Event Information

An American Enterprise Institute-Brookings/USC Schaeffer Initiative Event
 

For most of the last five decades, the most-discussed finding by the Medicare trustees has been the insolvency date, when Medicare’s trust fund would no longer be able to pay all of the program’s costs. Last year’s report projected that the hospital insurance trust fund would be depleted by 2030 – just 14 years from now. The report also predicted a more immediate and controversial event: the Independent Payment Advisory Board (IPAB), famously nicknamed “death panels,” would be required to submit proposals to reduce Medicare spending in 2018, with the reductions taking place in 2019. Do we remain on this path to automatic Medicare cuts next year?

The American Enterprise Institute and the Schaeffer Initiative for Innovation in Health Policy, a collaboration between the USC Leonard D. Schaeffer Center for Health Policy & Economics and the Brookings Institution, hosted a discussion of the new 2016 trustees report on June 23. Medicare’s Chief Actuary Paul Spitalnic summarized the key findings followed by a panel of experts who discussed the potential consequences of the report for policy actions that might be taken to improve the program’s fiscal condition. You can join the conversation at #MedicareReport.

Video

• Introduction and keynote address
• Panel discussion

Audio

• The 2016 Medicare Trustees Report: One year closer to IPAB cuts?

Event Materials

• AEI TR16 final
• 20160623_medicaretrusteesreport_transcript

The Medicare Access and CHIP Reauthorization Act of 2015, referred to most often as “MACRA,” set in motion a new approach to Medicare physician payment and replaced the oft-criticized Sustainable Growth Rate with two new payment schemes. In late April, the Centers for Medicare and Medicaid Services (CMS) released many proposed details surrounding the law’s implementation; however, it is important to keep in mind that the final rule is still forthcoming and may incorporate significant changes in response to public comments made on the proposed rule.

While there are many stakeholders trying to understand the implications of this significant legislation, physicians and other providers—whose response is critical to the success of MACRA—must prepare quickly and almost immediately make decisions about which incentive program to pursue and what steps will increase prospects for success. Starting January 1, 2017, physicians’ and other providers’ performance will determine their payment rate updates. Because of the time required to gather and evaluate performance data, spending and other performance measures in calendar year 2017 will provide the basis for physician payments in 2019.

In this piece, we offer a glimpse into the potential financial changes in physician payment based on the proposed rule. Due to the complexity of the MACRA provisions and their significant effects on payment, policymakers, physicians, and other providers alike must better understand the various dimensions of MACRA. We focus on the financial flow of dollars to help physicians and other providers assess which path within MACRA to take and how best to forecast the impact on their payments, as well as to provide an overview for policymakers on the financial implications of different options physicians are actively weighing now as a result of MACRA.

MACRA overview

As established in the law, MACRA creates two primary payment schemes that physicians accepting Medicare can choose to be judged under:

1. The Merit-Based Incentive Payment System (MIPS), which administers bonuses or penalties based on how well physicians perform relative to other physicians on a set of quality and value measures (detailed later); or
2. The Advanced Alternative Payment Model (APM), which initially offers bonuses and then provides higher annual fee updates than MIPS when physicians earn a sufficient amount of their revenue (or see a sufficient percentage of their patients) through qualifying Medicare or approved private payer payment models that require accepting financial risk if spending exceeds targets.

At least initially, the large majority of physicians and other providers likely will be judged under MIPS, with CMS projecting in the proposed rule that only 4 to 11 percent of Medicare providers will qualify for the Advanced APM payment approach in its first year because of the relatively strict standards to qualify. Unlike the expectations expressed during congressional debate over MACRA, which mainly focused on encouraging physicians to form or contract with APMs, the rules proposed by CMS will lead many to remain in MIPS for the foreseeable future. Indeed, we understand that many physician specialty societies are advising their members to remain in MIPS. In a comment letter to CMS, we suggested ways to better support the pipeline of physicians and other providers into APMs.

The graph below illustrates the potential scenarios for the flow of funds under the proposed rule. In MIPS, payment is based upon physician performance relative to all other physicians in the program, with bonuses and penalties centered around the base fee-for-service (FFS) payment rates and annual payment updates. MACRA explicitly requires bonuses or penalties in MIPS—not including exceptional performance bonuses—to be budget neutral.

Unlike MIPS, the Advanced APM program dictates that physicians receive a fixed 5 percent bonus for each of the first six years and higher base payment rate updates than MIPS from 2026 onward, in addition to additional bonuses or penalties based on quality and cost performance under their respective Advanced APM contracts. Adding to the contrast with MIPS, bonuses in the Advanced APM program, as well as contractually specified bonuses or penalties, have no requirement to be budget neutral.

The graph below illustrates that consistently high performers in MIPS can actually financially outperform physicians in APMs for many years. In theory, therefore, physicians in an APM—for instance, a Next Generation Accountable Care Organization (ACO)—who are confident that they would score well on relevant quality and value metrics might actually prefer to be judged as a group under MIPS.

In assessing their options, though, it is important to recognize that performance under MIPS as an individual physician or small group may be less predictable than as a part of an APM, because performance in MIPS is relative to the performance of other physicians. This unpredictability occurs because, as explained above, MACRA requires MIPS incentive payments to be budget neutral, which makes performance among MIPS providers a zero-sum-game—one physician’s increase in performance threatens the payment of another, such that bonuses and penalties offset each other overall.

The Merit-Based Incentive Payment System (MIPS)

MIPS consolidates three existing programs that dictate physician bonuses or penalties for Medicare physicians and other providers (the physician quality reporting system, a meaningful use incentive program for electronic health record use, and the value-based payment modifier) into a new system that creates a composite score based on:

• The quality of care provided (30 percent in 2021 and beyond), as measured under current law;
• Resource use (30 percent in 2021 and beyond), which consists of the “measures of resource use established for the value-based modifier under current law and, to the extent feasible, accounting for the cost of Part D Drugs”;
• Meaningful use of electronic health records (EHRs) (25 percent), established under current law to determine whether a provider is meaningfully using EHRs; and
• Clinical practice improvement activities (15 percent), a broad subsection decided on by the Secretary.

Physicians and other providers’ weighted scores in each of these categories for a year are aggregated into an overarching Composite Performance Score (CPS) for each practice. The CPS values are ranked from highest to lowest, and the relative ranking of each score determines how provider payments are adjusted, dictating whether a bonus or penalty results as well as its size. Each year, the Secretary will select either the mean or the median of CPSs for that year to serve as the performance threshold above and below which physicians and other providers will receive bonuses or penalties, respectively.

Initially in 2019, 4 percent of a medical professional’s revenue generated through Medicare fee-for-service payments will be redistributed under MIPS, growing to 9 percent by 2022 and remaining at that level indefinitely. By comparison, under the three previous reporting programs, physicians in small practices were subject to combined penalties as high as 6 percent or bonuses up to 2 percent; larger practices (with 8 or more physicians) were subject to maximum penalties and bonuses of 8 percent and 4 percent, respectively.

