Sykes Picot Map. May 8, 1916.

Sykes Picot Agreement Map. Signed May 8, 1916. National Archives UK, Document Record MPK 1/426. Wikipedia.

America in 2016 Resembles 1910 More Than the Postwar Era. By Michael Barone.

America Today Resembles 1910 More Than the Postwar Era. By Michael Barone. Real Clear Politics, May 17, 2016.

Barone:

What’s your benchmark? What is the historical era with which you compare life in contemporary America?

For many astute commentators on various points of the political spectrum, it is postwar America, the two decades after the United States and its allies won World War II and before Lyndon Johnson sent half a million U.S. troops to Vietnam.

Conservatives look back fondly on postwar America’s high marriage rates and stable families, few divorces and out-of-wedlock births, low crime rates and widely shared cultural values celebrated in classic movies and television sitcoms that almost everyone watched. Liberals look back fondly on postwar America’s high income equality and labor union membership, its low rates of unemployment and rising education levels, its high marginal tax rates and its high rates of social mobility.

Neither side embraces the whole package. No one today wants to go back to legally mandated and violently enforced racial segregation. Very few Americans today want to return to stigmatizing homosexuality.

But some things have been lost. Books like libertarian Charles Murray’s Coming Apart or liberal Robert Putnam’s Our Kids, which lament the family instability and economic stagnation of today’s downscale America, inspire a nostalgia for a time widely seen as the American norm.

But was it really the norm? Postwar America was the result of unique circumstances – economic dominance when competitor nations were devastated, cultural uniformity that followed from a universal popular culture and the common experience of military service (16 million Americans served in the wartime military; the proportional equivalent today would be 38 million).

So let me offer a different benchmark: the America of 1910 or some other year before the outbreak of World War I in 1914.

I started thinking about that on a recent weekend sightseeing tour of lower Manhattan. It’s become a kind of outdoor museum, with few cars on the street and with dozens of tourists eyeing the massive buildings -- the columned stock exchange, JP Morgan’s austere headquarters, the massive Equitable Building and the 60-story Woolworth Building looming over lower Broadway – with their marble gleaming as it must have when they were newly built 100 or so years ago.

The America of 1910 was a lot more like today’s America than you might think. The economy was growing, but fitfully. Disruptive technology was threatening old industries, creating new jobs but eliminating many others.

Income inequality was much greater than today, and living conditions more disparate. Electricity was common in cities but unavailable on the farms where half of Americans lived. John D. Rockefeller and Henry Ford were billionaires at a time when average annual incomes were below $1,000.

It was an America even more culturally divided than we are today. Within a mile or so of Wall Street lived hundreds of thousands of Jewish and Italian immigrants in the world’s most crowded neighborhoods. Immigration as a percentage of pre-existing population between the opening of Ellis Island in 1892 and the outbreak of World War I in 1914 was three times the level of 1982-2007.

The South was in many ways a separate and underdeveloped country, still estranged half a century after the Civil War, with income levels one-quarter those of New York. Even as 30 million Europeans crossed the ocean to America, only 1 million Southern whites and 1 million blacks moved North despite the promise of much higher wages.

Marriage rates were lower than in postwar America, and many young people dropped by the wayside. Alcohol consumption was much higher than today; prostitution, female and male, was common. People didn’t like to talk about these things, but you get hints about them in the novels of Frank Norris and Theodore Dreiser.

The Americans of 1910 faced terrorism and globalization, too. Anarchists murdered President William McKinley in 1901 and set off a bomb that killed dozens next to J.P. Morgan’s 23 Wall Street in 1920. This America was interlaced with the global economy and, with its growing economic and demographic might, risked being drawn into any world war.

So, America in 1910, with nearly 100 million people, was in important ways less like the postwar America of 150 million than like today’s America of 300 million. Studying how Americans handled – or mishandled – similar challenges may prove more fruitful than yearning to restore the unique and non-replicable America of Charles Murray’s, Robert Putnam’s and my youth.

Les Enfants Terribles of Barack Obama. By Hisham Melhem.

Les enfants terribles of Barack Obama. By Hisham Melhem. Al Arabiya English, May 7, 2016.

Melhem:

The world according to President Barack Obama described recently in the Atlantic Magazine and the portrait of Ben Rhodes, deputy national security advisor for strategic communications, in the current issue of the New York Times Magazine reveal an insular White House suspicious of the foreign policy establishment entrenched in Washington and New York, including senior members of Obama’s cabinet, contemptuous of traditional allies and friends in Europe and the Middle East, and disdainful of what they see as the very gullible American Media they became very adept at skillfully manipulating and ventriloquizing its narratives.

Some of the president’s relatively young men, particularly Rhodes and Jon Favreau a former speechwriter, are like him, gifted wordsmiths who see the skillful use of “messaging” and the way the “narrative” is advanced, as important as the content of the policy, and at times the “narrative” supersedes everything else. In Obama’s universe words sometimes are synonymous with policy and action. In these two lengthy articles, Obama’s universe is cold, unsentimental, calculating, deceitful, and its inhabitants are willing to live comfortably with horrendous tragedies like Syria’s “where more than 450,000 people have been slaughtered.” What is so egregious in these two lengthy articles is that the President and his men did not even come close to questioning a single decision or position they have taken in the Middle East in more than seven years. There was no hint of an attempt at introspection or honest self-criticism; only naked, unbridled arrogance and self-righteousness.

