Long Game

But this may be changing

the shift in tone in U.S. trade policy is itself enough to suggest big changes, beginning with the idea that the United States actually will compete with the rest of the world in exports.

Japan’s economy, in 1990 and now, only depended upon international trade for approximately 15 percent of its GDP. For China, that figure is 36 percent, and that is after suffering the hit to exports from the global recession.

the United States has more disposable income than all of China’s other markets combined.

Beijing perceives the spat with Google and Obama’s meeting with the Dalai Lama as direct attacks by the United States

With the Democratic Party in the United States (historically the more protectionist of the two mainstream U.S. political parties) both in charge and worried about major electoral losses, the Chinese fear that midterm U.S. elections will be all about targeting Chinese trade issues.

Policymakers of the time realized that the prosecution of the war had suspended the depression, but few were confident that the war had actually ended the conditions that made the depression possible.

In fact, we are still using Bretton Woods, and while nothing that has been discussed to this point is wrong exactly, it is only part of the story.

Think back to July 1944. The Normandy invasion was in its first month. The United Kingdom served as the staging ground, but with London exhausted, its military commitment to the operation was modest.

The shape of the Cold War was already beginning to unfold. Between the United States and the Soviet Union, the rest of the modern world — namely, Europe — was going to either experience Soviet occupation or become a U.S. protectorate.

The Continental states — and even the United Kingdom — were not simply economically spent and indebted but were, to be perfectly blunt, destitute.

For the United States, the issue was one of seizing a historic opportunity.

The United States entered World War II late and the war did not occur on U.S. soil. So — uniquely among all the world’s major powers of the day — U.S. infrastructure and industrial capacity would emerge from the war larger (far, far larger) than when it entered.

The United States had to have not just the participation of the Western Europeans in holding back the Soviet tide, it needed the Europeans to defer to American political and military demands — and to do so willingly. Considering the desperation and destitution of the Europeans, and the unprecedented and unparalleled U.S. economic strength, economic carrots were the obvious way to go.

The United States would allow Europe near tariff-free access to its markets, and turn a blind eye to Europe’s own tariffs so long as they did not become too egregious — something that at least in part flew in the face of the Great Depression’s lessons.

The “free world” alliance would not consist of a series of equal states. Instead, it would consist of the United States and everyone else.

When loans to fund Western Europe’s redevelopment failed to stimulate growth, those loans became grants, aka the Marshall Plan.

And fast-forwarding to when the world went off of the gold standard and Bretton Woods supposedly died, gold was actually replaced by the U.S. dollar. Far from dying, the political/military understanding that underpinned Bretton Woods had only become more entrenched.

a crisis in the U.S. economy becomes global.

Relying on a currency that is not in the hands of a sovereign taxing power, but dependent on the political will of (so far) 15 countries with very different interests, does not make for a reliable reserve currency.

The French in particular look at the current crisis as the result of a failure in the U.S. regulatory system.

The Bretton Woods institutions — specifically the IMF, which is supposed to serve the role of financial lighthouse and crisis manager — proved irrelevant to the problems the world is currently passing through.

Fundamentally, the Europeans are not simply hoping to modernize Bretton Woods, but instead to Europeanize the American financial markets. This is ultimately not a financial question, but a political one.

The ultimate problem for Germany is that the moment the rest of Europe perceives that Berlin is looking out solely for its own national interests — such as when it refuses to put up money to save a eurozone member state — it ceases to be a viable European leader.

But the clock is ticking, and Europe’s demographic challenges are right around the corner. At that point, all of Europe will be so embroiled in domestic political, economic and social concerns that settling issues of leadership and power will be impossible, and that is if the EU even survives the coming crisis.

the United States was not actively involved in supporting Israel prior to 1967, yet anti-Americanism in the Arab world was rampant. The Arabs might have blamed the United States for Israel, but there was little empirical basis for this claim.

Note that the United States is interested in maintaining the balance of power. This means that the U.S. interest is in a stable set of relations, with no one power becoming excessively powerful and therefore unmanageable by the United States.

The United States, given its overwhelming challenges, is neither interested in Israel’s desire to reshape its region, nor can it tolerate any more risk deriving from Israel’s actions. However small the risks might be, the United States is maxed out on risk.

It may not be the most persuasive threat, but the fact is that Israel cannot afford any threat from the United States, such as an end to the intense U.S.-Israeli bilateral relationship. While this relationship might not be essential to Israel at the moment, it is one of the foundations of Israeli grand strategy in the long run. Just as the United States cannot afford any more instability in the region at the moment, so Israel cannot afford any threat, however remote, to its relationship with the United States.

In crude political form, this Whiggish inclination toward progress was encapsulated in the functionalist view retailed by Norman Angell around the turn of the last century, which held that countries that traded with each other would develop economic self-interests too intertwined to justify war.

If markets had come to play a more prominent part in the industrial West, it was not because markets had just been invented. It was because social and political systems had evolved in which powerful elites were willing to tolerate institutions that diffused economic power and weakened the state at the expense of private enterprise. This was the core meaning of liberalism in its original formulation.