Maintaining budget neutrality requires that CMS pay the same amount in bonuses as it receives in penalties. To assure that penalties offset bonuses, the MIPS bonus percentages described above are potentially subject to a scaling factor of up to three-times to maintain budget neutrality. For example, having the Secretary adopt the median CPS would mean half of all physician practices would rank above that value and half would rank below. However, because practices can differ in both number of physicians and the extent of their Medicare billing, there is no guarantee that the Medicare payments—and associated bonuses—earned by practices above the midpoint would exactly equal the penalties owed by practices below the midpoint. CMS would compute and apply an appropriate scaling factor to assure total bonuses equal total penalties and achieve budget neutrality.

Outside of the budget neutrality requirement, the law provided $500 million each year from 2019 to 2024 to award “exceptional performance” bonuses to MIPS providers with the highest composite performance scores. The bonuses would be awarded on a sliding scale up to as high as 10 percent added to the base MIPS bonus.

Advanced Alternative Payment Models (Advanced APMs)

The other pathway under MACRA involves alternative payment models that meet the criteria established by CMS to be designated “advanced.” Advanced APMs are defined as (i) measuring physicians and other providers according to metrics similar to those of MIPS, (ii) requiring providers’ use of certified EHRs, and (iii) holding providers accountable for at least “nominal financial risk.” In the proposed rule, CMS outlines which of its current APMs measure up to this “Advanced” threshold, including:

• Medicare Shared Savings Program ACOs, Tracks 2 and 3;
• Medicare Next Generation ACOs;
• Comprehensive Primary Care Plus (CPC+) Model;
• Oncology Care Model (two-sided risk); and
• Comprehensive End-Stage Renal Disease Care Model (Large Dialysis Organization arrangement).

Notably absent from this list of proposed approved Advanced APMs are Track 1 MSSP ACOs and various bundled payment models.

By earning a sufficient percentage of their revenue through an Advanced APM, physicians can qualify for a bonus payment equal to 5 percent of their annual fee-for-service revenue in years 2019-2024 and a 0.5 percentage-point higher annual fee rate increase than physicians and other providers in MIPS each year starting in 2026 (0.75 percent vs. 0.25 percent). Alternatively, as a new feature under this rule, physicians can also qualify by seeing a sufficient percentage of their patients through an Advanced APM; notably, the patient percentage thresholds are lower than the revenue percentage thresholds.

Specifically, for physicians participating in Advanced APMs, there are four ways to qualify for the bonuses and higher payment updates of the Advanced APM track. Across all, the thresholds increase in the initial years and remain constant from 2023 onward. However, the thresholds are distinct in whether they are based on revenue or patient volume, as well as whether they are based on Medicare alone or on all payers. The four categories for qualification are:

1. Earn a minimum percentage of their Medicare Part B revenue through an Advanced APM;

2. Starting in 2021, earn a lower minimum percentage of their Medicare Part B revenue AND a minimum percentage of their revenue from all payers through an Advanced APM;

3. See a minimum percentage of their Medicare patients through an Advanced APM; or

4. Starting in 2021, see a lower minimum percentage of their Medicare patients AND a minimum percentage of their patients from all payers through an Advanced APM.

Importantly, if physicians and other providers fall short of these minimums, they would not qualify under the Advanced APM track. However, physicians and other providers participating in APMs who meet the lower “Partial Qualifying Provider” percentage thresholds for either revenue or patients can choose to opt out of MIPS reporting altogether, guaranteeing that they will receive neither a penalty nor bonus for the year. Further, the providers participating in APMs that were not designated Advanced may still qualify as MIPS APMs and receive some automatic credit under the Clinical Practice Improvement Activities (CPIA) category.

Potential for low specialist participation in the Advanced APM program

Over time, MACRA is likely to continue to evolve and the All-Payer Combination Advanced APM option will become available, making payment models developed by private insurers increasingly available and allowing more payment models to gain “advanced” recognition.

Notably, however, the “advanced” list does not include any of the current bundled payment models established by CMMI. This omission will be particularly critical to specialists, as bundled payments represent a significant share of their participation in APMs and many of the proposed “advanced” APM qualifiers have more effectively engaged primary care physicians and other providers than specialists to-date.

To this end, in their proposed rule, CMS’ requested comment on how to offer an option based on bundled payments, a model that has garnered comparatively greater specialist participation. Bundled payments as a concept have often been cited by economists and health care policymakers as a strong policy lever to shift to value-based payment, but their exclusion may effectively limit many physicians and other providers.

Concluding thoughts and outstanding questions

With only six months before physicians’ performance will have an impact on their payment under MACRA, physicians are intensely scrutinizing the two payment incentive programs and how they would fare under them. But most are confused about how best to navigate the various programs given the complexity of the rules and options. The lack of timely data with which to assess their performance on an ongoing basis may further handicap the ability of physicians to make informed choices and improve their performance.

While the proposed rule elucidates many elements of the new payment systems and the final rule will help clarify some remaining questions, many questions about moving parts remain, including those related to: the different risks and rewards for MIPS vs APMs; the uncertainty of movement between both pathways; and the potential for additional payment models (such as the Physician-Focused Payment Model option). These and other uncertainties have raised concerns about the viability of small practices in this environment and the risk that MACRA will lead large numbers of physicians to seek employment by hospitals and large physician organizations. This risks potentially leading to to much higher degrees of consolidation and losses in physician productivity.

MACRA remains a fundamentally important change from the status quo. It offers significant promise to change—and hopefully improve—physician practice and move payment from volume to value. Without question, its implementation will be watched intently.

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An American drone strike that killed leader of the Afghan Taliban Mullah Akhtar Mohammed Mansour may seem like a fillip for the United States’ ally, the embattled government of Afghanistan’s President Ashraf Ghani. But as Vanda Felbab-Brown writes in a new op-ed for The New York Times, it is unlikely to improve Kabul’s immediate national security problems—and may create more difficulties than it solves.

The White House has argued that because Mansour became opposed to peace talks with the Afghan government, removing him became necessary to facilitate new talks. Yet, as Vanda writes in the op-ed, “the notion that the United States can drone-strike its way through the leadership of the Afghan Taliban until it finds an acceptable interlocutor seems optimistic, at best.”

[T]he notion that the United States can drone-strike its way through the leadership of the Afghan Taliban until it finds an acceptable interlocutor seems optimistic, at best.

Mullah Mansour's death does not inevitably translate into substantial weakening of the Taliban's operational capacity or a reprieve from what is shaping up to be a bloody summer in Afghanistan. Any fragmentation of the Taliban to come does not ipso facto imply stronger Afghan security forces or a reduction of violent conflict. Even if Mansour's demise eventually turns out to be an inflection point in the conflict and the Taliban does seriously fragment, such an outcome may only add complexity to the conflict. A lot of other factors, including crucially Afghan politics, influence the capacity of the Afghan security forces and their battlefield performance.

Nor will Mansour’s death motivate the Taliban to start negotiating. That did not happen when it was revealed last July’s the group’s previous leader and founder, Mullah Mohammad Omar, had died in 2013. To the contrary, the Taliban’s subsequent military push has been its strongest in a decade—with its most violent faction, the Haqqani network, striking the heart of Kabul. Mansour had empowered the violent Haqqanis following Omar’s death as a means to reconsolidate the Taliban, and their continued presence portends future violence. Mansour's successor, Mawlawi Haibatullah Akhundzada, the Taliban’s former minister of justice who loved to issue execution orders, is unlikely to be in a position to negotiate (if he even wants to) for a considerable time as he seeks to gain control and create legitimacy within the movement.

