Spengler

Spengler

April 21st, 2015 - 2:43 pm

How Americans became poor

Crossposted from Asia Times

Americans are poorer –poorer by half—then on the day Ronald Reagan took office in January 1981. By this I mean simply that the per capita income that Americans can expect to earn on their aggregate wealth is half of what it was in 1981. How did it come to this?

1981 2014
Nominal Wealth (Bns) $11,975 $97,067
Wealth in 1982 Dollars (Bns) $13,639 $41,107
Per Capita Wealth in 1982 Dollars $59,539 $128,457
Income Per Capita from Wealth, 1982 Dollars $9,387 $6,089

 

On paper, to be sure, the wealth of Americans has risen to $97 trillion in 2014 from $11.975 in 1981. After adjusting for inflation, wealth has tripled from $13.6 trillion in 1982 dollars to $41.1 in 1982 dollars. Adjusting for the growth in population, per capital wealth has doubled, to $128,457 per American in 1982 dollars from $59,539 per American in 1982 dollars.

If we were Scrooge McDuck, and enjoyed wallowing in a swimming pool filled with currency, there would be no problem. But people accumulate wealth in order to earn income. The incomethat Americans can earn on their wealth has shrunk, because prospective returns to capital have fallen. Long-term medium-grade (Moody’s Baa-rated) bond yields are the lowest in half a century.  At a yield of just 4.74% for long-term corporate bonds, the aggregate wealth of Americans would generate a paltry $1,903 per capital in 1982 dollars, against $3,965 per capital in 1981. In its capacity to generate income, the wealth of Americans stands at half the level of 1981.

1981 was a bit of an anomaly, because bond yields were extraordinarily high due to inflation and the Fed’s monetary tightening in response to inflation. But it’s clear from the chart below showing per capita interest income on the aggregate US private wealth that the great period of US wealth creation was between 1962 and 1975, when the Great Stagflation of the 1970s began. Since then, per capital income on wealth has fluctuated in the range of $6,000 to $8,000 1982 dollars.

There are two reasons that interest rates are so low. First, the Federal Reserve has kept short-term rates at the lowest level in history after adjusting for inflation since the 2008 financial crisis, and has added more than $4 trillion in bonds to its balance sheet. Both suppress the yield on all financial instruments.

baalong

Second, the prospective return on capital investments is low. We know this because US nonfinancial corporations have shifted from net borrowing during the 1980s and 1990s, to net lending during the 2000s. This is a long-term factor that monetary policy can’t change. Raising prospective return on capital would require drastic fiscal and regulatory reform.

netlender

US corporations can’t reinvest their profits in new projects, and overall economic growth remains at much lower levels than the growth rate that prevailed since the early 1980s. S&P corporations have doubled the amount of cash on their books in the past ten years.

cash

This corresponds to what Nobel laureate Edmund Phelps calls a “structural slump,” characterized by a downshift in the growth rate of GDP.

gdp5

tips

 

Two rounds of capital misallocation–the Internet bubble of the 1990s and the housing bubble of the 2000’s–dissipated the gains of the Reagan era. America might have gotten away with one decade of misspent capital. Two decades made Americans poor. It is a Shibboleth that free markets allocate capital efficiently. No such thing is the case: allocation of capital ultimately depends on investors’ vision of the future, and a vision of the future founded on (for example) downloading pornography, games and popular music was warped to begin with. That was the issue I addressed in the first “Spengler” column for Asia Times Online in January 2000: if Internet stocks were not a bubble, it would mean that American culture had become pathological. By the same token, uninterupted increases in home prices were not consistent with a declining rate of family formation.

Another hallmark of shrinking growth expectations is the collapse of the “real” interest rate, gauged roughly by the yield on inflation-protected government bonds.

The income available on assets has shrunk. The present value of assets has risen because shrinking future growth prospects has reduced the discount rate on assets. America’s prospective retirees, including the top 20% of income earners who own most of the assets, are rich on paper but poor in terms of income. That helps explain why the consumer spending boom forecast by the consensus macroeconomic model never materialized.

Note: Part of this essay was published by Reorient Group Ltd (“The US Savings Gap: Implications for Consumer Spending”).

Over at Mosaic magazine, Tikvah Fund president Eric Cohen offers an essay on the “Spirit of Jewish Conservatism” without, however, mentioning the subject of Judaism — that is, Judaism in the normative sense of observance of Jewish law and Torah study. This is pointed out in the most courteous manner by a distinguished Jewish public intellectual, Herzl Institute president Yoram Hazony, in a response published in Mosaic this morning. As Hazony explains:

I am troubled, however, by one central issue. I do not understand the absence of God and Scripture from Cohen’s list of central “values and ideas” that he wants Jewish conservatives to conserve. To me, if his ambitious vision is to succeed, these have to be positioned at the head of the line…

Everyone understands that the Jews came into the world to fight for certain principles and to teach certain things. Everyone understands that Israel’s God and the tradition handed down from Sinai are at the very heart of the matter, and until only very recently have been the basis of all subsequent Jewish moral and political thought. The question facing us is whether, in formulating a new conservative-Jewish “ideology” (Cohen’s term), we can afford not to place front and center the principles that undoubtedly form the core of Jewish teaching—and that have animated and preserved the Jewish people for the last 25 or 30 centuries.