A portrait of the advisor as a young man

The portrait of Ben Rhodes as “the single most influential voice shaping American foreign policy aside from Potus (Obama) himself” is stunning. Rhodes channels and mirrors the President. The two are inseparable. The braggart Rhodes boasts “I don’t know anymore where I begin and Obama ends.” Rhodes and Denis McDonough, White House Chief of Staff, and others who constitute Obama’s inner circle of advisors are more powerful and influential than Secretaries of State and Defense. Obama insists on controlling national security issues and foreign policy from the White House. Former Secretary of Defense Chuck Hagel found that out in a humiliating way when he was asked to step down because he was out of step with the White House on Syria and ISIS, and because the inner circle never warmed up to him. One of Obama’s most consequential and most controversial decision was taken, after he took a walk and consulted Dennis McDonough at the height of the Syrian crisis in the summer of 2013, when Obama decided to retreat from his announced decision to punish the Syrian regime after its use of chemical weapons and killing 1,400 civilians.

It was after the walk, that Obama called his Secretaries of State and Defense, to inform them of his decision. Obama did not even bother to consult them first. When Obama began his secret contact with Cuba, via the Vatican, he assigned that mission to Ben Rhodes, who began his contacts without the knowledge of Secretary of State John Kerry. Rhodes was tasked with selling the Iran deal to congress and the American people. When Rhodes joined the Obama campaign in 2007 he was 30 years old, and he brought with him “a healthy contempt for the American foreign-policy establishment, including editors and reporters at The New York Times, The Washington Post, The New Yorker and elsewhere, who at first applauded the Iraq war and then sought to pin all the blame on Bush and his merry band of neocons when it quickly turned sour.” Rhodes derisively refers “to the American foreign-policy establishment as the Blob. According to Rhodes, the Blob includes Hillary Clinton, Robert Gates and other Iraq-war promoters from both parties who now whine incessantly about the collapse of the American security order in Europe and the Middle East”. One would suspect that Obama shares this sentiment with his young guru.

Rhodes, the morally dubious and masterful manipulator concocted a deceptive “narrative” about the evolution of the negotiations with Iran, and successfully sold it to the American Media. This tale of the deal alleges that negotiations became possible in the wake of a new political reality in Iran following the elections that brought the moderates, including President Hassan Rouhani to power. But that narrative “was largely manufactured”. When Obama claimed in 2015, that the deal was struck “after two years of negotiations” he was technically correct, but “actively misleading because the most meaningful part of the negotiations with Ira had begun in mid-2012, many months before Rouhani and the “moderate” camp were chosen in an election among candidates handpicked by Iran’s supreme leader, the Ayatollah Ali Khamenei.” Obama’s advisors always understood that he was eager for a deal with Iran since the beginning of his first term; “It’s the center of the arc,” Rhodes explained to the New York Times Magazine.

In describing how he manipulates the media, Rhodes and one of his aides drip with derision towards the reporters they spoon feed the narratives and the messaging they want. Rhodes’ in your-face cynicism screams in the following passage: “Rhodes singled out a key example to me one day, laced with the brutal contempt that is a hallmark of his private utterances. ‘All these newspapers used to have foreign bureaus,’ he said. ‘Now they don’t. They call us to explain to them what’s happening in Moscow and Cairo. Most of the outlets are reporting on world events from Washington. The average reporter we talk to is 27 years old, and their only reporting experience consists of being around political campaigns. That’s a sea change. They literally know nothing.’” This passage is full of ironies. Rhodes was in his twenties when he was a congressional aide writing reports, and he expressed his brutal contempt of reporters to a journalist.

Obama’s bargain

President Obama and his men come across in the two articles as insurgents trying to disrupt the “Washington playbook” written by the despised “foreign-policy establishment” with its dangerous “credibility” fetish, which according to Obama tends, as a default position to prescribe militarized options to settle international crisis. After all this is the President who was elected to end the “dumb” war in Iraq, and terminate the longest war in America’s history in Afghanistan; and who extended a hand to Iran’s clenched fist in his first inaugural speech. For all of Obama’s declarations and speeches about a “new Beginning” with the Muslim world, his intentions to settle the Arab-Israeli conflict in his first term, his supposed sympathy with Arab and Iranian reformers, his central interest –bordering on obsession- was to strike a strategic bargain with Iran leading to a historic opening, hence his dogged determination to reach a nuclear deal with the Islamic Republic. To that end Obama and his men used subterfuge and misled the American people and their representatives about the negotiations, and betrayed his promises to the Syrian people when he refrained from seriously challenging Iran’s predations in Syria fearing that such posture could undermine the prized nuclear deal.

Now in the twilight of his presidency, with the nuclear deal with Iran behind him, Obama and his men feel liberated enough, to voice their criticism of and to express their disdain for their traditional friends and partners in the Middle East who are seen as “free riders” or entitled to unqualified American support. With the exception of Iran, and the imperatives of fighting al-Qaeda and the “Islamic State” (ISIS) Obama did not exhibit serious and sustained intellectual curiosity in the societies of the Middle East, or the kind of genuine sympathy with the plight of the numerous victims there that would require effective support. Reading Obama and his unscrupulous foreign policy guru Ben Rhodes one could easily sense their disdain for things Middle Eastern, and their eagerness to abandon the region and never look back. As related by Ben Rhodes to the New York Times Magazine, the deal with Iran “would create the space for America to disentangle itself from its established system of alliances with countries like Saudi Arabia, Egypt, Israel and Turkey. With one bold move, the administration would effectively begin the process of a large-scale disengagement from the Middle East.”