The United States has sent a strong signal to Pakistan, which continues to deny the presence of the Afghan Taliban and the Haqqani network within its borders. Motivated by a fear of provoking the groups against itself, Pakistan continues to show no willingness to take them on, despite the conditions on U.S. aid.

Disrupting the group’s leadership by drone-strike decapitation is tempting militarily. But it can be too blunt an instrument, since negotiations and reconciliation ultimately depend on political processes. In decapitation targeting, the U.S. leadership must think critically about whether the likely successor will be better or worse for the counterinsurgency endgame.

Editors’ Note: In Southeast Asia, democratization went hand in hand with Islamization, writes Shadi Hamid. So where many assume that democracy can’t exist with Islamism, it is more likely the opposite. The Aspen Institute originally published this post.

In both theory and practice, Islam has proven to be resistant to secularization, even (or particularly) in countries like Turkey and Tunisia where attempts to privatize Islam have been most vigorous. If Islam is exceptional in its relationship to politics — as I argue it is in my new book Islamic Exceptionalism — then what exactly does that mean in practice?

As Western small-l or “classical” liberals, we don’t have to like or approve of Islam’s prominent place in politics, but we do have to accept life as it is actually lived and religion as it is actually practiced in the Middle East and beyond. What form, though, should that “acceptance” take?

If Islam is exceptional in its relationship to politics ... then what exactly does that mean in practice?

First, where the two are in tension, it means prioritizing democracy over liberalism. In other words, there’s no real way to force people to be liberal or secular if that’s not who they are or what they want to be. To do so would suggest a patronizing and paternalistic approach to the Middle East — one that President Barack Obama and other senior U.S. officials, and not just those on the right, have repeatedly expressed. If our own liberalism as Americans is context-bound (we grew up in a liberal democratic society), then of course Egyptians, Jordanians or Pakistanis will similarly be products of their own contexts.

One should be suspicious of “models” of any kind, since models, such as Turkey’s, tend to disappoint. That said, there are good examples outside of the Middle East that deserve a closer look. Indonesia and to a lesser extent Malaysia are often held up as models of democracy, pluralism, and tolerance. Yet, perhaps paradoxically, these two countries feature significantly more shariah ordinances than, say, Egypt, Tunisia or Morocco.

In one article, the Indonesia scholar Robin Bush documents some of the shariah by-laws implemented in the country’s more conservative regions. They include requiring civil servants and students to wear “Muslim clothing,” requiring women to wear the headscarf to receive local government services, and requiring demonstrations of Quranic reading ability to be admitted to university or to receive a marriage license. But there’s a catch. According to a study by the Jakarta-based Wahid Institute, most of these regulations have come from officials of ostensibly secular parties like Golkar. How is this possible? The implementation of shariah is part of a mainstream discourse that cuts across ideological and party lines. That suggests that Islamism is not necessarily about Islamists but is about a broader population that is open to Islam playing a central role in law and governance.

Islamists need secularists and secularists need Islamists. But in Indonesia and Malaysia, there was a stronger “middle.”

In sum, it wasn’t that religion was less of a “problem” in Indonesia and Malaysia; it’s that the solutions were more readily available. Islam might have still been exceptional, but the political system was more interested in accommodating this reality than in suppressing it. There wasn’t an entrenched secular elite in the same way there was in many Arab countries. Meanwhile, Islamist parties were not as strong, so polarization wasn’t as deep and destabilizing. Islamism wasn’t the province of one party, but of most. In a sense, Islamists need secularists and secularists need Islamists. But in Indonesia and Malaysia, there was a stronger “middle,” and that middle had settled around a relatively uncontroversial conservative consensus.

In Southeast Asia, then, democratization went hand in hand with Islamization. To put it more simply, where many assume that democracy can’t exist with Islamism, it is more likely the opposite. What distinguishes Indonesia and Malaysia, as well as their electorates, isn’t some readiness to embrace the gradual privatization of religion. The difference is that their brand of Islamic politics garners much less attention in the West, in part because they aren’t seen as strategically vital and, perhaps more importantly, because the passage of Islamic legislation is simply less controversial domestically. There has been a coming to terms with Islam’s role in public life, where in much of the Middle East, there hasn’t — at least not yet.

Even in comfortable times, the service cutbacks and fare increases being proposed by the Metropolitan Transportation Authority would have sparked outrage from New Yorkers. Coming in the depths of the most serious economic crisis since the Great Depression, things seem that much worse.

Not that it's any consolation to frustrated New York transit riders and taxpayers, but you are not alone. Transit agencies like the MTA are reeling nationwide; all are suffering from factors at least some of which they really can't control without some legislative help.

This is not to deny the pain that could occur unless the state comes up with a rescue plan. In its 2009 budget, the agency proposes painful service cutbacks and fare increases to help cover a projected deficit of around $1.5 billion.

No fewer than 51 transit agencies around the country are in the same financial situation. For example, the Massachusetts Bay Transportation Authority that runs Boston's smaller transit system is chewing over major service cuts and fare increases if the state doesn't help cover its $160 million deficit.

The fact that so many transit agencies are struggling may come as a surprise. After all, didn't Washington just pump a lot of money into infrastructure as part of the $787-billion American Recovery and Reinvestment Act? Wasn't public transit a big part of that law?

Yes. The stimulus package provides $8.4 billion to be spent on transit this year. That's a helpful shot in the arm to metropolitan transit agencies that Washington ordinarily relegates to second-class status. And the MTA will receive the largest portion of this money: more than $1 billion. Even by today's standards, that's nothing to sneeze at.

But how much will it really help? Federal rules in effect since 1998 stipulate that this money can be spent only on capital improvement projects and not to finance gaps in day-to-day operating expenses.

Surely there is no transit service without capital - the buses, trains, tracks and other facilities that make the system run. However, operating costs - which are generally about twice as high as capital expenses for the largest transit agencies - cover the salaries of the workers who keep the system running, as well as the debt contracted to pay for capital projects.

So as the federal government aims to put Americans back to work on shovel-ready, temporary construction jobs, transit agencies are looking at the likelihood of laying people off from stable, permanent positions.

Why the disconnect?

The response in Washington is predictably stubborn: Recovery money cannot be used for operating expenses because operating is not a federal role.

You would think that the pressure of this policy would lead to transit agencies that are self-sufficient - where passenger fares pay the full costs of operating the system.

But large metropolitan transit agencies generally "recover" only about one-third of their costs from subway riders and about one-quarter from bus passengers. The MTA has the highest cost-recovery ratio among all subway operators - its fares pay for two-thirds of operating costs.

For large bus systems, the MTA's New York City Transit ranks second only to New Jersey's in terms of the share of operating costs paid for by riders. The Long Island Rail Road is the seventh among the 21 commuter rail systems in the country, recovering from fares close to half of its operating costs.

So what should be done to close the MTA's budget gap?

For one thing, lawmakers in Albany need to recognize that the state contributes a lower proportion of the MTA's budget from its general revenue than other states provide to their transit agencies from general revenue. In New York, about 4 percent of all the MTA operating costs are covered by the state budget; in other states, transit agencies are getting closer to 6 percent.

Raising state general fund support to national levels would be a good place to start helping the MTA.

Another idea is to get Washington to help. Not in doling out more money, but in stepping aside and empowering metropolitan agencies to spend their federal money in ways that best meet their own needs.