I have had some minor quibbles with Yoram Hazony, but I offer him the heartiest “yasher koach” (“More power to you”) for his riposte. The liberal Jewish denominations, which long confounded Judaism with what they mistake for social justice, have discovered that one doesn’t have to be Jewish to be a liberal, and are at risk of disappearing as a result. Their congregants cease to be Jews, but remain liberals. Neither does one not have to be Jewish to be a conservative. There are, I argued in this space earlier this month, inherently Jewish reasons to be conservative, but that is a different matter.

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Appomattox, Through a Glass Darkly

April 14th, 2015 - 7:53 am

Crossposted from Asia Times:

Fittingly, the 150th anniversary of Lee’s surrender to Grant at Appomattox Courthouse fell on the sixth day of Passover, “the season of our freedom,” when Jews celebrate God’s eruption into human history to free them from Egyptian slavery. Appomattox denoted the end of the American Civil War, which claimed 750,000 lives. The equivalent number proportionate to today’s population would be 7 million. Understandably, Americans remain obsessed with the conflict, by far the bloodiest in our history.

The American Republic which the Civil War renewed, purged with blood of the stain of slavery, arose from a biblical vision of governance in the English Revolution of the 17th century, as Harvard’s Eric NelsonRabbi Lord Jonathan SacksRabbi Meir Soloveichik and others have shown.

For Jews, the primary goal of Passover observance is to make every Jew feel as if he personally had left Egypt with Moses and stood before Mount Sinai to receive the Torah. With respect to our Civil War, many Americans yearn to feel like participants. Europeans do not reenact the great battles of their wars, but thousands of Americans don blue and gray, learn to fire muzzle-loaders, and camp on the battlefields of the Civil War.

But for all the reenactments, films, books, ceremonies and memorabilia, Americans cannot place themselves inside the minds of the men who sacrificed themselves with such terrible abandon. Visitors to the Lincoln Memorial in Washington stare at the chiseled words of the Second Inaugural Address on the marble walls with as much comprehension as American tourists viewing hieroglyphs at Abu Simbel.

Our past may be lost to us, a matter of remote myth like the battles of the “fair-haired Achaians” in the eyes of contemporary Greeks. Perhaps we have become a different, lesser people, staring without comprehension at the relics of the race of giants that inhabited this land a century and a half ago. Perhaps we still can return to the moral grandeur of the generation of 1861. I do not know.

SNIP

America’s mission hung by a thread at the outbreak of the Civil War. Even Abraham Lincoln did not understand at the outset where the war would take him. As Richard Brookhiser observes, a religious conversion separates the Lincoln of the Gettysburg Address from the Lincoln of the Second Inaugural Address, with its explicit reference to a Providence that directs human affairs, and not necessarily in a way that men find congenial. The evangelical historian Mark Noll argues that Lincoln did not receive his theology from his religious contemporaries, but rather rediscovered it and taught it to them:

Views of providence provide the sharpest contrast between Lincoln and the professional theologians of his day. The American God may have been working too well for the Protestant theologians who, even as they exploited Scripture and pious experience so successfully, yet found it easy to equate America’s moral government of God with Christianity itself. Their tragedy – and the greater the theologian, the greater the tragedy – was to rest content with a God defined by the American conventions God’s own loyal servants had exploited so well.

The grandchild remembers what the father never learned, a Yiddish proverb has it; Lincoln, the grandchild of the American Founding, remembered what the preceding generation had forgotten. That offers us a modicum of hope in an age which has forgotten how to remember.

See the whole post here:

http://atimes.com/2015/04/appomattox-through-a-glass-darkly/

 

 

 

 

 

Iran through the eyes of Valerie Jarrett

April 12th, 2015 - 4:09 pm

Crossposted from Asia Times:

http://atimes.com/2015/04/iran-through-the-eyes-of-valerie-jarrett/

A battle over American foreign policy is looming such as this country has not seen since the penultimate days of the Vietnam War nearly half a century ago. I can’t remember the last time that two distinguished former Secretaries of State co-signed an article denouncing a presidential initiative in terms as harsh as George Shultz and Henry Kissinger applied to Obama’s proposed Iran deal. Kissinger was the great conciliator, the architect of the opening to China and the advocate of detente with Russia. Obama’s own party is split on the issue, and usually supportive commentators in the press view the outcome of the Lausanne talks with skepticism, if not out right hostility.

What explains the great gulf fixed between Obama’s perceptions and those of a large part of the liberal establishment, not to mention the Republicans?

One has to see the world through the eyes of African-Americans in the years after the Second World War to understand why Barack Obama and his inner circle cling with such passion to the prospect of peace with Iran. More than any other event, the war emancipated American blacks:more than a million migrated from the Deep South to the North, mainly to the industrial Midwest, to take industrial jobs vacated by white workers mobilized into the armed forces. Two million blacks were employed in defense industries: Men whose fathers were impoverished, marginalized sharecroppers became well-paid industrial workers. The first effective anti-discrimination laws were enforced by the Roosevelt administration in defense industries. Despite racial separation in the armed forces, 2.5 million blacks registered for the draft and 125,000 fought overseas, many with great distinction.