Betraying Syria

Syria hovered over the negotiations with Iran. Leon Panetta, who served as Obama’s head of the C.I.A. and later Secretary of Defense said that Obama was obsessed with avoiding a conflict with Iran, even if it was at the expense of ignoring Syria’s tragedy, “If you ratchet up sanctions, it could cause a war. If you start opposing their interest in Syria, well, that could start a war, too.” When the author of the article asks Rhodes about the ability of White House officials “to get comfortable with tragedy” in reference to Syria, Rhodes’ answer is startling; “Yeah, I admit very much to that reality,” he says. “There’s a numbing element to Syria in particular. But I will tell you this,” he continues. “I profoundly do not believe that the United States could make things better in Syria by being there. And we have an evidentiary record of what happens when we’re there — nearly a decade in Iraq.”

When the author asks Rhodes why the Obama administration is “spending so much time and energy trying to strong-arm Syrian rebels into surrendering to the dictator who murdered their families, or why it is so important for Iran to maintain its supply lines to Hezbollah.” Rhodes mumbles something about John Kerry, and then says something to the effect, “that the world of the Sunni Arabs that the American establishment built has collapsed. The buck stops with the establishment, not with Obama, who was left to clean up their mess.” This cowardly denial and the claim that Obama is absolutely blameless in the slow death of Syria, is the most jarring in the article.

The Obama administration’s claims that Syrian tyrant Assad and his cohorts should have no place in the new Syria that emerges after the negotiations rings hollow. When the author describes Rob Malley, Obama’s senior advisor on ISIS and Syria as the official “currently running negotiations that could keep the Syrian dictator Bashar al-Assad in power” the circle of deceit and the betrayal of Syria is complete. Les enfants terribles of Obama are like him; conceited, arrogant, contemptuous and proud of it.

American Capitalism’s Great Crisis. By Rana Foroohar.

American Capitalism’s Great Crisis. By Rana Foroohar. Time, May 12, 2016.

Foroohar:

How Wall Street is choking our economy and how to fix it

A couple of weeks ago, a poll conducted by the Harvard Institute of Politics found something startling: only 19% of Americans ages 18 to 29 identified themselves as “capitalists.” In the richest and most market-oriented country in the world, only 42% of that group said they “supported capitalism.” The numbers were higher among older people; still, only 26% considered themselves capitalists. A little over half supported the system as a whole.

This represents more than just millennials not minding the label “socialist” or disaffected middle-aged Americans tiring of an anemic recovery. This is a majority of citizens being uncomfortable with the country’s economic foundation—a system that over hundreds of years turned a fledgling society of farmers and prospectors into the most prosperous nation in human history. To be sure, polls measure feelings, not hard market data. But public sentiment reflects day-to-day economic reality. And the data (more on that later) shows Americans have plenty of concrete reasons to question their system.

This crisis of faith has had no more severe expression than the 2016 presidential campaign, which has turned on the questions of who, exactly, the system is working for and against, as well as why eight years and several trillions of dollars of stimulus on from the financial crisis, the economy is still growing so slowly. All the candidates have prescriptions: Sanders talks of breaking up big banks; Trump says hedge funders should pay higher taxes; Clinton wants to strengthen existing financial regulation. In Congress, Republican House Speaker Paul Ryan remains committed to less regulation.

All of them are missing the point. America’s economic problems go far beyond rich bankers, too-big-to-fail financial institutions, hedge-fund billionaires, offshore tax avoidance or any particular outrage of the moment. In fact, each of these is symptomatic of a more nefarious condition that threatens, in equal measure, the very well-off and the very poor, the red and the blue. The U.S. system of market capitalism itself is broken. That problem, and what to do about it, is at the center of my book Makers and Takers: The Rise of Finance and the Fall of American Business, a three-year research and reporting effort from which this piece is adapted.

To understand how we got here, you have to understand the relationship between capital markets—meaning the financial system—and businesses. From the creation of a unified national bond and banking system in the U.S. in the late 1790s to the early 1970s, finance took individual and corporate savings and funneled them into productive enterprises, creating new jobs, new wealth and, ultimately, economic growth. Of course, there were plenty of blips along the way (most memorably the speculation leading up to the Great Depression, which was later curbed by regulation). But for the most part, finance—which today includes everything from banks and hedge funds to mutual funds, insurance firms, trading houses and such—essentially served business. It was a vital organ but not, for the most part, the central one.

Over the past few decades, finance has turned away from this traditional role. Academic research shows that only a fraction of all the money washing around the financial markets these days actually makes it to Main Street businesses. “The intermediation of household savings for productive investment in the business sector—the textbook description of the financial sector—constitutes only a minor share of the business of banking today,” according to academics Oscar Jorda, Alan Taylor and Moritz Schularick, who’ve studied the issue in detail. By their estimates and others, around 15% of capital coming from financial institutions today is used to fund business investments, whereas it would have been the majority of what banks did earlier in the 20th century.