Specifically, the federal rules could be changed to allow transit agencies to spend their transit capital stimulus dollars on operating expenses. Certainly, agencies have capital needs as well, but particularly in these stressful economic times they should have the short-term flexibility to use those federal dollars to meet their immediate problems.

Over the long term, some form of federal competitive funding for operating assistance also might provide the right incentive - or reward - to states and localities to commit to funding transit.

Based on their level of commitment, metropolitan agencies, localities and states that legislatively dedicate a stable stream of funds could potentially receive federal operating assistance, perhaps as a matching grant. The federal government would be helping those who help themselves.

The New York metropolitan area cannot afford to have a transit system that is hampered from operating at its fullest and most efficient potential.

An extensive transit network like the MTA provides important transportation alternatives to those who have options and basic mobility for those who don't. It can help mitigate regional air-quality problems by lowering overall automobile emissions and slowing the growth in traffic congestion.

It also can provide economic benefits by creating development opportunities around transit stations and help enhance regional economic competitiveness as an important and attractive metropolitan amenity.

Such a functioning network plays a fundamental role in attracting highly skilled labor and talent, which we know is so important in 21st century metropolitan America.

In recent weeks, many analysts have expressed considerable surprise as oil prices have hit $80 per barrel and prices at American gas pumps have fallen. This “surprise” seems to have crept up on us, but evidence of shifting market demand and energy production has been available for some time. Over the past three years, high oil prices have generated increased interest in oil and gas in remote locations such the Arctic and East Africa. In addition, breakthroughs in oil and gas technology have also driven the development of unconventional oil and gas resources in regions of the world that were previously considered too high-cost, too high-risk or too far away from established markets for profitable energy production. Further, as a result of climate change melting Arctic ice, new oil fields and delivery routes have opened up, while technological advancements in resource extraction are opening vast new regions for resource exploration in countries like Mozambique and Tanzania, which lack even the most the most basic infrastructure and need high energy prices to justify their development.

Despite possible environmental and infrastructure challenges, a number of countries and regions are motivated to pursue increased resource development and extraction for a variety of non-energy related reasons. For example, the political leadership of Greenland views the development of energy and mineral resources as an opportunity to gain independence from Denmark. For its part, Canada sees the development of its northern territories as a way to bolster its claims to national sovereignty over its “internal waters,” a view contested by both Washington and Moscow. In the case of Russia, development of the Yamal Peninsula and its offshore Arctic waters has been a major priority for President Vladimir Putin, who believes the policy will catapult Russia into the vanguard of future global oil and gas producers and, as a result, will make Russia a market player in the Far East as well as Europe.

Unfortunately, while these emerging energy producers are coming on line, the market for energy has been shrinking—at least for the near-term. Since June 2014 (when oil was at $115 per barrel), oil prices have been in a free fall, with demand dropping across Europe, Japan, India, China, Brazil and much of the emerging world market. The drop in demand is the result of a number of factors, including:

• Slowing global economic growth;
• Rising global oil production (especially in North America);
• Unexpected resumption of oil production in Libya, Nigeria, South Sudan and Iraq;
• Increasing energy efficiency, a response to three years of oil prices in excess of $110 per barrel, which, in turn, had an impact and continues to impact long-term global demand;
• A decision by Saudi Arabia in August 2014 to cut oil production by 400 thousand barrels per day, an attempt to defend its market share in the face of falling global oil prices;
• Record oil output from Russia;
• Surging natural gas liquids and hydrocarbon gas liquids production outside the OPEC quota system;
• Natural gas eating away oil’s market share as a refining fuel and as a feedstock in petrochemicals;
• The decision by Japan to restart some of its nuclear reactors, reducing forward demand for fuel oil in the power sector;
• Dumping of oil onto the marketplace by hedge fund managers who had gone long on oil prices (by some estimates as much as two million barrels per day) in anticipation of further price rises – the hedge funds had no alternative but to liquidate their positions when the market turned against them.

In August, Saudi Arabia tried and failed to stop the slide in oil prices. Now supported by the United Arab Emirates and Kuwait, the Saudis have decided to send a message to the world market that it will do whatever is necessary to maintain its market share, even accepting a near-term loss in revenue over the next two years. The Saudi goal is to slow or halt unconventional oil production, which is undermining their market share and profits. The short-term decline in oil prices also serves Saudi Arabia’s agenda by hurting their adversaries (Iran and Iraq) and squeezing Russia’s ability to fund the Assad regime in Syria.

However, the Saudis and their allies may be overlooking the complex economics of unconventional oil production in North America. For example, while drilling new wells in some unconventional basins may not be profitable at $80 per barrel, many existing wells have largely been amortized by current tax policies making them economic at prices in some basins such as the Permian at prices as low as $40 to $50 per barrel. The most important factor is that the production profile of many unconventional wells is very different. For example in the Bakkan wells flow very strongly but then crash often initially only recovering four percent of the oil in place while the Permian wells tend to plateau but ultimate recovery is much higher.

While various pundits have opined on this question, the truth of the matter is that no analyst really knows the full range of production costs across the unconventional crude oil production continuum since this information is highly proprietary. Nonetheless, with oil prices for West Texas Intermediate (WTI) at $81 per barrel and Brent at $83 per barrel and with Wall Street in turmoil and Europe poised on the brink of a new recession, the specter of a major price decline similar to that of 2008 cannot be ruled out. While prices could overshoot on the downside, I believe that prices will fall to $60 to $70 per barrel, before stabilizing at a level still far above the $38 per barrel we saw in 2008.

The precipitous drop in oil prices could not have come at a worse time for U.S. oil producers, who have been advocating for the United States to lift the long-time ban on crude oil exports (in place since 1975).  According to the Brookings Energy Security Initiative’s research on the issue, if the ban were to be lifted immediately, the United States could be exporting 1.7 million to 2.5 million barrels per day (mmbd) by 2015. With the market in such a weak position and demand falling, adding as much as 2.5 mmbd to the world market would significantly drive down both crude oil and petroleum product prices (gasoline and home heating fuel). While beneficial to consumers in the near term, the effect on crude prices will only add to the current market turmoil and a further downward spiral in crude prices. Furthermore, with many unconventional oil wells also producing natural gas, to the extent that oil prices fall below $60 per barrel, some natural gas production could also be affected.

Keep in mind, however, that the further crude prices fall in the near term, the faster they may rebound, as low prices become the engine that leads to a resumption of demand and world economic growth. The fall in oil prices will have various effects on different countries, though the magnitude is often overstated. For example, any further fall in oil prices could have serious deleterious effects on the Russian economy. As a major oil export economy (with oil accounting for 14.5 percent of Russia’s gross domestic product), Russia’s budget for 2014 is predicated on an average price of $97 per barrel. Therefore a price slide to $80 per barrel or below would pose a major economic setback for that country. The fact that prices have averaged at $110 per barrel for the year-to-date however allows Russia some cushion in the event of a short term price drop – as do Russia’s large financial reserves. However, any prolonged drop in oil prices will pose serious challenges to the Russian economy.

