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Well Done, Mr. President

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“… there is the United States’ self-appointed task of world policeman. Wars have always been major but temporary causes of spikes in government debt/GDP ratios. The winners in the post-WWII period grew their way out of their war debt while the losers defaulted. But the US policeman function seems to be a chronic condition and adds to the US government debt/GDP ratio. Since the end of WWII, the country has been involved in what seems like a continuous series of expensive and not always small wars.”

~From Peter T Treadway, Investing in the Age of Sovereign Defaults, p. 16.

 

Better Lucky and Smart

There are two expressions on Wall Street that seem relevant today. Both sort of say the same thing. The first is “Don’t throw good money after bad.” The second is “Make your first loss your last loss.” Although he undoubtedly considers Wall Street a hostile environment and would be horrified if anyone thought he engaged in Wall Street thinking, President Obama seems to have instinctively adopted the lessons of these expressions.

A little over a year ago today, President Obama made his now infamous red line statement about Syria. He more or less said “Use chemical warfare and you will pay.” A year to the day he made the statement somebody – probably the Syrian government – indeed used chemical warfare in a major way. The macho schoolyard code of ethics that governs international relations therefore dictated that President Obama make good on his threat.

At first the President seems to have accepted the logic of this code even if it required—in the opinion of most world observers and most likely the President himself—a series of counterproductive, dangerous and probably significantly expensive military actions by the United States. Some readers may disagree on this but I think the majority of observers and the majority of the American people feel this way. At any rate, the ever loquacious Vice President Biden and the new US Secretary of State John Kerry with his statesmanlike granite chin and tone were sent out to garner support for some type of “limited” US military strike against Syria. It turns out the President was not quite as enthusiastic. But just a short time ago he seemed stuck with some type of schoolyard response.

Obama caught a break. David Cameron, the prime minister of America’s foremost (but not oldest) ally, suffered a defeat in the House of Commons. The UK could not support the US in spanking Syria. (I thought David Cameron was excessively compliant and gracious in his defeat. But maybe deep down he was happy this vote got him off the hook. But that is another matter.) President Obama heretofore seemed to have little use for the American constitution. One unconstitutional executive directive after the other has been handed down on things like Obamacare, illegal immigration and welfare reform. And after all, is not the Constitution an archaic document written over two hundred years ago by a bunch of male, Caucasian slave-owners? Be that as it may, Obama has suddenly at least on the subject of Syria become a strict constitutionalist. If the prime minister of the world’s oldest democracy had to go to Parliament for permission to spank Syria, should not the President of the world’s second oldest democracy do the same and follow the dictates of the country’s venerable Constitution?

In my opinion, the worst thing Congress could do to Obama would be to approve his request that military action be undertaken against Syria. Obama will say otherwise but he will not mean it. Congress and the Constitution are needed to get him off the hook. Perhaps he should say a silent prayer of thanks to the Constitution’s principal author, James Madison. So should the bond and stock markets.

It of course will be argued that the United States if it does nothing will look weak and Obama will be made a fool of. I doubt it. The heads of all the major countries, Russia and China included, make an occasional bonehead comment or mistake. They may actually admire Obama for his ability to wiggle out of this one. Even if there is some loss of face and credibility for the US – and I know some readers will disagree on this – military action may make a bad situation even worse and set off a disastrous chain reaction in the Middle East. Better some loss of face.

Obama has managed to lead a charmed life on the international front. For example he won a Nobel Prize just for getting elected. Nobody seems to remember that a few years he bowed too deeply to the Japanese emperor. MacArthur and certainly Mountbatten never would have approved. But nobody else cares. He has stayed out of major wars. So far. If he can keep that streak going, that’s what history will remember. The next few weeks will tell whether my analysis, cynical though it may be, is right.