War buoyed the fortunes of black Americans, who had been freed from slavery in 1865 and betrayed by the post-Civil War reconciliation with the South. After black Americans proved in their millions that they would work and fight as well as their white counterparts, they were betrayed once again. President Harry Truman made desultory efforts to extend wartime anti-discrimination laws to the postwar economy, but had little effect in practice. To his credit, Truman ended segregation in the military in 1948, and blacks fought in the same units as white soldiers during the Korean War. Through African-American eyes, though, postwar America pretended that black wartime accomplishments had never happened.

A small but highly significant number of black intellectuals emigrated in disgust, including my namesake, Paul Robeson–my middle initial “P.” stands for Paul, for my late parents belonged to the Communist Party in the late 1940s. W.E.B Dubois (1868-1963), the distinguished sociologist and a late-in-life convert to Communism, died in self-imposed exile in Ghana. The writers Richard Wright and James Baldwin moved to France and remained there as expatriates. And Dr. James E. Bowman, trained as a physician by the U.S. Army during World War II, moved to Iran. According to his obituary:

“In those days,” he recalled in a 2006 interview for an oral-history project, “there was complete segregation. … One could only go to theaters, movies, restaurants in the black neighborhood.”

Still, Bowman said, he managed to get a “wonderful education” at Washington’s all-black Dunbar High School, where many of his teachers had PhDs from leading universities but were unable to secure college-level teaching positions….During this period, he met Barbara Taylor, the daughter of Robert Taylor, the first African American chairman of the Chicago Housing Authority. They married in 1950, two weeks after she graduated from Sarah Lawrence College. Barbara Bowman went on to become president of the Erikson Institute, a graduate program in child development…When his military obligations ended, the Bowmans decided to move overseas. “My wife and I decided that we were not going to go back to anything that smacked of segregation,” he recalled. He was soon offered a job as chairman of pathology at Nemazee Hospital, a new facility in Shiraz, Iran. “We were recently married, so we took a chance,” he said. “It changed our lives completely.”

In 1956, a year after moving to Iran, their daughter, Valerie, was born.

Valerie Jarrett, Obama’s mentor since his first days in Chicago politics, is heiress to this life-changing experience. On the right-wing fringe of American politics rumors abound that Jarrett is a Muslim. That is paranoid nonsense. Jarrett’s family, including her parents and future in-laws, moved in circles influenced by the American Communist Party. That should be no surprise. In those days everyone did. But Jarrett also has roots in the black Democratic establishment; a great-uncle was Vernon Jordan, the longtime head of the Urban League. Betrayed by an American government that required their services during the Second World War, and temporarily suppressed racial discrimination when black workers were needed in war industries, but left them at the mercy of Jim Crow when the war ended, a high proportion of black intellectuals identified with America’s adversaries. The most important and significant activity of the Communist Party during the 1940s and 1950s was in the field of civil rights. My parents were in the middle of it. In 1950, my father, then a PhD candidate in economics at Columbia, drove to Mississippi with a small group of left-wingers to protest the forthcoming execution of Willie McGee, a black man railroaded into a rape conviction. My first memory is of looking up at a circle of white and black faces. It must have been a meeting of the Edison Township, NJ chapter of the National Association for the Advancement of Colored People, which my parents helped to found. At the time there weren’t a lot of white Americans outside the Stalinist left willing to risk life and limb to fight racism.

In retrospect, one marvels at the motivation of the Oxford intellectuals who spied for Russia against their own country–Kim Philby and his fellow traitors. The African-Americans who abandoned America during the 1940s and 1950s hardly felt that it was their country to begin with. James E. Bowman got his medical education from the US armed forces, but he and his wife “decided that we were not going to to back to anything that smacked of segregation.” White Americans chose this country; black Americans were brought here in chains. The Civil War freed the slaves at staggering sacrifice, including 400,000 Union dead, but postwar politics consigned the freedmen to another century of fear, poverty and humiliation. The Second World War mobilized black Americans, brought them out of the rural south, and allowed them to prove their worth, and the postwar government abandoned them again. Exactly a century after the Civil War, black Americans gained equal status under the law in the Voting Rights Act of 1965, and a new black political class arose in proportion to black voting power. By that point US manufacturing employment already had peaked. Opportunities for economic advanced moved out of the manufacturing sphere into work that required university degrees, and black Americans were again left behind.

manuf

 

Black Americans felt betrayed again–if not by the oppression of law or custom, by the tides of economic change.

To Valerie Jarrett, Persia is a land of wonders, the kind country that offered hospitality to her parents after race hatred drove them out of America, the wellspring of a life-changing experience. Newsweek wrote in 2009:

The fact that Valerie Jarrett spent her early childhood in Iran made it easier to bond with Barack Obama. The subject came up the first time the two met, at a restaurant in the Loop area of downtown Chicago in 1991. Obama had grown up overseas—spending four years in Indonesia as a boy—and Jarrett was born in the ancient city of Shiraz, where her American father, a medical doctor, helped found the city’s first modern hospital. Valerie’s early languages were Farsi, French and “a little bit of English.” To this day, her favorite foods include lamb and rice with Persian spices. “If I walk into a house and I smell saffron, I’m happy,” she says.

In that first encounter, Jarrett recalls discussing with Obama how their years overseas helped shape their world views. “I guess the most basic way is by being around people who have such a broad diversity of backgrounds,” she says.