Countries that produce at a high cost with large populations, subsidized consumer prices and various political constraints, such as Iran (sanctions), Indonesia (falling energy exports), Iraq (political turmoil), Nigeria (political instability and falling exports) and Venezuela (a collapsed economy in need of high export prices) will be thrown into turmoil. Fearful of low prices, Venezuela recently attempted and failed to call an emergency meeting of OPEC to discuss the situation. Given the already fragile nature of many of these regimes, the prospect of serious social upheaval cannot be ruled out. On the other hand, large oil importing countries such as China, India, Brazil, Japan and South Korea stand to benefit from falling oil prices.

It is against this backdrop that OPEC will meet in late November. The oil price slide and efforts to reverse it will be priority one on the ministers’ agenda. While the Saudis may be willing to cut production if all the other OPEC members also agree to substantial cuts, the prospects for an agreement are slim to none, given their individual internal political realities and revenue needs.

As a long-term observer of the oil market, I have seen this game played out in various manifestations over the last 40 years. We are clearly in for a wild ride; buckle your seat belts. 

As the United States readies to assume chairmanship of the Arctic Council today, it is timely to assess where the United States stands in terms of its ability and commitment to lead in the region. While there are many important elements of Arctic leadership outlined in the U.S. National Arctic Strategy, the ultimate metric of state leadership comes not from policy alone but also willingness to commit the resources needed to advance national interests and shape favorable global norms for peace, stability, and responsibility. In this context, the United States has yet to demonstrate a strong commitment to 21st century Arctic leadership. Nowhere is this more apparent than in the decaying state of the U.S. heavy icebreaking “fleet”—currently consisting of just one operational heavy icebreaker—and the lack of a credible national strategy to expand, much less sustain, this capacity.

Although the Arctic Council framework focuses specifically on shared, non-military interests, it would be a mistake to assume the region will be immune from future incidents, whether from eventual increases in tourism and shipping, energy development, or even limited geopolitical conflict. The United States must sustain heavy icebreaking capability to assure year-round access to the region and to be ready to respond in the event of a safety, security, or environmental threat.

Commercial activity in the Arctic

While commercial activity in the Arctic remains limited today, signs of increased economic investment are on the rise, including Royal Dutch Shell’s announcement of intent to resume Arctic drilling later this year and Crystal Cruises’ planned 2016 traverse of the Northwest Passage with its 820 foot, 1,000 passenger cruise ship Crystal Serenity. The Arctic’s vast untapped resources and opening sea lanes are beginning to drive previously-unheard of levels of human activity.

Some have suggested companies like Shell can and will invest in their own icebreaking and emergency response capabilities for Arctic drilling, rendering a U.S. government asset superfluous. This is a shortsighted view that fails to recognize the fundamental risks associated with abdicating prevention and response capabilities solely to the private sector.

While a single icebreaker obviously has neither the capacity nor capability to clean up a large oil spill in the Arctic, or anywhere else for that matter, in certain scenarios it could help prevent a spill from happening in the first place, mitigate the severity of a spill, and provide a means to ensure on-scene government oversight and command of any incident.

In the case of Arctic tourism, it is important to recognize that a mass rescue operation involving hundreds of passengers on a cruise ship—already one of the most difficult scenarios for search and rescue professionals—becomes exponentially more difficult in the remote and harsh Arctic environment.

Finally, although unlikely in the near-term, a future scenario can also be envisioned in which U.S. Navy surface ships need access to the Arctic, and icebreaking capacity is necessary to execute the mission. This is perhaps a distant possibility in the context of today’s Arctic but is a contingency for which the nation should be prepared in the future.

Access to the polar regions

The Coast Guard’s nearly 40-year old and recently reactivated Polar Star is the only U.S. icebreaker with the size and horsepower to provide unfettered access to the polar regions. The reactivation of this vessel, built in the 1970s, cost nearly $60 million and is estimated to have extended its lifetime by only 7 to 10 years. This presents a difficult and unique challenge in an emergency; if for example, the aging Polar Star has a machinery failure and gets stuck in the ice, the United States does not have the means to extract it and may have to resort to assistance from a foreign country. Coast Guard Commandant Admiral Paul Zukunft recently put it bluntly, saying the Coast Guard “has no self-rescue for its Arctic mission, for its Antarctic mission."

While dozens of small and medium sized icebreakers operate successfully in other parts of the world, heavy icebreakers—generally classified as those that exceed 45,000 horsepower—are needed to assure unrestricted access to the Arctic at any time of the year. Additionally, for the United States, heavy icebreaking capacity is also needed for missions like the annual resupply of McMurdo Station in Antarctica, an operation sponsored by the National Science Foundation and executed by the Coast Guard.

Sustaining the capability to access any region of the globe has been a fundamental tenet of U.S. national security policy for decades, and the Arctic should be no exception. The United States is falling behind other Arctic nations, like Russia, that have demonstrated an enduring commitment to maintaining access to the Arctic with heavy icebreakers.

These investments may be considered consistent with the size of Russia’s Arctic coastline and associated Exclusive Economic Zone, both of which are substantially larger than those of the United States or any other Arctic Nation. Indeed, there is certainly room to debate how many heavy icebreakers the United States will ultimately need in the future. A 2011 Coast Guard study concluded that meeting the tenets of the 2010 Naval Operations Concept—which calls for constant, year-round presence in both polar regions—would require six heavy and four medium icebreakers. Likewise, the study indicated three heavy and three medium icebreakers are needed for Arctic presence. Putting the debate in perspective, the Obama administration’s special representative for the Arctic, retired Coast Guard Commandant Admiral Robert Papp, recently gave a keynote address at the Brookings Institution stressing that “we should at least build one,” acknowledging the critical state of U.S. capability.

Replacing the Polar Star presents a unique challenge. Such vessels have not been built in four decades in the United States, and most estimates suggest a 10-year, $1 billion program to build just one in a U.S. shipyard under the federal government’s arduous acquisitions process. This places delivery of a new heavy icebreaker beyond the Polar Star’s remaining service life and adds to the urgency of the current situation.

U.S. engagement in the Arctic

In short, the United States must have the ability to access and engage in the polar regions on its own terms. No entity is better positioned to fulfill this national security imperative than the United States Coast Guard, which has the authority and organizational ethos to advance high latitude safety, security, and environmental interests without a corresponding threat of excessive militarization. The Coast Guard also remains one of few governmental entities capable of collaborative engagement with the Russians, built on years of maritime cooperation with their border guard.

While the case for icebreaker investment is clear, the Coast Guard lacks the resources to move forward on its own. For the Coast Guard, a new icebreaker is at best a distant runner-up to other recapitalization imperatives within the chronically underfunded service. The Coast Guard’s Medium Endurance Cutters are the cornerstone of the service’s offshore presence in the Western Hemisphere and are even older than the icebreakers. Replacing these 1960s-era cutters is justifiably the service’s top acquisition priority. The question here is not whether the Coast Guard wants new icebreaking capability, but rather how a new icebreaker stacks up against other, more urgent priorities in the context of current budget constraints.

The most appropriate funding solution is one that reflects the full breadth of inherently governmental interests in the Arctic, including safety, security, environmental protection, facilitation of maritime commerce and responsible economic development, national defense, and scientific research. In other words: funding from across the government to deliver a national, multi-mission asset.

