Foreign Policy and Prosperity

            The current debate over raising the United States debt ceiling is a pivotal moment in modern history.  It is possible to have the economic equivalent of World War III without a single shot being fired. To understand why, it is necessary to have an accurate understanding of the relationship between economics and government policy.

            War may have had a positive economic impact in earlier times when the acquisition of enemy territory and subjugation of defeated peoples as slaves had beneficial economic value.  World War I changed that equation.  Modern war became total war, involving the whole economy and eviscerated the victors as well as the defeated.

            World War I was an unmitigated disaster.  Killing 1% of the world’s population, it led to the collapse of four monarchal empires: Russia, Germany, Turkey and the Austro-Hungarian, and their replacement by revolution and/or dictatorships.  It precipitated the worldwide great economic depression, culminating in World War II, which killed 2% of the world’s population.  Far from making the world safe for democracy, it preserved the colonial empires of the victors and created vassal states out of the possessions of the defeated. 

            World War I also turned the United States into an international creditor.  The real meaning of World War I was that it proved that democracy is a more effective means of organizing a society for war than monarchy or dictatorship, but it was close.

            After World War II, the United States and the world was determined not to repeat the mistakes of World War I.  The United States was the only nation with an intact industrial base and moved to rebuild the war torn world while swiftly befriending its former foes.  The United States embarked on an anti-communist crusade which, in effect, meant taking responsibility to prevent the newly independent colonies of its allies from falling into communist hands.  This became the policy of containment, although the rhetoric was of rolling back communism.

            People looking for peaceful accommodation with the communists were wrong footed by the communist victory in China in 1949, and the Stalin sanctioned aggression of the North Koreans in 1950.  Communism looked aggressive and, in response, the United States started supporting every anti-communist government seeming to be under threat.  This was the period when American support for the French war in Vietnam  grew.

            Once Eisenhower became president, he was concerned that the United State’s new found role as a world power would bankrupt the country so he devised a two pronged strategy.  He would use the nuclear deterrent to keep aggressive nations in check, and unleash the CIA’s covert capabilities to overthrow leftist governments like Mossadegh in Iran, Arbenz in Guatemala, and Patrice Lumumba in the Congo while trying to befriend rising nationalists like Nasser in Egypt and Diem in Vietnam.

            This policy started to unravel when the United States found itself unable to assist the Hungarian revolution in 1956 because the French, British and Israelis had attacked Egypt the previous week.  Eisenhower was only able to force the French, British and Israelis to withdraw by refusing to support the British Pound.  In other words, the British invasion of Egypt to reclaim the Suez Canal and topple Nasser was an economic disaster for Britain’s currency.

            Similarly, the dispatch of half a million combat troops to Vietnam beginning in 1965 left the United States powerless to support the Prague Spring in 1968 and provided cover for the Israelis to attack its Arab neighbors in 1967 and seize the land that is the proximate cause of the Al-Queda attacks on the United States today.  Just as in Vietnam, the United States is on the wrong side of the Arab-Israeli dispute.  The Palestinian position represents core American values, while Israel seeks recognition as a radical religious state.  President Obama, for the first time since Eisenhower, is moving American foreign policy back toward core American values.

            Unfortunately, the stolen election of 2000 which put Bush, the loser, in the White House was not only a contributing cause of the 9/11 attacks (Bush ran on a war platform by criticizing Clinton’s engagement with the Middle East peace process), but it precipitated the war in Iraq.  Uniquely, once war was declared, Bush not only refused to raise taxes to pay for it, but continued to cut taxes.  Before the invasion of Iraq, Bush said the war would cost $50 billion.  Others in the administration said the war would pay for itself because of Iraqi oil.  Larry Summers was fired for saying the war would cost $200 billion and Paul Wolfowitz poo-pooed General Shinseki when he said half a million troops would be needed to pacify the country in the wake of the invasion.

