way: immoral in principle, since it prosecutes victimless crimes, and in practice a disaster of remarkable proportions. Yet for a US politician to suggest wholesale reform of this brainless regime is still seen as an act of reckless self-harm.

Even a casual observer can see that much of the damage done in the US by illegal drugs is a result of the fact that they are illegal, not the fact that they are drugs. Vastly more lives are blighted by the brutality of prohibition, and by the enormous criminal networks it has created, than by the substances themselves. This is true of cocaine and heroin as well as of soft drugs such as marijuana. But the assault on consumption of marijuana sets the standard for the policy’s stupidity.

Nearly half of all Americans say they have tried marijuana. That makes them criminals in the eyes of the law. Luckily, not all of them have been found out – but when one is grateful that most law-breakers go undetected, there is something wrong with the law.

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