The United States is considered an “Arctic Nation,” a term proudly used by policymakers to highlight our intrinsic national interests in the region and a profoundly basic yet important acknowledgement that Alaska and its associated territory above the Arctic Circle are indeed part of the United States. Unfortunately, the United States has yet to advance from this most basic construct of high latitude stakeholder to a proactive leadership and investment posture for the future. Not because of a lack of “skin in the game,” the United States has a legacy of well-documented interests in the Arctic, but a lack of consensus to make it a national priority in the context of the current budget environment.

Whether via national crisis or a comprehensive budget deal, polar icebreakers must eventually become the subject of serious resource discussions, and should ultimately garner broad bipartisan support. At that time, additional funding should be appropriated to the Coast Guard to support the acquisition of the much-needed heavy icebreakers, but not at the expense of its other, more pressing recapitalization programs. Until then, let’s be more realistic about our ability and commitment to lead in the Arctic.

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On May 26, 2014, after the Bharatiya Janata Party won a convincing majority in India’s national elections, Narendra Modi took office as prime minister. The first Indian premier to be born after independence, he formed the first majority government in India in more than 25 years. Over the past 12 months, policymakers, corporate leaders, analysts, and the media in India and abroad have been watching closely to see whether Modi can deliver on the promises of growth, good governance, greater role and respect on the world stage, and getting things done.

On May 20, the India Project at Brookings hosted an event to assess the Modi government’s first year in office. The panel considered developments over the last year in the economic, social, energy, and foreign policy realms, as well as in domestic politics. Panelists discussed their perspectives of the government’s performance, where they see continuity vs. change, what has surprised them, what we might expect to see in the future, and key developments to look for over the next year.

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How has the Joint Comprehensive Plan of Action (JCPOA)—signed between the P5+1 and Iran one year ago—played out in practice? Several Brookings scholars, many of whom participated prominently in debates last year surrounding official congressional review, offered their views.

Over the past two decades, the Puget Sound area’s innovation-driven economy has become a magnet for highly educated people from across the country and around the world. Drawn to the region by some of the nation’s most innovative companies—Microsoft, Boeing, Nintendo, Amazon, Genentech and the Fred Hutchinson Cancer Research Center, to name a few—the Puget Sound region ranks well on measures of educational attainment. Of the nation’s largest 100 metro areas, the Seattle-Tacoma-Bellevue area is 11th in bachelor’s degree holders and 17th in graduate degree attainment.

But for all its brainpower, the region has fallen behind in terms of cultivating homegrown talent, particularly in less affluent school districts located in South Seattle and South King County. Starting from an early age, low-income students and children of color in these communities tend to lag behind on important indicators of educational success. The effects of this achievement gap worsen with time, putting these students at a serious disadvantage that often affects their ability to find jobs and their earning potential. 

In an effort to address this achievement gap, the Community Center for Education Results has teamed up with the city of Seattle, the University of Washington, the Seattle Community Colleges District, the Puget Sound Educational Service District, the Bill & Melinda Gates Foundation and others to form the Road Map Project, a coalition working to double the number of South Seattle and South King County students pursuing a college diploma or career credential by 2020.

What’s innovative about the Road Map Project is its focus on collective action and community engagement. By bringing together key stakeholders to collaborate on shared goals, the project is creating a new model for efforts to reduce inequality in educational attainment. Its cradle-to-college-and-career approach aims to improve student outcomes beginning with access to prenatal care and kindergarten readiness all the way through to elementary and secondary schooling and beyond. Through a combination of community outreach and partnership building, data-driven goal-setting and performance management, the project supports area organizations working to boost student success and close the achievement gap in South Seattle and South King County.

Midway through Hong Kong’s second public consultation on the method of electing the next chief executive (CE), both pro-democracy “pan-democrat” legislators and the Hong Kong government and Chinese Central government are still holding their cards close. Following the current public consultation, members of Hong Kong’s Legislative Council (LegCo) will cast an historic vote on political reform. Hong Kong’s mini-constitution, the Basic Law, states that “the ultimate aim is the selection of the CE by universal suffrage upon nomination by a broadly representative nominating committee in accordance with democratic procedures” (Basic Law Art. 45). Pan-democrat LegCo members currently plan to vote against the eventual resolution on political reform, given their dissatisfaction with the reform process to date. Observers predict that passage of a resolution will happen only if the Hong Kong and Central governments can swing a few pan-democrats over to their side in the final hour.

The problem is a prickly one: Is it possible to design an electoral system that is sufficiently open and democratic in the eyes of the Hong Kong people and, at the same time, that guarantees to the Central Government that the elected leader of this special administrative region accepts the supremacy of the Chinese Communist Party? Even as politicians on each side reiterate the near “impossibility” of changing their positions (see e.g., RTHK Backchat discussion with Justice Secretary Rimsky Yuen at 4:25), thought-leaders from Hong Kong’s universities are inventing creative proposals with the potential to break the deadlock.

The Ground Rules

A 2004 decision of the Standing Committee of the National People’s Congress (NPCSC), China’s national legislature, interpreted the Basic Law to require a “Five-Step Process” in order to amend the selection method for the CE. Hong Kong is now between Steps 2 and 3.

• Step 1: The current CE must submit a report to the NPCSC on the need to amend the electoral system. That submission took place on July 15, 2014 after a five-month initial public consultation process. The CE’s report faced heavy criticism in Hong Kong for not accurately reflecting public opinion.
• Step 2: The NPCSC must issue a decision affirming the need for the amendment. The NPCSC announced that decision on August 31, 2014. It endorsed a system by which citizens may directly vote for the CE but imposed restrictive conditions on the nomination procedure of eligible candidates. The decision triggered 79 days of protest and civil disobedience – what activists and the media have referred to as the “Umbrella Movement.”
• Step 3: The Hong Kong government must introduce the political reform bill in LegCo, and two-thirds of legislators must endorse it. The vote in LegCo is scheduled to take place during the first half of 2015, although a precise date has not been set. The purpose of the second-round public consultation is to forge consensus behind political reform within the parameters set out in the August 31 NPCSC decision.
• Steps 4 and 5: In the event that LegCo endorses the bill, the CE must provide his consent and report the amendment to the NPCSC for its final approval.

If the bill does not receive two-thirds endorsement of LegCo (or if it does, but the NPCSC does not approve) then political reform would fail. Hong Kong would be left with the status quo, and Hong Kong people would lose the opportunity to vote for their chief executive for at least the next seven years.

Limited Room for Negotiation

The terms set out by the August 31 NPCSC decision limit the range of possible political reform options. For that reason, one of the core demands of the Umbrella Movement was to scrap the decision and re-start the Five-Step Process; that didn’t happen, however. In January 2015, the Hong Kong government issued a public consultation document framing the discussion in the lead up to the vote in LegCo. The consultation document hews closely to the NPCSC decision:

• The Nominating Committee (NC) will resemble the previous committee that elected the CE with the same number of members (1,200) belonging to the same limited number of subsectors (38). The Wall Street Journal recently described that committee as “a hodgepodge of special interests.” During the consultation, citizens may discuss adding new subsectors to make the committee more inclusive and representative (such as adding new subsectors to represent the interests of women or young voters), but restructuring will necessarily mean disrupting and eliminating the positions of existing subsectors or committee members. Therefore, the consultation document suggests these changes are unlikely to be achieved (Consultation Document, Chapter 3, Sec. 3.08 p. 10).
• The NC will nominate two to three candidates, and each candidate will require endorsement from at least half of the NC membership. (Given the difficulty of restructuring the subsectors or their electoral bases, these terms would effectively exclude any pan-democrats from nomination.) In order to make this more palatable, the consultation document proposes that citizens discuss a two-stage nomination process. In the first stage, a quorum of 100-150 committee members would “recommend” individuals for nomination. The committee would then elect the nominees from this recommended group (Consultation Document, Chapter 4, Sec. 4.09 p. 14). In theory, the meetings when recommendation and nomination votes take place could be staggered in order to allow campaigning and public debate. The idea is that NC members would take public opinion into consideration before casting their second vote.
• On the voting arrangements, citizens may discuss a “first-past-the-post” arrangement with either a single-round, two-round, or instant runoff vote systems (Consultation Document, Chapter 5, Sec. 5.06 p. 17-19).