President Obama went much further than Ms. Jarrett in praising the culture of Muslim countries at the expense of the United States. He (or Bill Ayers) wrote in his autobiography Dreams of My Father, “And yet for all that poverty [in the Indonesian marketplace], there remained in their lives a discernible order, a tapestry of trading routes and middlemen, bribes to pay and customs to observe, the habits of a generation played out every day beneath the bargaining and the noise and the swirling dust. It was the absence of such coherence that made a place like [the Chicago housing projects] so desperate.”

One has to have been there, back during the death throes of American racism, to appreciate the residual rancor that views America as a malefactor, and views its “post-colonial” adversaries through rose-colored glasses. Iran, to be sure, is not a victim of imperialism, but the rump of an empire with irredentist ambitions that redefine megalomania.

I was there, albeit as a small child, and imbibed these intoxicants through my parents and the radical circles they moved in. America is the worst country in the world, except for all the others, I came to believe as an adult; with no illusions about America’s deficiencies, I believe America embodies the world’s hopes. When Chinese speak of the “Chinese dream,” they know they are paraphrasing the expression, “the American dream” — for we are the country where the right to dream first took root. Today’s Iran is not the fairyland of Valerie Jarrett’s childhood recollection, but a fey, fading remnant of a flawed empire, a case study in cultural necrosis. One can understand, and even empathize, with the emotional impulses that drive Obama’s camarilla. But there is no haggling with this current in American politics. One has to put a stake through its heart.

 

Riddle me this, fellow Republicans. An NBC survey April 9 reports that a huge majority (70%) of Americans doubt that Iran will abide by any agreement to limit its nuclear arms–but a majority (54%) still thinks Obama will do a better job than the Republicans in dealing with Iran!

A majority of Americans – 54 percent – trust Barack Obama to do a better job handling an agreement with Iran over its nuclear program, compared to 42 percent who say they trust the Republicans in Congress. But nearly 7 in 10 Americans say that Iran is not likely to abide by the agreement that has been reached.

Fifty-three percent think Iranian nukes are a “major threat,” and only 37% think they are a “minor threat.” Most Americans, in short, think Iran is a major threat to American security and think that Obama’s nuclear deal is a joke–but they still want Obama in charge of the negotiations, not us.

Maybe NBC made the numbers up. Maybe a proofreader got the numbers reversed. And maybe pigs will sprout wings.

There is a much simpler explanation: Most Americans don’t trust Republicans on matters of war and peace. Not after the nation-building disasters in Iraq and Afghanistan, that is. Why should they trust us? Our leadership has never admitted it made a mistake. Sen. Ted Cruz, to be sure, had the gumption last fall to say that “we got too involved in nation-building” and that “we should not be trying to turn Iraq into Switzerland”–and was excoriated for his trouble by the Bushies. The Republican mainstream is too busy trying to defend the Bush record to address the distrust of American voters.

One gets weary and grows shrill sounding the same note for a decade. I wish the problem would go away.  A couple of weeks ago a friend who served in senior defense positions in the Bush administration remonstrated, “Why do we have to worry about what mistakes were made back then?” The American public doesn’t remember a lot, but it does remember the disruption of millions of lives after the deployment of 2.6 million Americans in Iraq and Afghanistan–not to mention 6,000 dead, 52,000 wounded in action, and hundreds of thousands of other injuries.

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Here’s a chart for all my conservative friends who insisted that China would collapse of its own weight. As a good capitalist, I want to point out what the market thinks.

The popular China large-cap ETF, FXI, is up 31% over the past year vs. 12% for the S&P 500. The Shanghai Composite Index

China Large-Cap ETF FXI

China Large-Cap ETF FXI

 

Investors who bought the PEK ETF, which attempts to reproduce the performance of mainland-traded A-shares, earned 94% over the past year.

pek2

I’ve been bullish on Chinese stocks since December 2012, when I announced that they had rung a gong at the bottom of the Chinese market. More recently, my colleagues at Reorient Group and I produced a slide show on the Chinese economy arguing the case for optimism.

Markets can be stupid. Markets can produce bubbles. This is not a bubble. The Hong-Kong traded Hang Seng China Enterprise Index is trading at just 9.5 times earnings after the big run-up, about half the multiple of US or European stocks. China is growing more slowly than in the past, at about 7% a year, but 7% a year means the economy doubles in 10 years. There are real earnings to be bought at reasonable valuations.

hscei

China is not going to blow up politically. Its financial system isn’t going to collapse. China just scored the biggest diplomatic success in its history by persuading nearly 50 nations to join the new Asia Infrastructure Investment Bank despite US objections.

China might outstrip the West at innovation, as I argued in an essay for the British monthly Standpoint last September — not because China is better than us at innovation, but because we have stopped doing what we do best. Anyone who doubts this should read Thomas Edsall’s devastating indictment of the condition of American entrepreneurship in the New York Times. Think of it as the American hare and the Chinese tortoise. We’re goofing off and China is trundling along. This should be a “Sputnik” moment for the US. We need to take back the technological high ground. Otherwise we will join Great Britain among the ranks of former great powers. It isn’t baked in the cake, it isn’t the inevitable result of some grand historic cycle, it isn’t in our stars. We have a choice — for the time being.

Related: For the counter-argument, Steve Green asks if we should be ‘Preparing for China’s Collapse’ at his Vodkapundit column.