The Crash of 1929, the subsequent economic slump and, particularly, the duration of the Depression took most contemporaries completely by surprise. Indeed, the uniquely severe catastrophe of the 1930s is so unusual that modern analysts should be cautious in drawing lessons from it.

Conventional wisdom tends to treat President Hoover as a clueless advocate of laissez faire who refused to stimulate the economy in the dramatic downturn. Franklin Roosevelt, on the other hand, was the heroic leader who both saved the day and transformed the American economy through his promotion of the New Deal. Conventional wisdom is still very much with us.

Hoover did not advocate “do-nothing” policies.

Roosevelt’s interventions were neither as thorough nor as systematically revolutionary as they have often been portrayed.

Above all, FDR’s worst policies were animated by a desire to repress business, by distrust of competition and a general disdain for the market. Those were, of course, precisely the qualities that made his policies extremely popular. FDR’s economic policies scored mixed successes at best, but his political strategy succeeded by any measure long before U.S. entry into World War II, and subsequent generations have not ceased to conflate the former with the latter.

So thoroughly has the West taken for granted the triumph of the more abstract liberal nation-state that its denizens must remind themselves how fragile its origins were and how little emotional loyalty it has commanded.

Even in America, where visceral support for individualism and self-reliance remains strong, this has always been so. In good times, economic systems are supported by inertia and utilitarian compromise that appeal to the broad center. In hard times abstract convictions tend to melt away. The American preference for the free market is neither as common nor as “American” as many suppose.

Seen as a reversion to older habits, the odd mix of regulation, make-work, intervention, protectionism, nationalism and (as in Germany and elsewhere) anti-Semitism that characterized the Western policy response to the Depression suddenly seems less like an incoherent flaying in all directions and more like elements of a uniform retrenchment in social relations.

It seems odd that humans in their day-to-day interactions think of buying or selling as the most natural of activities, recreating markets unprompted in the most dismal of circumstances. Yet there is something about the ideology of a market system, or of any generally decentralized order, that seems inconceivable to most people.

Economists have a hard time dealing with nationalism.

A severe economic crisis implicates the entire system of political economy, regardless of how narrow the source of that crisis may be. Thus those with long-simmering fears and resentments—as well as those with more venal or ideological motives—see crisis as an opportunity to strike out at the system.

Anti-market movements, whether pushed by Populists or Progressives in the United States or the various forms of socialism in Europe, took for granted that vigorous political action was the only way to impose order and bring social harmony to an unfettered market economy. But the specific remedies and the zeal with which reformers sought to repudiate the past belie ideological origins more than technocratic ones.

He had mastered the politics of trust.

Roosevelt deserves credit for largely resisting these ideological enthusiasms. On balance, he dealt with the crisis pragmatically and forthrightly.

If FDR had left out the high-flying rhetoric and only pursued an attenuated New Deal—namely the financial policies that economists now agree truly helped us out of the Depression—would he be as celebrated a figure as he is today? Not likely.

The end of World War II furnishes still more evidence that political images leave a wider trace in historical memory than actual policies.

Thanks to Truman we were once again moving in the direction of a competitive, open-access market economy. Had there been a lingering recession and a continuation of older, harmful regulations into the 1946–48 period, Truman, not his predecessor, would have been blamed. Yet Truman’s stellar reputation today owes nothing to his economic achievements, which most of those who today praise his foreign policy acumen know nothing about.

In any event, we would do well to bear in mind how important, yet also how unnatural, the modern system of impersonal finance and trade really is. If we would preserve that system as a basis for our prosperity, we must recognize that many of the regulatory solutions we apply to our current crisis may themselves induce responses that can generate new crises. History suggests, too, that fears of the market and the political pressures it generates will wax and wane as crises deepen or ease. Patience and prudence are, therefore, the best watchwords for government amid the many trials and errors we will surely endure in the months, and perhaps years, ahead.

large-scale systems based on anonymous exchange were a recent phenomenon.

If people like Max Boot want the United States to remain a militarily-dominant superpower, it strikes me that they ought to counsel the development of a social contract that will encourage people to accept the concomitant financial sacrifices over the long term.

In the end, of course, there is no question as to which country is more at risk. Israel is important to the United States, but it is not indispensable. The United States, on the other hand, is indispensable to Israel.

China’s first intelligence advocate was military theorist Sun Tzu who, in his sixth century B.C. classic The Art of War, emphasized the importance of gathering timely and accurate intelligence in order to win battles.

Since the time of Sun Tzu, perhaps the most successful Chinese spy has been the legendary Larry Wu-Tai Chin (Jin Wudai), an American national of Chinese descent who began his career as a U.S. Army translator and was later recruited by the MSS while working in a liaison office in Fuzhou, China, during the Korean War.

Chin had the same handler for 30 years, which means both agent and case officer had a high level of experience and the ability to keep all knowledge of the operation within narrow channels of the MSS. And the Chinese government never acted on Chin’s intelligence in a way that would reveal his existence.

(click here to enlarge image) Today, China’s intelligence bureaucracy is just that — a vast array of intelligence agencies, military departments, police bureaus, party organs, research institutions and media outlets.

For all his talk of reform -- and so far it is just that, talk -- Medvedev still claims that Russia is a working democracy that protects the liberties of individual Russians despite overwhelming evidence to the contrary.