Both sides in this negotiation have fired shots across the bow. At the launch of the second public consultation on January 7, Chief Secretary Carrie Lam remarked, “there is no room for any concessions or promises to be made in order to win over support from the pan-democratic members.” For their part, the pan-democrats vowed to boycott the public consultation and veto a resolution that conforms to these terms. They argue that the proposed method of electing the chief executive does not improve upon the status quo.

Most pan-democrat legislators are directly elected from geographical constituencies, and public opinion could provide legitimate grounds for shifting their position. According to polling by the Hong Kong University Public Opinion Programme last month, a plurality of respondents view the Hong Kong government’s proposal as neither a step forward nor a step backward for democracy. If the government were to commit to making the electoral system more democratic in the next CE election in 2022, a clear majority of respondents would then support the government’s plan.

Inventing Options and Finding Common Ground

The two-stage nomination mechanism in the government’s proposal is an acknowledgement that the NC ought to be responsive to public opinion. But without additional tinkering, this procedure does not materially change the incentives of NC members. What if the public had the power to reject the slate of candidates nominated by the committee?

Since the first public consultation, a few academics, including Simon Young at Hong Kong University (HKU), have considered at least two ways this could happen. An “active” approach would allow Hong Kong voters to cast blank votes and require a minimum percentage of affirmative votes for the winning candidate. A “passive” approach would require a minimum voter turnout rate for a valid election. NC members might then have to take public opinion into account.

Early last month, Albert Chen, also a professor at HKU and a legal advisor of the NPCSC, began to advocate publicly for a proposal that employs a ballot with a none-of-these-candidates option (see RTHK Jan. 13 edition of The Pulse). Under his proposal, if a majority of people vote for “none-of-these-candidates,” the slate of candidates put forward by the NC will be voided. When the public votes down the candidates, the NC could revert back to an election committee and choose a provisional CE. Alternatively, the Chief Secretary could assume CE duties during a six-month interim period prior to a new election (drawing upon Basic Law Art. 53). Chen argues that his proposal would give the Hong Kong people—not pan-democrat politicians—decision-making power to accept the new NC and its slate of candidates or to revert back to the status quo.

More recently, Johannes Chan, HKU professor and human rights advocate, floated a competing proposal that would provide voters with the option for negative voting. A 20 percent “no” vote for an otherwise leading candidate would trigger a re-vote. Between the first and second elections, the candidates would have additional time to campaign. If after the second election, still 20 percent of voters oppose the leading candidate, the candidate would be disqualified, and the NC would nominate new candidates. Given Hong Kong’s governance problems and increasing public polarization, the 20 percent veto ensures that no CE will be saddled with a substantial block of Hong Kong society affirmatively opposed to him or her from day one.

Albert Chen’s proposal received a tepid if supportive response in pro-Beijing quarters. Jasper Tsang, the Speaker of LegCo and member of the largest pro-establishment political party, and Rita Fan, a member of the NPCSC, affirmed their view that the none-of-these-candidates mechanism does not violate the Basic Law. While the government’s consultation document does not expressly mention the none-of-these-candidates concept, Hong Kong’s Justice Secretary indicated that the proposal should be considered. Starry Lee, another leader of the biggest pro-establishment party in LegCo, countered that technical difficulties and limited time for discussion would pose obstacles to the none-of-these-candidates ballot proposal.

Pan-democrats so far have tended to rebuff government overtures to engage on the topic. A few legislators, such as the Civic Party’s Ronny Tong, have been willing to engage (with Albert Chen on the Jan. 13 edition of The Pulse) but have reservations about what happens after a voided election, and feel that the threshold for public veto is too high. Law Chi-kwong, a founding member of Hong Kong’s Democratic Party and also a member of the HKU faculty, suggested that the winning candidate ought to receive an absolute majority of votes with blank votes counted. (E.g., when one candidate receives 45 percent, another receives 35 percent, and none-of-these-candidates receives 20 percent, that would lead to a void election.) However, other scholars associated with the Democratic Party have distanced themselves from the blank vote debate and Law’s statements.

The Merits of Blank Voting

The debate over blank and negative voting in Hong Kong unfolds in a global context where none-of-these-candidates has become an increasingly common political choice. Several democracies have institutionalized the practice. Proponents cite instrumental rationales, such as improved accountability and transparency. However, these benefits are not necessarily guaranteed. More broadly, people recognize the inherent value of the “no” vote as a form of political expression.

In the U.S. state of Nevada, for example, a none-of-these-candidates option has appeared on the ballot for all statewide and national elections since 1975. During the 2012 presidential cycle, the Secretary of State of Nevada argued that removing a none-of-these-candidates option would harm Nevada voters by taking away a “legitimate and meaningful ballot choice.” There is precedent for none-of-these-candidates winning a plurality of votes in a congressional primary; in that case, Republican Walden Earnhart finished behind the none-of-these-candidates option but still “won” the primary and got the nomination. More typically, the ballot option plays a “spoiler role.” In the 1998 Senate race, for example, 8,125 votes for none-of-these-candidates dwarfed the 395-vote margin between Harry Reid and John Ensign. This allowed Reid, the incumbent, to be re-elected.

It is hard to find examples where none-of-these-candidates has won a majority of the popular vote. Hong Kong’s pan-democrats may be right to question whether this possibility would meaningfully affect the calculus of the NC. Colombia is one of the few jurisdictions where blank votes can have institutional consequences. The right of citizens to cast a blank vote was established by the Colombian Constitution in 1991, and later codified in political reform statutes in 2003 and 2009. Similar to Albert Chen’s proposal in Hong Kong, if the number of blank votes equals a majority of the total number of votes cast, the election must be repeated. The original candidates cannot participate in the second election.

The Colombian experience suggests that the blank vote is more consequential in races with fewer candidates. Colombian voters have never nullified a slate of candidates at the national-level, where the field is crowded. In the city of Bello, however, the blank vote won the mayoral election in 2011. In that case, the electoral authority disqualified the one opposition candidate. This led to a one-man race and united all opposition forces around the blank vote in order to reject the establishment Conservative Party candidate. In the second round election, the replacement Conservative Party candidate (Carlos Alirio Muñoz López) won 59 percent of the vote. In the end, his party benefited with a resounding popular mandate. By this logic, the blank vote could matter in the two- to three-candidate race contemplated for Hong Kong.