 (Thumbnail on PJM homepage created using a modified Shutterstock.com image.)

A Case for Preemptive War Against Iran

April 7th, 2015 - 9:54 am

Crossposted from Asia Times

 

Most of the great wars of the past would have been far less bloody had they begun sooner. That emphatically is true of the First World War: if Germany had launched a preemptive assault on France during the First Morocco Crisis of 1905, before Britain had signed the Entente Cordiale with France and while Russia was busy with an internal rebellion, the result would have been a repeat of the Franco-Prussian War of 1870 rather than the ghastly war of attrition that all but ruined Western civilization. It was a tragedy that the vacillating Kaiser Wilhelm II rejected the counsel of his general staff and kept the peace. I do not mean to impute moral superiority to Wilhelmine Germany, but to argue, simply, that swift victory by one side was preferable to what followed. It is hardly controversial to argue that Britain and France should have prepared for war with Germany and preempted Hitler’s ambitions no later than the 1936 re-occupation of the Rhineland.

The West likes to think that it has attained a higher plane of rationality, after the great blood-lettings of its past–the two World Wars of the last century, the Napoleonic Wars of the 19th century, and the Thirty Years’ War of the 17th century. This is a self-consoling delusion: it is not more rational, but only enervated. It confuses its own lack of interest in the future with moderation. Willful blindness about our own past blinds us to the character of the prospective combatants in the Middle East. In 1914 Europe had achieved an unprecedented prosperity, dependent on a web of commercial relations binding all the European nations into a single economic organism. The peoples of Europe had less to fear from hunger, disease, or domestic violence than any peoples in human history. Europe’s monarchies, moreover, were linked by family ties more closely than at any time in the past. Nonetheless the Europeans chose to eschew their prosperity and sacrifice themselves in now-incomprehensible numbers–for what? For each nation’s belief in its own Chosenness, as I argued in my 2011 book, How Civilizations Die.

Francesco Sisci argues that the economic development of the Eurasian continent under the benign influence of China’s “One Belt, One Road” program may be an important force for peace. That view was also expressed by China’s special envoy for the Middle East, Gong Xiaosheng. The question to ask is why Europe’s prosperity and economic interdependence failed to hinder the outbreak of the First World War. China’s view of the world is rational, but rational to a fault: the Chinese, who have created a civilization that has endured thousands of years by integrating different peoples and suppressing ethnic differences, fail to appreciate how irrationally the barbarians outside their civilization may behave. There is a path towards a Pax Sinica in the Middle East, I argued in 2013, but it requires the calculated use of Chinese influence to frighten the Iranians into behaving themselves. China has concentrated on economic diplomacy, and succeeded brilliantly in the case of the Asia Infrastructure Investment Bank, but I see no indication of a paralle effort in the realm of strategic diplomacy.

Some wars will happen, whether we want them to or not. They arise from the roots of national identity. The nations of Europe fought the First World War in the ultimately futile effort to avoid becoming what they are today, I wrote on the 100th anniversary of the outbreak of the First World War: “Men are immoderate. We are not as different from our fathers as we like to think. The childless, hedonistic Europeans of today are the same people who fought and died in their millions for king and country in 1618 or 1814. Anything worth living for is worth dying for; if we can think of nothing we would die for, it means that we have nothing to live for, either – like today’s Europeans. Europe learned at length that blood and soil, Kultur and Grandeur, were not worth fighting for. But Europe could find nothing to live for after it forswore the national gods of its violent past. It is dying of enervation and ennui, disgusted with its past and unconcerned for its future, unwilling to bring sufficient numbers of children into the world to ensure its survival for another century.”

Iran has not yet learned this lesson, and it will only learn it the same way the nations of Europe learned it in the past century. It may be that the ayatollahs are following an apocalyptic script that ultimately will lead to their mutual destruction in a nuclear war with Israel or one of their Sunni neighbors. I doubt that, and I do not think the issue is important. Iran’s position in the Middle East today parallels the position of democratic France in 1914: an ambitious power with grand ambitions at the cusp of demographic decline, whose last chance to assert its regional dominance is at hand. The German and French population were more less equal at the outbreak of the Franco-Prussian War in 1870; by 1913, Germany had grown by 70% while France had stagnated, probably because France was the first country to secularize.

germanyfrance

 

Anglo-Saxon historiography long has blamed Germany for the First World War, an easy conviction before the bar of history given its culpability for the Second. Christopher Clark has now shown in his bestselling book The Sleepwalkers  that Russia’s mobilization forced Germany’s hand. If one believes the memoirs of the French ambassador to St. Petersburg, Maurice Paleologue, France urged the Czar towards war. Four-fifths of France’s military age men were already mobilized in the eight months before the outbreak of war, against half of Germany’s. A war of attrition of sorts had already begun; France needed an early resolution because, unlike Germany, it could not sustain the costs continued mobilization.