“The trend varies slightly country by country, but the broad direction is clear,” says Adair Turner, a former British banking regulator and now chairman of the Institute for New Economic Thinking, a think tank backed by George Soros, among others. “Across all advanced economies, and the United States and the U.K. in particular, the role of the capital markets and the banking sector in funding new investment is decreasing.” Most of the money in the system is being used for lending against existing assets such as housing, stocks and bonds.

To get a sense of the size of this shift, consider that the financial sector now represents around 7% of the U.S. economy, up from about 4% in 1980. Despite currently taking around 25% of all corporate profits, it creates a mere 4% of all jobs. Trouble is, research by numerous academics as well as institutions like the Bank for International Settlements and the International Monetary Fund shows that when finance gets that big, it starts to suck the economic air out of the room. In fact, finance starts having this adverse effect when it’s only half the size that it currently is in the U.S. Thanks to these changes, our economy is gradually becoming “a zero-sum game between financial wealth holders and the rest of America,” says former Goldman Sachs banker Wallace Turbeville, who runs a multiyear project on the rise of finance at the New York City—based nonprofit Demos.

It’s not just an American problem, either. Most of the world’s leading market economies are grappling with aspects of the same disease. Globally, free-market capitalism is coming under fire, as countries across Europe question its merits and emerging markets like Brazil, China and Singapore run their own forms of state-directed capitalism. An ideologically broad range of financiers and elite business managers—Warren Buffett, BlackRock’s Larry Fink, Vanguard’s John Bogle, McKinsey’s Dominic Barton, Allianz’s Mohamed El-Erian and others—have started to speak out publicly about the need for a new and more inclusive type of capitalism, one that also helps businesses make better long-term decisions rather than focusing only on the next quarter. The Pope has become a vocal critic of modern market capitalism, lambasting the “idolatry of money and the dictatorship of an impersonal economy” in which “man is reduced to one of his needs alone: consumption.”

During my 23 years in business and economic journalism, I’ve long wondered why our market system doesn’t serve companies, workers and consumers better than it does. For some time now, finance has been thought by most to be at the very top of the economic hierarchy, the most aspirational part of an advanced service economy that graduated from agriculture and manufacturing. But research shows just how the unintended consequences of this misguided belief have endangered the very system America has prided itself on exporting around the world.

America’s economic illness has a name: financialization. It’s an academic term for the trend by which Wall Street and its methods have come to reign supreme in America, permeating not just the financial industry but also much of American business. It includes everything from the growth in size and scope of finance and financial activity in the economy; to the rise of debt-fueled speculation over productive lending; to the ascendancy of shareholder value as the sole model for corporate governance; to the proliferation of risky, selfish thinking in both the private and public sectors; to the increasing political power of financiers and the CEOs they enrich; to the way in which a “markets know best” ideology remains the status quo. Financialization is a big, unfriendly word with broad, disconcerting implications.

University of Michigan professor Gerald Davis, one of the pre-eminent scholars of the trend, likens financialization to a “Copernican revolution” in which business has reoriented its orbit around the financial sector. This revolution is often blamed on bankers. But it was facilitated by shifts in public policy, from both sides of the aisle, and crafted by the government leaders, policymakers and regulators entrusted with keeping markets operating smoothly. Greta Krippner, another University of Michigan scholar, who has written one of the most comprehensive books on financialization, believes this was the case when financialization began its fastest growth, in the decades from the late 1970s onward. According to Krippner, that shift encompasses Reagan-era deregulation, the unleashing of Wall Street and the rise of the so-called ownership society that promoted owning property and further tied individual health care and retirement to the stock market.

The changes were driven by the fact that in the 1970s, the growth that America had enjoyed following World War II began to slow. Rather than make tough decisions about how to bolster it (which would inevitably mean choosing among various interest groups), politicians decided to pass that responsibility to the financial markets. Little by little, the Depression-era regulation that had served America so well was rolled back, and finance grew to become the dominant force that it is today. The shifts were bipartisan, and to be fair they often seemed like good ideas at the time; but they also came with unintended consequences. The Carter-era deregulation of interest rates—something that was, in an echo of today’s overlapping left-and right-wing populism, supported by an assortment of odd political bedfellows from Ralph Nader to Walter Wriston, then head of Citibank—opened the door to a spate of financial “innovations” and a shift in bank function from lending to trading. Reaganomics famously led to a number of other economic policies that favored Wall Street. Clinton-era deregulation, which seemed a path out of the economic doldrums of the late 1980s, continued the trend. Loose monetary policy from the Alan Greenspan era onward created an environment in which easy money papered over underlying problems in the economy, so much so that it is now chronically dependent on near-zero interest rates to keep from falling back into recession.

This sickness, not so much the product of venal interests as of a complex and long-term web of changes in government and private industry, now manifests itself in myriad ways: a housing market that is bifurcated and dependent on government life support, a retirement system that has left millions insecure in their old age, a tax code that favors debt over equity. Debt is the lifeblood of finance; with the rise of the securities-and-trading portion of the industry came a rise in debt of all kinds, public and private. That’s bad news, since a wide range of academic research shows that rising debt and credit levels stoke financial instability. And yet, as finance has captured a greater and greater piece of the national pie, it has, perversely, all but ensured that debt is indispensable to maintaining any growth at all in an advanced economy like the U.S., where 70% of output is consumer spending. Debt-fueled finance has become a saccharine substitute for the real thing, an addiction that just gets worse. (The amount of credit offered to American consumers has doubled in real dollars since the 1980s, as have the fees they pay to their banks.)