Empirical evidence also suggests that local conditions in Hong Kong could support a relatively high turnout for none-of-these-candidates. Based on data from Spain and Italy, Chiara Superti at Harvard finds that blank voting is a sophisticated political choice, more likely to take place in municipalities with highly educated and politically engaged electorates. Hong Kong would qualify.

Beyond candidate selection, voting is a highly expressive act. A citizen’s vote is an expression of identity as well as a channel for protest. Echoing this view, the Supreme Court of India recently held that the country’s constitutional guarantees of freedom of speech and expression confer on Indian citizens a right to reject all candidates and to exercise their right to affirmatively vote for none-of-these-candidates in secrecy. As a people who define themselves by “core values,” including freedom of expression, this resonates with Hongkongers. More fundamentally, the ballot serves a powerful safety-valve function. At the time universal suffrage was introduced in England and France, the vote was presented as a way to channel political turmoil into more moderate political expression—and this, too, resonates in Hong Kong today.

Views expressed in the article are the author's personal views.

"Out of ammo?" The Economist recently asked of monetary policymakers. Stephen Roach has called the move by major central banks – including the Bank of Japan, the European Central Bank, and the Bank of Sweden – to negative real (and, in some cases, even nominal) interest rates a “futile” effort that merely sets “the stage for the next crisis.” And, at the February G-20 finance ministers meeting, Bank of England Governor Mark Carney reportedly called these policies “ultimately a zero-sum game.” Have the major advanced economies’ central banks – which have borne the burden of sustaining anemic post-2008 recoveries – really run out of options?

It certainly seems so. Central-bank balance sheets have swelled, and policy rates have reached their “near zero” lower bounds. There is plenty of cheap water, it seems, but the horse refuses to drink. With no signs of inflation, and growth still tepid and fragile, many anticipate chronic slow growth, with some even fearing another global recession.

But policymakers have one more option: a shift to “purer” fiscal policy, in which they directly finance government spending by printing money – a so-called “helicopter drop.” The new money would bypass the financial and corporate sectors and go straight to the thirstiest horses: middle- and lower-income consumers. The money could go to them directly, and through investment in job-creating, productivity-increasing infrastructure. By placing purchasing power in the hands of those who need it most, direct monetary financing of public spending would also help to improve inclusiveness in economies where inequality is rising fast.

Helicopter drops are currently proposed by both leftist and centrist economists. In a sense, even some “conservatives” – who support more public infrastructure spending, but also want tax cuts and oppose more borrowing – de facto support helicopter drops.

Recently, more radical proposals have surfaced, reflecting a sense of urgency and widespread disappointment with the impact of current monetary policy. Beyond advocating higher minimum wages, some are calling for “reverse income policies,” with governments imposing across-the-board wage increases on private employers – a move that would drive up prices and defeat deflationary expectations. The fact that economists whose views typically fall nowhere near those of the far left are even thinking about such interventionism shows just how extreme circumstances have become.

I favor all of these proposals, in some form. The details of their implementation would obviously have to vary, depending on each economy’s circumstances. Germany, for example, is in a strong position to implement a reverse income policy, given its huge current-account surplus, though there would undoubtedly be major political barriers. More spending on education, skills upgrading, and infrastructure, however, is a no-brainer almost everywhere, and is politically more feasible.

But there is another dimension of the challenge that has so far not been emphasized nearly enough, despite the warnings of Carney, Roach, and others. Zero or negative real interest rates, when they become quasi-permanent, undermine the efficient allocation of capital and set the stage for bubbles, busts, and crises. They also contribute to further income concentration at the top by hurting small savers, while creating opportunities for large financial players to benefit from access to savings at negative real cost. As unorthodox as it may sound, it is likely that the world economy would benefit from somewhat higher interest rates.

Raising interest rates cannot, however, be a stand-alone policy. Instead, small policy-rate increases must be incorporated into a broader fiscal and distributional strategy, implemented alongside more public spending on infrastructure and skills upgrading, as well as some gentle forms of income policies, employing, for example, “moral suasion.”

Even with such an approach, however, major central banks would have to coordinate their policies. If a single major central bank attempted to introduce higher interest rates, its economy would immediately be “punished” through currency appreciation, declining competitiveness, and falling exports, all of which would undermine aggregate demand and employment.

If the major central banks decided to increase their policy rates simultaneously, these spillover effects would cancel one another out. A coordinated move, perhaps raising rates in two modest 25 or 30 basis-point increments, would be neutral in terms of exchange rates and short-term competitiveness, even as it moved real interest rates back into positive territory. If successful, this effort could eventually be followed by further small increases, creating space for more traditional monetary-policy “ammunition” to be deployed in the future.

Success also hinges on the simultaneous pursuit of fiscal expansion worldwide, with each country’s efforts calibrated according to its fiscal space and current-account position. The expansion should finance a global program of investment in physical and human infrastructure, focusing on the two key challenges of our time: cleaner energy and skills for the digital age.

A coordinated and well-timed policy package could boost global growth, improve capital allocation, support a more equitable income distribution, and reduce the danger of speculative bubbles. The various meetings in the run-up to the G-20 summit in China, including the spring meetings of the International Monetary Fund and the World Bank, would be ideal forums for designing such a package, and advancing its implementation.

Economic orthodoxy and independent actions have clearly failed. It is time for policymakers to recognize that innovative international policy cooperation is not a luxury; sometimes – like today – it is a necessity.

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To build on its longstanding interest in the evolving transatlantic relationship and to address the serious differences that have emerged between America and Europe after the September 11 terrorist attacks and throughout the ongoing war on terrorism, Brookings announces the launch of its new Center on the United States and Europe. The center offers a forum for research, high-level dialogue, and public debate on issues affecting U.S.-Europe relations.

At the inaugural conference to launch the new center, experts discussed the theme "The United States and Europe: One Year after the War in Iraq." Panelists at this special event included Javier Solana, Robert Kagan, Charles Grant, Klaus Scharioth, Andrew Moravcsik, Martin Indyk, Ulrike Guerot, Pascale Andreani, Cesare Merlini, Reuel Marc Gerecht, Gilles Andreani and others.

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With a U.S. Administration still popular across Europe and a new Lisbon Treaty designed to enhance the diplomatic reach of the European Union, transatlantic relations should now be at their best in years. But this is clearly not the case, with the strategic partners often looking in opposite directions. While the United States channels its foreign policy attention on the war in Afghanistan, counterterrorism and nuclear non-proliferation, Europe is turning inward. Despite its ambitions, the European Union has yet to achieve the great global role to which it aspires, or to be the global partner that Washington seeks. Moreover, the Greek financial crisis has raised questions about the very survival of the European project.

On June 2, the Center on the United States and Europe (CUSE) at Brookings and the Heinrich Böll Foundation hosted experts and top officials from both sides of the Atlantic for the 2010 CUSE Annual Conference. Panelists explored critical issues shaping the future of transatlantic relations in the post-Lisbon Treaty era, including Europe’s Eastern neighborhood and the role Russia plays, and the impact of the Eurozone crisis.

After each panel, participants took audience questions.

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• From the Lisbon Treaty to the Eurozone Crisis: A New Beginning or the Unraveling of Europe?
• From the Lisbon Treaty to the Eurozone Crisis: A New Beginning or the Unraveling of Europe?
• From the Lisbon Treaty to the Eurozone Crisis: A New Beginning or the Unraveling of Europe?

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