Demographically, Iran is in a position comparable to that of France in 1914: its military-age population is now approximately half that of three most important Sunni states combined (Pakistan, Turkey and Egypt). By 2020 the ratio will shift to only one-fourth, due to the collapse of Iran’s fertility rate from 7 children per female in 1979 to only 1.6 in 2012. Its 125,000 Revolutionary Guards constitute the best fighting force in the region after overthrow of the Saddam Hussein regime in Iraq. Although Iran lacks a modern air force, it is the dominant land power in the Levant. Saudi Arabia’s new Sunni coalition is an attempt to respond to Iran’s depredations in Yemen and elsewhere, but the fractious and divided Sunnis are far from acting in concert. Pakistan is too preoccupied with India and its internal extremists to send soldiers on foreign adventures, and Turkey has no desire to commit to Saudi leadership in the region. Iran’s strength will peak during the next several years, especially if the lifting of sanctions gives it the money and authority to modernize its armed forces.

UN World Population Prospects (Low Variant)

UN World Population Prospects (Low Variant)

I do not propose to argue that belligerence is a mechanical function of demographics. The point, rather, is that all the factors that contributed to European bellicosity in 1914, and above all to German aggression in 1939, apply a fortiori to Iran: national messianism, the perception of historical injustice, the willingness to sacrifice arbitrary large numbers of lives, contempt for the humanity of neighboring states and–above all–the entirely rational perception that time is running out, and that an inevitable war with neighboring states will become impossible to win not very far into the future.

Even if the proposed agreement with Iran succeeded in suppressing development of nuclear weapons–in my view an unlikely outcome–it will given Iran the resources to prepare for the final settling of accounts with the Sunnis on what ultimately will be an horrific scale. If European diplomats were deluded in their attempts to maintain the balance of power in the years before World War I, today’s diplomats are mad to believe that a balance of power can be established between Iran and its Sunni neighbors. War is already joined in Syria, Iraq, Yemen, Somalia, Lebanon and Libya. War is not a choice. It is an event. If Iran were to triumph in the relative short-term, Sunni revenge would be all more terrible in the aftermath. A generation hence, a third of Iranians will be older than 60, the first time in all of history that a poor country will carry such an enormous burden of dependent elderly. The younger populations of its Sunni neighbors will overwhelm it. One has to go back in history before the Thirty Years War, perhaps to Tamerlane, to conceive of the carnage that this will cause. If Iran has nuclear weapons they will be used, and others will use nuclear weapons as well.

The balance of power in the Middle East fell apart when the United States forced a Shia majority government on Iraq through the elections of 2006. That was a catastrophic error. Nothing will quite restore it. But the next best thing, and the best alternative under the circumstances, is to suppress Iran’s ambitions and reinforce the conservative Sunni states as a bulwark against chaos. I continue to believe, as I have argued since 2005, that an American preemptive strike on Iran’s nuclear facilities is the best course of action.

*  *  *  *

Postscript, from Michael Morell, Acting and Deputy Director of CIA 2010-2013:

Last month, a senior adviser to Iranian President Hassan Rouhani spoke at a conference in Tehran on “Iran, Nationalism, History, and Culture.” The adviser made clear that Iran’s ambition is to become a regional hegemon — in short, to reestablish the Persian empire…

The adviser, Ali Younesi — who was head of intelligence for former president Mohammad Khatami — told conference attendees, “Since its inception, Iran has [always] had a global [dimension]. It was born an empire. Iran’s leaders, officials and administrators have always thought in the global” dimension.

Younesi defined the territory of the Iranian empire, which he called “Greater Iran,” as reaching from the borders of China and including the Indian subcontinent, the north and south Caucasus and the Persian Gulf. He said Iraq is the capital of the Iranian Empire — a reference to the ancient city of Babylon, in present-day Iraq, which was the center of Persian life for centuries.

“We are protecting the interests of [all] the people in the region — because they are all Iran’s people,” he said. “We must try to once again spread the banner of Islamic-Iranian unity and peace in the region. Iran must bear this responsibility, as it did in the past.”

Crossposted from Asia Times

When How Civilizations Die (and Islam is Dying, Too) appeared in late 2011, most of the conservative media reviewed the book, and in most cases positively; the liberal media considered it an anti-social gesture and ignored it. A Hebrew edition appeared in late 2013, and was well-reviewed in the Israeli press, including Israel Hayom and the Jerusalem Post, with a major exception, the liberal daily Ha’aretz. Now Dan Tamir offers a notice in Ha’aretz (along with a review of Salomon Wald’s “The Rise and Fall of Civilizations: Lessons for the Jewish People”). For the most part Tamir offers a coherent summary of my argument accompanied by quibbles, and accuses me of writing the book to justify a attack on Iran. That is not the only (or the main reason) I wrote the book, but Tamir has a fair point: the most urgent strategic conclusion of “Civilizations” is that the United States does not have the power to fix countries that are intent on destroying themselves (and a good deal else around them). What Andreas Lubitz was to commercial aviation, Iran is to the Middle East: a nation engaged in collective suicide, but in such a way as to threaten the existence of its neighbors, including the Sunni Gulf States as well as Israel.

We need strategists who can add and subtract, as well as read and write. Mr. Tamir may abhor my conclusions, but neither he nor anyone else has had offered a word of refutation of my presentation of the simple demographic facts of the matter. No-one has accused me of manipulating or misinterpreting the numbers; my critics simply have ignored the elephant in the parlor, namely Iran’s catastrophic demographic decline.