As the economist Raghuram Rajan, one of the most prescient seers of the 2008 financial crisis, argues, credit has become a palliative to address the deeper anxieties of downward mobility in the middle class. In his words, “let them eat credit” could well summarize the mantra of the go-go years before the economic meltdown. And things have only deteriorated since, with global debt levels $57 trillion higher than they were in 2007.

The rise of finance has also distorted local economies. It’s the reason rents are rising in some communities where unemployment is still high. America’s housing market now favors cash buyers, since banks are still more interested in making profits by trading than by the traditional role of lending out our savings to people and businesses looking to make longterm investments (like buying a house), ensuring that younger people can’t get on the housing ladder. One perverse result: Blackstone, a private-equity firm, is currently the largest single-family-home landlord in America, since it had the money to buy properties up cheap in bulk following the financial crisis. It’s at the heart of retirement insecurity, since fees from actively managed mutual funds “are likely to confiscate as much as 65% or more of the wealth that … investors could otherwise easily earn,” as Vanguard founder Bogle testified to Congress in 2014.

It’s even the reason companies in industries from autos to airlines are trying to move into the business of finance themselves. American companies across every sector today earn five times the revenue from financial activities—investing, hedging, tax optimizing and offering financial services, for example—that they did before 1980. Traditional hedging by energy and transport firms, for example, has been overtaken by profit-boosting speculation in oil futures, a shift that actually undermines their core business by creating more price volatility. Big tech companies have begun underwriting corporate bonds the way Goldman Sachs does. And top M.B.A. programs would likely encourage them to do just that; finance has become the center of all business education.

Washington, too, is so deeply tied to the ambassadors of the capital markets—six of the 10 biggest individual political donors this year are hedge-fund barons—that even well-meaning politicians and regulators don’t see how deep the problems are. When I asked one former high-level Obama Administration Treasury official back in 2013 why more stakeholders aside from bankers hadn’t been consulted about crafting the particulars of Dodd-Frank financial reform (93% of consultation on the Volcker Rule, for example, was taken with the financial industry itself), he said, “Who else should we have talked to?” The answer—to anybody not profoundly influenced by the way finance thinks—might have been the people banks are supposed to lend to, or the scholars who study the capital markets, or the civic leaders in communities decimated by the financial crisis.

Of course, there are other elements to the story of America’s slow-growth economy, including familiar trends from globalization to technology-related job destruction. These are clearly massive challenges in their own right. But the single biggest unexplored reason for long-term slower growth is that the financial system has stopped serving the real economy and now serves mainly itself. A lack of real fiscal action on the part of politicians forced the Fed to pump $4.5 trillion in monetary stimulus into the economy after 2008. This shows just how broken the model is, since the central bank’s best efforts have resulted in record stock prices (which enrich mainly the wealthiest 10% of the population that owns more than 80% of all stocks) but also a lackluster 2% economy with almost no income growth.

Now, as many top economists and investors predict an era of much lower asset-price returns over the next 30 years, America’s ability to offer up even the appearance of growth—via financially oriented strategies like low interest rates, more and more consumer credit, tax-deferred debt financing for businesses, and asset bubbles that make people feel richer than we really are, until they burst—is at an end.

This pinch is particularly evident in the tumult many American businesses face. Lending to small business has fallen particularly sharply, as has the number of startup firms. In the early 1980s, new companies made up half of all U.S. businesses. For all the talk of Silicon Valley startups, the number of new firms as a share of all businesses has actually shrunk. From 1978 to 2012 it declined by 44%, a trend that numerous researchers and even many investors and businesspeople link to the financial industry’s change in focus from lending to speculation. The wane in entrepreneurship means less economic vibrancy, given that new businesses are the nation’s foremost source of job creation and GDP growth. Buffett summed it up in his folksy way: “You’ve now got a body of people who’ve decided they’d rather go to the casino than the restaurant” of capitalism.

In lobbying for short-term share-boosting management, finance is also largely responsible for the drastic cutback in research-and-development outlays in corporate America, investments that are seed corn for future prosperity. Take share buybacks, in which a company—usually with some fanfare—goes to the stock market to purchase its own shares, usually at the top of the market, and often as a way of artificially bolstering share prices in order to enrich investors and executives paid largely in stock options. Indeed, if you were to chart the rise in money spent on share buybacks and the fall in corporate spending on productive investments like R&D, the two lines make a perfect X. The former has been going up since the 1980s, with S&P 500 firms now spending $1 trillion a year on buybacks and dividends—equal to about 95% of their net earnings—rather than investing that money back into research, product development or anything that could contribute to long-term company growth. No sector has been immune, not even the ones we think of as the most innovative. Many tech firms, for example, spend far more on share-price boosting than on R&D as a whole. The markets penalize them when they don’t. One case in point: back in March 2006, Microsoft announced major new technology investments, and its stock fell for two months. But in July of that same year, it embarked on $20 billion worth of stock buying, and the share price promptly rose by 7%. This kind of twisted incentive for CEOs and corporate officers has only grown since.