            The reality is that the Iraq war has cost $1trillion so far, with projected total costs from the Watson Institute and Brown University put at between $3.5 trillion and $4.5 trillion plus 125,000 civilian deaths.   Just like every war in the past century, the Iraq war has been a financial catastrophe, even if victory can be claimed. Not only have wars become unaffordable, but even preparing for war is unaffordable.

            Ronald Wright in his Massie Lectures A Short History of Progress explains how technology frequently perfects itself into extinction.  This is especially true in military technology, where the atomic and hydrogen bombs, useless as tactical weapons, threaten the existence of the human race.  On the other end, automatic weapons are so efficient and have proliferated to the degree than anyone can kill and maim dozens of people in just a few seconds.

            The Republicans have become the equivalent of economic religious fanatics where facts have no meaning.   Having driven the nation into bankruptcy through war which they refused to finance and an unaffordable defense posture to protect the religious state of Israel, they now want to solve the problem on the backs of the people least able to afford it.

            The debt is not the only problem.  There is the balance of payments deficit.  The two are connected.  Forty years ago, when people were paying a tax surcharge to finance the war in Vietnam, allegedly to prevent the spread of Chinese communism, could anyone imagine that in four decades the United States would be dependent on borrowing from communist China to pay its bills?  This is an outrage and a scandal.

            The United States is a great nation with a great people.  This problem could be solved if only the party leaders would allow it.  The truth is that the two-party system, like the one party system in the Soviet Union, is imploding.  Elections are rigged in favor of the Republicans and Democrats.  Independent ideas are systematically excluded from the debate.

            There is a sensible solution.  First, the Israelis need to live up to their agreements with the Palestinians of the past forty years and comply with the United Nations Resolutions passed since 1948 that created Israel.  It needs to come to a real accommodation to live in peace with its neighbors.  It can not continue to make up its own rules. This will significantly reduce the threat of terrorism and allow the world economy to operate freely and efficiently once again without the high costs and inefficiencies of security checks at every transaction point.

            Second, put sidewalks on both sides of every street in America.  Install benches every 500 yards and bus shelters at every bus stop.  Reconfigure the public transportation system to send buses down state and county highways, where people really need to go.  This will enable the United States to be self-sufficient in oil within two years.  Presidents have been talking about energy independence since Nixon. (All the other green stuff, too; like solar, wind, tidal, drilling, etc.)  If people want to drive, fine.  But there are millions of Americans who already want to get out of their cars, but the two parties refuse to provide viable infrastructure to let them do it. 

            Instead of liberating people, the excessive use and reliance on motor vehicles have enslaved them.  People work to support their cars.  In a land of freedom, people need choices.  To drive or to walk or to bicycle.  In the absence of the economy to create plentiful well-paying jobs, the government needs to create an infrastructure that enables people to live well at a reduced level of material consumption so they can have discretionary income.

            The United States is rich enough, smart enough, and tough enough to be self supporting.  The idea that the United States depends on the savings of Chinese peasants to pay its bills is repugnant.  In the past, the United States had a can-do attitude; no problem was so big or so difficult that could not be solved by American creativity and drive.  Now, the United States is incapable of change.  What happened?

            Basically, the elections have become rigged so the United States is another banana republic, and the lawyers, including the courts, have abused the legal system to create a system of lawlessness where only the wealthy have access to justice.

            Contemporary disasters come, not from change, but from refusing to innovate when circumstances have altered.   An American default will create a worldwide economic disaster equivalent to World War III.  Just as the soldiers marched happily off to be slaughtered like cattle in World War I, heedless of the changes in technology that had changed chivalrous combat into mechanized extermination; the Republicans in the United States are playing economic brinksmanship in the name of a medieval religious fundamentalism. 

            American soldiers are being asked to risk their lives in wars in Iraq and Afghanistan that the Republicans in the United States congress refuse to ask the wealthiest Americans to help pay for. Only a fool would lend money to people that selfish.     

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Contact: Joshua Leinsdorf