Iran has an apocalyptic regime with a great deal to be apocalyptic about. As I have argued in these pages since 2005, no poor country in the entire troubled history of the world has seen its fertility rate plunge from 7 children per female just one generation ago to only 1.6 children per female today. There is no explanation for mass rejection of a nation’s demographic future except for deep cultural pessimism. Islamism, whether of the Sunni variety propounded by Sayyid Qutb or the Shia version of Ayatollah Khomeini, rejects modernity, which it views as corrosive of Muslim society. Iran had the misfortune to be the most modernized Muslim nation (thanks to the Shah’s commitment to universal female literacy), as well as the most backward in ideology under the Islamic Republic. Its unsuccessful engagement with modernity has left a childless country plagued by social pathologies, including some of the world’s highest rates of opium addiction, venereal disease, and prostitution.

As a matter of arithmetic, Iran will have an elderly dependent ratio worse than Europe or the United States one generation from now, with one-tenth the per capital GDP. Demographic problems which barely are soluble in rich countries are a death sentence for a poor country. This is a train wreck that cannot be averted. Even in the unlikely event that Iran were to raise its fertility rate through incentives to families (as it recently proposed to do), it will have negligible impact on the rapid aging of its population and the ensuing collapse of its economy. The chart below uses the constant fertility projections of the United Nations Population Prospects, which readers can generate for themselves here.

Population Over 60, Iran vs. the United States

Population Over 60, Iran vs. the United States

As a matter of arithmetic, Iran can sustain a third of its population as elderly dependents only by acquiring the wealth of its neighbors, for example, Eastern Province of Saudi Arabia, which has a Shia majority, and where Iran already is attempting to subvert the Saudi monarchy. That is why Iran is aggressive, and why no negotiation will contain it.

Ha’aretz, I presume, got around to attacking my book 14 months after the Hebrew edition appeared because it has had some influence in Israel. I do not make recommendations to the Israeli goverment; I am an American, not an Israeli, and I make recommendations to my own government. My recommendation to the American government since 2006 is the same as the one that former UN Ambassador John Bolton made in the New York Times March 26: destroy Iran’s nuclear capacity through air strikes. Reasonable people may disagree with this conclusion. But I still would like to hear someone disagree with my arithmetic.

Why Are Jews Liberal?

April 1st, 2015 - 11:09 am

Liberals believe that social engineering can bring about universal success; conservatives want to foster individual responsibility and initiative. For liberals, the failure of an individual is a failure of society; for conservatives, individuals should be allowed to succeed or fail on their own merits. There are degrees, of course; most conservatives eschew Social Darwinism or Ayn Rand’s egotism, and most liberals do not believe in the strict application of the Communist maxim, “from each according to his abilities, to each according to his needs.” But that is the bright line that divides us conservatives from the liberals.

Why are (most) Jews liberals? That is a trickier question than it might seem. The usual explanation is that Napoleon freed the Jews from the ghetto, and Jews ever since have looked to the secular enlightenment as the source of their welfare rather than the often oppressive attitudes of traditional society. The European Socialists in general advanced Jewish interests while European conservatives in general impaired them. Without the French socialists (during the brief postwar premiership of Leon Blum), Britain almost certainly would have arranged for a successful Arab invasion of Palestine to crush the State of Israel in the cradle. There is something to that, but not enough.

Judaism, as historian Paul Johnson once observed, balances individual and collective. Christians who observe an Orthodox Jewish service will be struck by apparent lack of cohesion. During the preliminary reading of Psalms, worshipers proceed at their own pace, sometimes singing lines out loud. When the congregation stands, individuals will rise and sit down at their own pace rather than as a group. The recitation of the Eighteen Benedictions, the prayer at the center of each Jewish service, is an individual audience with the Lord, and some congregants will remains standing even after the leader begins the public repetition; latecomers will stand and recite after the service has moved on. A derogatory German expression cites “Geschrei wie in einer Judenschule,” or screaming as in a synagogue, referring to the occasional cacophony. There are to be sure moments when the congregation speaks as one. When the congregation declares the Shmah (“Hear!”), it does so in two parts: the first (Deut. 6:4-9) is written in first person singular, and the second (Deut. 11:13-21) restates the same themes in first person plural.

In that respect Judaism is in inherently conservative. Christians enter the Church together as Gentiles to be inducted into Israel, and although they are adopted as individuals, they worship as a body; Jews are already members of God’s people and go to synagogue for a private audience with Almighty as well as collective functions. Jewish law provides for the poor, but the prophets want every man to sit under his own vine and fig  tree — not the vine and fig tree of a collective farm. And the 10th Commandment specifically forbids a Jew to covet anything of his neighbors (as the rabbis observed, it reads “do not covet, covet,” the only one of the Decalogue to use the emphasis of repetition).

That’s the problem: The vulnerability of the conservative model, as de Tocqueville observed in 1835, is that the losers will use their political power to expropriate the winners and vote themselves rich. It is a proud and self-confident people indeed that is composed of individuals willing to accept failure, pick themselves up, and try again, rather than coveting the success of the winners. If popular jealousy erupts against the success of one’s own countrymen, all the more so will it be directed against a minority.