As a result, business dynamism, which is at the root of economic growth, has suffered. The number of new initial public offerings (IPOs) is about a third of what it was 20 years ago. True, the dollar value of IPOs in 2014 was $74.4 billion, up from $47.1 billion in 1996. (The median IPO rose to $96 million from $30 million during the same period.) This may show investors want to make only the surest of bets, which is not necessarily the sign of a vibrant market. But there’s another, more disturbing reason: firms simply don’t want to go public, lest their work become dominated by playing by Wall Street’s rules rather than creating real value.

An IPO—a mechanism that once meant raising capital to fund new investment—is likely today to mark not the beginning of a new company’s greatness, but the end of it. According to a Stanford University study, innovation tails off by 40% at tech companies after they go public, often because of Wall Street pressure to keep jacking up the stock price, even if it means curbing the entrepreneurial verve that made the company hot in the first place.

A flat stock price can spell doom. It can get CEOs canned and turn companies into acquisition fodder, which often saps once innovative firms. Little wonder, then, that business optimism, as well as business creation, is lower than it was 30 years ago, or that wages are flat and inequality growing. Executives who receive as much as 82% of their compensation in stock naturally make shorter-term business decisions that might undermine growth in their companies even as they raise the value of their own options.

It’s no accident that corporate stock buybacks, corporate pay and the wealth gap have risen concurrently over the past four decades. There are any number of studies that illustrate this type of intersection between financialization and inequality. One of the most striking was by economists James Galbraith and Travis Hale, who showed how during the late 1990s, changing income inequality tracked the go-go Nasdaq stock index to a remarkable degree.

Recently, this pattern has become evident at a number of well-known U.S. companies. Take Apple, one of the most successful over the past 50 years. Apple has around $200 billion sitting in the bank, yet it has borrowed billions of dollars cheaply over the past several years, thanks to superlow interest rates (themselves a response to the financial crisis) to pay back investors in order to bolster its share price. Why borrow? In part because it’s cheaper than repatriating cash and paying U.S. taxes. All the financial engineering helped boost the California firm’s share price for a while. But it didn’t stop activist investor Carl Icahn, who had manically advocated for borrowing and buybacks, from dumping the stock the minute revenue growth took a turn for the worse in late April.

It is perhaps the ultimate irony that large, rich companies like Apple are most involved with financial markets at times when they don’t need any financing. Top-tier U.S. businesses have never enjoyed greater financial resources. They have a record $2 trillion in cash on their balance sheets—enough money combined to make them the 10th largest economy in the world. Yet in the bizarre order that finance has created, they are also taking on record amounts of debt to buy back their own stock, creating what may be the next debt bubble to burst.

You and I, whether we recognize it or not, are also part of a dysfunctional ecosystem that fuels short-term thinking in business. The people who manage our retirement money—fund managers working for asset-management firms—are typically compensated for delivering returns over a year or less. That means they use their financial clout (which is really our financial clout in aggregate) to push companies to produce quick-hit results rather than execute long-term strategies. Sometimes pension funds even invest with the activists who are buying up the companies we might work for—and those same activists look for quick cost cuts and potentially demand layoffs.

It’s a depressing state of affairs, no doubt. Yet America faces an opportunity right now: a rare second chance to do the work of refocusing and right-sizing the financial sector that should have been done in the years immediately following the 2008 crisis. And there are bright spots on the horizon.

Despite the lobbying power of the financial industry and the vested interests both in Washington and on Wall Street, there’s a growing push to put the financial system back in its rightful place, as a servant of business rather than its master. Surveys show that the majority of Americans would like to see the tax system reformed and the government take more direct action on job creation and poverty reduction, and address inequality in a meaningful way. Each candidate is crafting a message around this, which will keep the issue front and center through November.

The American public understands just how deeply and profoundly the economic order isn’t working for the majority of people. The key to reforming the U.S. system is comprehending why it isn’t working.

Remooring finance in the real economy isn’t as simple as splitting up the biggest banks (although that would be a good start). It’s about dismantling the hold of financial-oriented thinking in every corner of corporate America. It’s about reforming business education, which is still permeated with academics who resist challenges to the gospel of efficient markets in the same way that medieval clergy dismissed scientific evidence that might challenge the existence of God. It’s about changing a tax system that treats one-year investment gains the same as longer-term ones, and induces financial institutions to push overconsumption and speculation rather than healthy lending to small businesses and job creators. It’s about rethinking retirement, crafting smarter housing policy and restraining a money culture filled with lobbyists who violate America’s essential economic principles.

It’s also about starting a bigger conversation about all this, with a broader group of stakeholders. The structure of American capital markets and whether or not they are serving business is a topic that has traditionally been the sole domain of “experts”—the financiers and policymakers who often have a self-interested perspective to push, and who do so in complicated language that keeps outsiders out of the debate. When it comes to finance, as with so many issues in a democratic society, complexity breeds exclusion.

Finding solutions won’t be easy. There are no silver bullets, and nobody really knows the perfect model for a high-functioning, advanced market system in the 21st century. But capitalism’s legacy is too long, and the well-being of too many people is at stake, to do nothing in the face of our broken status quo. Neatly packaged technocratic tweaks cannot fix it. What is required now is lifesaving intervention.

Crises of faith like the one American capitalism is currently suffering can be a good thing if they lead to re-examination and reaffirmation of first principles. The right question here is in fact the simplest one: Are financial institutions doing things that provide a clear, measurable benefit to the real economy? Sadly, the answer at the moment is mostly no. But we can change things. Our system of market capitalism wasn’t handed down, in perfect form, on stone tablets. We wrote the rules. We broke them. And we can fix them.