 

The Economic Cost of a Syrian Intervention

Some Americans do not like to hear this. But wars have a cost. Countries usually emerge with high debt loads after a war, not before. The US with its budget deficit and relatively high debt load, dependency on foreign borrowing and future entitlement burdens, really cannot afford to not consider the cost of war. It is sometimes joked that if the US ever had a war with China, it would need to borrow the money from China to finance the war. (The follow up joke is that China would loan the US the money, so to hold down the value of the renminbi.) The job of global policeman brings no spoils of victory, no colonies, no looted treasure. Most of the world will hate the US and no one will send Washington any checks. The cost of modern warfare has risen astronomically. The cost of each tomahawk missile for example is reportedly as much as $1.4 million. The US military already is reportedly underfunded and overstretched from its Iraqi and Afghan adventures.

It is sometimes said that war is good for economies. No such argument can be made for an attack on Syria. Such an attack cannot be good for the stock market. (Of course it might be good for Raytheon which makes Tomahawks.) And if it leads to greater involvement in Middle Eastern conflicts, the cost could really rise. Countries generally underestimate the cost of wars. In 1914, the Kaiser and his minions figured the war would be short, the French would lose and they and the Russians would pay. It didn’t work out that way.

It is sometimes said that the US must intervene in the Middle East to protect the world’s oil supply. There may be occasions when that is true. But consider this. Obama can do so many things on the domestic front to improve global energy supply with zero cost and without following a shot. Like approving the Keystone pipeline. Like approving offshore drilling and drilling on Federal lands. Like stop wasting billions on dubious alternative energy, ethanol and mass transit projects.

 

The US as World Policeman

I cannot resist adding a few words on this subject. Volumes have been written on whether the world still needs one global hegemon or that one hegemon is inappropriate in the emerging mule-polar order that is the future reality. The UK with its Empire was the global hegemon in the nineteenth century. But with the British broke and the US still isolationist, no nations stepped up as global hegemon after WWI and the results were ultimately catastrophic. I think after World War II up until the fall of the Berlin Wall the US with some important exceptions performed the role of global hegemon admirably. Historians will credit the US for this. The US reconstructed the world monetary order via the Bretton Woods System, it helped rebuild ruined Europe via the Marshall Plan, it supported GATT to reliberalize world trade, and it held off the threat of Soviet expansion without starting a nuclear war. But with the fall of communism and the Soviet Union and the emergence of China, India and the rest of what used to be called the “third world”, the role, feasibility and moral authority of a single global hegemon are less clear.

In today’s twitter connected multipolar world, we all live in glass houses. It would seem that the UN Security Council is a more suitable candidate for assuming moral superiority in this world. Unlike after WWII, today it is somewhat ironic—perhaps anachronistic—to see the US unilaterally assume the role of global policeman against the wishes of the majority of the world’s nations and to assume high moral tones as does Kerry. The US’ policeman record does not qualify it for moral exemplar. The majority of US policeman interventions have had a huge cost to the nations involved. How can the US be judge and jury on the use of poison gas in Syria when children in Vietnam are still dying from US chemicals (Agent Orange) and unexploded ordinance from the incredible bombing in the so-called American War? What about the 2-4 million Vietnamese who died in the American War in Vietnam (on this subject see Kill Anything that Moves, a recently released book by Nick Turse). What about the hundreds of thousands (or more) who have died in the American invasion and occupation of Iraq? What about all the “collateral damage” in Afghanistan? Will the US be willing to accept hundreds of thousand Afghan refugees who supported it if the Afghan army collapses when the US withdraws next year? It is not that the US is worse than other nations. I would still argue it is probably better than most. And it still is the world’s most important economy and the world’s home for technological innovation. But in an imperfect, multipolar but interconnected world, moral superiority can only be assumed based on collective consensus.

On a more trivial level, I was recently in Hanoi. I stayed in the same venerable old French hotel that Jane Fonda and Joan Baez stayed in during the infamous Christmas bombing of 1973. The hotel has a fairly impregnable bomb shelter that Jane and Joan stayed in during the bombing. After the war the bomb shelter was covered over and forgotten. But several years ago the hotel found it could not expand its pool and bar because the rediscovered bomb shelter was in the way and could not be removed. The US should take responsibility.

 

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