Rana Foroohar is an assistant managing editor at TIME and the magazine’s economics columnist. She’s the author of Makers and Takers: The Rise of Finance and the Fall of American Business.

This appears in the May 23, 2016 issue of TIME.

American “Success” In the Middle East Has Only Created More Problems. By Fareed Zakaria.

The U.S.’s “success” in the Middle East has only created more problems. By Fareed Zakaria. Washington Post, May 12, 2016.

Zakaria:

Iraq is collapsing as a country. This week’s bombings in Baghdad, which killed more than 90 people, are just further reminders that the place remains deeply unstable and violent. There is a lesson to be drawn from this, one that many powerful people in Washington are still resisting.

As Iraq has spiraled downward, policymakers have been quick to provide advice. Perennial hawks such as Sen. John McCain (R-Ariz.) have argued that if only the Obama administration would send more troops to the region, it would be more stable. Others say we need more diplomats and political advisers who can buttress military efforts. Still others tell us to focus on Iraqi leaders and get them to be more inclusive.

Perhaps it is worth stepping back from Iraq and looking at another country where the United States has been involved. The United States has been engaged in Afghanistan militarily, politically and economically for 15 years. It has had many “surges” of troops. It has spent more than $1 trillion on the war, by some estimates, and still pays a large portion of Afghanistan’s defense budget. Afghanistan has an elected government of national unity.

And yet, in October, the United Nations concluded that the insurgency had spread to more places in the country than at any point since 2001. Danielle Moylan reported in the New York Times that the Taliban now controls or contests all but three districts in Helmand province. She said that 36,000 police officers — almost a quarter of the force — are believed to have deserted the ranks last year. And last month, the Taliban penetrated Kabul itself, attacking a building run by the National Directorate of Security, which is responsible for much of the security in the capital, as the New Yorker’s Dexter Filkins has reported.

Some argue that 15 years is not enough. They point to South Korea and Germany and say that the United States should simply stay unendingly. I am not opposed to a longer-term U.S. presence in Afghanistan, especially because the country’s elected government seems to want it. But the analogy is misplaced. In Germany and South Korea, U.S. forces remained to deter a foreign threat. They were not engaged in a never-ending battle within the country to help the government gain control over its own people. The more appropriate analogue is Vietnam.

Much has been made recently of a pair of interviews on U.S. foreign policy, one with President Obama, the other with one of his closest aides, Ben Rhodes. Both men have been described as arrogant, self-serving and brimming with contempt for the foreign policy establishment. Certainly, as most administrations would, Obama and Rhodes sought to present their actions in a positive light. So Obama congratulates himself for stepping back from the edge of military intervention in Syria. He never grapples with the fact that his own careless rhetoric — about Bashar al-Assad’s fate and “red lines” — pushed Washington to the edge in the first place.

But on the most important issue of substance, Obama is right and his critics are wrong. The chief lesson for U.S. foreign policy from the past 15 years is that it is much easier to defeat a military opponent in the greater Middle East than to establish political order in these troubled lands.

The mantra persists in Washington that Obama has “overlearned” the lessons of Iraq. But the lessons come not just from Iraq. In Iraq, Afghanistan and Libya, it took weeks to defeat the old regime. Years later, despite different approaches, all of these countries remain in chaos. Can anyone seriously argue that a few more troops, or a slightly different strategy, would have created stability and peace?

The Obama administration’s policy is trying to battle the Islamic State and yet steer clear of anything that would lead it to occupy and control lands in the region. I worry that the United States is veering toward too much involvement, which will leave Washington holding the bag, but I understand the balance the administration is trying to strike.

In Syria, Washington’s real dilemma would be if the effort worked and the Islamic State were defeated. This would result in a collapse of authority in large swaths of Iraq and Syria that are teeming with radicalized Sunnis who refuse to accept the authority of Baghdad or Damascus. Having led the fight, Washington would be forced to assert control over the territory, set up prisons to house thousands of Islamic State fighters, and provide security and economic assistance for the population while fighting the inevitable insurgency.

You know you’re in trouble when success produces more problems than failure.

Ice Age Europeans Had Some Serious Drama Going On, According to Their Genomes. By Sarah Kaplan.

Three ~31,000 years old skulls from Dolni Věstonice in the Czech Republic. For the next five thousand years, all samples analyzed in this study—whether from Belgium, the Czech Republic, Austria, or Italy—are closely related, reflecting a population expansion associated with the Gravettian archaeological culture. Credit: Martin Frouz and Jiří Svoboda.

Ice Age Europeans had some serious drama going on, according to their genomes. By Sarah Kaplan. Washington Post, May 5, 2016.

Game of bones: first Europeans’ shifting fortunes found in DNA. By Colin Barras. New Scientist, May 2, 2016.

Genetic analysis of Ice Age Europeans. Phys.org, May 2, 2016.

The genetic history of Ice Age Europe. By Qiaomei Fu et al. Nature, published online, May 2, 2016.

Nature abstract:

Modern humans arrived in Europe ~45,000 years ago, but little is known about their genetic composition before the start of farming ~8,500 years ago. Here we analyse genome-wide data from 51 Eurasians from ~45,000–7,000 years ago. Over this time, the proportion of Neanderthal DNA decreased from 3–6% to around 2%, consistent with natural selection against Neanderthal variants in modern humans. Whereas there is no evidence of the earliest modern humans in Europe contributing to the genetic composition of present-day Europeans, all individuals between ~37,000 and ~14,000 years ago descended from a single founder population which forms part of the ancestry of present-day Europeans. An ~35,000-year-old individual from northwest Europe represents an early branch of this founder population which was then displaced across a broad region, before reappearing in southwest Europe at the height of the last Ice Age ~19,000 years ago. During the major warming period after ~14,000 years ago, a genetic component related to present-day Near Easterners became widespread in Europe. These results document how population turnover and migration have been recurring themes of European prehistory.


Kaplan:

The entire drama of human history is encoded in our DNA.

Where we went. Who we slept with. How we died — or almost did. It's basically a scientific soap opera, complete with occasional discoveries of long-lost cousins we never knew we had.

Take Ice Age Europe, for example. A new study of genetic material from the period reveals a continent roiling with change.

First, an upstart band of modern humans arrived, slowly pushing their ancient predecessors out of existence. But soon that new lineage was swept aside by a group of big game hunters. For the next 15,000 years, the older community lay in wait in a remote corner of the continent before bursting back onto the scene. The usurpers were overturned, and history barreled forward. And all of this happened against a backdrop of dramatic environmental change — waves of cold and heat that sent glaciers surging back and forth across the continent.

“The demographic history of early European populations was much more dynamic than previously thought,” Cosimo Posth, a PhD student in archaeogenetics at the University of Tübingen in Germany and a co-author of the study, told the New Scientist.

Posth was just one of some six dozen researchers on four different continents who teamed up for the survey, which was published this week in Nature. The result of their efforts is the most comprehensive account of Europe's Ice Age population changes yet, and it's told entirely through ancient DNA.

[Ancient DNA shows Stone Age humans evolved quickly as they took up farming]

But before researchers could start analyzing that genetic material, they had to get it. DNA degrades over time, so extracting it from ancient human remains is difficult and costly.

Much of that delicate work was done by Qiaomei Fu, the lead author of the paper and a genetics researcher at Harvard and the Chinese Academy of Sciences in Beijing. She had to make sure that each genome was uncontaminated by material picked up from microbes or present-day humans.

Over and over again, she screened the samples, which came from long-buried remains spanning nearly 40,000 years of history.

“It’s a great privilege to be able to work on these samples,” David Reich, the head of the Harvard Genetics Lab where Fu did some of her work, said in a news release.  “It’s like being an art historian given full access to the treasures of the Louvre.”

In the end, they had data from 51 individuals — a tenfold increase over the measly four that once gave researchers their only glimpses into this period.

“Trying to represent this vast period of European history with just four samples is like trying to summarize a movie with four still images,” Reich said. “With 51 samples, everything changes; we can follow the narrative arc; we get a vivid sense of the dynamic changes over time.”

One of the oldest genomes studied came from a thigh bone discovered in Goyet Cave in Belgium and given the unwieldy name GoyetQ116-1. Radiocarbon dating pegs the Goyet individual at some 35,000 years old, making him a likely member of the Aurignacian culture. These stone toolmakers produced the oldest known example of human figurative art — a 40,000-year-old figurine called the “Venus of Hohle Fels” — as well as countless cave paintings.

Goyet guy’s DNA is also strikingly similar to many modern Europeans’. Does this mean that his family were the final colonizers of the continent?

Not quite. Around 1,000 years after the Goyet individual was found, a new culture swept through Europe: the Gravettians. Analysis of genetic material from the time shows that art and artifacts weren’t the only things changing. The Gravettians’ DNA was significantly different from their Aurignacian predecessors, suggesting that they were a completely separate lineage.

[Forget peaceful human evolution: New proto-Neanderthal find points to ‘Game ofThrones’ era]

Goyet guy’s descendants retreated to the Iberian Peninsula (modern day Spain and Portugal) and waited for their time to come again.

It did, some 15,000 years later. Probably spurred by climate changes as glaciers began to recede, this dormant lineage expanded back into the rest of Europe, bearing a new culture known as Magdalenian. Not long after that, their genomes started to look like those of people from the Middle East and the Caucasus, suggesting that new arrivals from the southeast were mingling with — and in some cases supplanting — the existing population.

Impression of one of the Ice Age modern humans analyzed in this study,

 drawn by Stefano Ricci who is both a professional graphic artist

 and an author. Credit: Stefano Ricci.

This was a surprise, because researchers used to think that transition happened much later, when Turkish farmers introduced agriculture to Europe some 8,500 years ago.

“It is amazing how ancient DNA now starts to provide us with a detailed account of the earliest history of present-day Europeans,” Max Planck Institute anthropologist Svante Pääbo, another author of the study, said in a news release.

But like any good soap opera, this one is about disaster as much as it’s about success. The genetic analysis allowed researchers to trace the inexorable decline of Neanderthal DNA, which was two to three times more prominent in early human genomes than it is in modern-day ones. This supports theories that early humans interbred with Neanderthals, but that their DNA was toxic to us and gradually weeded out by natural selection over the course of millennia.

For those among us who still carry fractions of Neanderthal DNA, that process is probably still happening, Pääbo said. The drama isn't over yet.