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Author:  March 29, 2015 1 Comment

Never in the history of American foreign policy has so much egg adhered to so little face as in the matter of Asia Infrastructure Investment Bank. All of America’s allies, including Britain and Australia, have elected to join the Chinese-led institution. That is a grand validation of China’s One Belt/One Road vision for infrastructure upgrades across the whole Eurasian landmass. China’s President Xi Jinping envisions $2.5 trillion of trade between his country and the “Silk Road” nations over the next decade. Rather than fret about the impact of a slowing (or shrinking) world economy on China’s export-driven prosperity, China is seeking to shape the economic environment around it.

It is not only the Obama administration that has been wrong-footed by the world’s embrace of China’s economic ambitions, but almost the whole of America’s foreign-policy elite. With almost no exceptions, American analysts have misunderstood China. One school argues that China inevitably will collapse of its own weight, because authoritarian governments supposedly are incapable of efficient allocation of resources; another warns of a Chinese plan for world domination.

A March 20 Wall Street Journal editorial proclaimed, “China Trounces U.S. ‘Smart Power,’ but expresses sour grapes over the outcome:

The AIIB is likely to enhance China’s influence far more than it will help its supposed beneficiaries. Poor regimes willing to stay on Beijing’s good side will earn cheap loans on lax terms, but the bank will promote a version of China’s state capitalism, not transparent markets.

Gresham’s Law applies to economic development: Bad money drives out good. Ports, bridges and other public works funded by artificially cheap capital, with poor or corrupt oversight, become boondoggles that burden states with debt, raise default risks and often stifle productive private investment. The trillions of dollars Asia needs for public works will never materialize unless private investors see reliable, non-corrupt opportunities for returns. Easy public loans that perpetuate cronyism don’t help.

One would like to ask the Journal editors where in the world they observe an efficient model of private infrastructure investment. American infrastructure is miserable compared to Asia’s newly built roads, trains and bridges, as any traveler who has the misfortune to land at JFK or O’Hare will attest. There is a reason for this: A journeyman bricklayer working on any federally-supported building project in Essex Country, New Jersey is expected to earn $67.26 an hourunder the Davis-Bacon Act. That’s $134,520 a year without overtime. American public works projects cost the moon and take forever because they are run for the benefit of the construction unions. American politicians are as terrified to touch this torpedo as their French and Italian counterparts are terrified to amend protective labor laws in their countries. New York City expects to complete its Second Avenue subway line by 2029 at a cost of $17 billion, or 22 years after ground was broken. China builds whole subway systems for cities the size of New York in a year.

Infrastructure is one of China’s great achievements. As the New York Times observed in a Sept. 13, 2013 report, China’s high-speed rail system already serves more passengers than the 54 million Americans who board domestic flights every day, and has transformed China’s economy. With 600 million Chinese migrating from the low-productivity countryside to higher-productivity employment in urban areas, the high-speed rail network has made business ventures possible that were not conceivable before.

A generation of American China-watchers is growing old waiting for China’s economy to crash. There is a parallel thesis, propounded most recently by Brookings Institution scholar David Shambaugh, that China faces a “coming crack-up” for political reasons. It is true that President Xi’s anti-corruption campaign has upset a large part of China’s political elite, but that is not necessarily a sign of political weakness. On the contrary: it is hard for any constituency to oppose Xi on grounds that he has impinged on its parochial interests. Many of China’s economic reforms, moreover, force transparency upon precisely those sectors of the economy that most lent themselves to corruption. The trillion-yuan swap of provincial debt for the obligations of Local Government Financing Vehicles, for example, begins the slow process of shifting provincial infrastructure financing from locally-arranged land sales to tax-financed bonds on the Western model.

A minority of American analysts hold that China will succeed, and that its objective is world domination. That is the nub of Michael Pillsbury’s new book The Hundred-Year Marathon: China’s Secret Strategy to Replace America as the Global Superpower. This I characterized as the “Fu Manchu” theory of Chinese intentions, The leading Chinese news site sina.com had a great deal of fun with this idea, and translated my notice with copies of the covers of the old Fu Manchu novels. Dr. Pillsbury, in fairness, is a serious scholar, and the sensational title of his book doubtless is due to a mercenary publisher Jonesing for impulse purchases. Nonetheless, as I wrote in Asia Times, “China is not planning to take over the world. It doesn’t want the world. It doesn’t like the world – that is, the world outside of China. Unlike Greeks, Romans, Muslims, and European imperialists, it does not want to plant its flag outside its borders, send its young men to conquer and defend new territories, or subject other peoples to colonial rule. Nonetheless, it may inherit the world, reluctantly and by default.”

What should America do in response to a rising China? It is futile and ultimately humiliating to attempt to contain China, as the Obama administration discovered in the case of the AIIB. America should do what it does best, or rather, what it used to do best: Widen the technology gap between America and the rest of the world. That gap is now closing rapidly as a new generation of Chinese entrepreneurs and scientists comes of age. It is closing in part because America’s commitment to basic R&D has faltered.

As Dr. Henry Kressel, former head of RCA Labs, and I wrote in 2013 in American Interest:

One critical but often underrated factor in productivity growth is the impact of basic R&D stemming from aerospace research and development. Between 1952 and 1964, as the Eisenhower and Kennedy Administrations responded to Russian development of nuclear weapons and space flight, R&D spending rose by more than an order of magnitude. During the Johnson, Nixon, Ford and Carter Administrations, though, Federal R&D spending grew very little. When America shifted budget priorities toward increasing Federal entitlements and funding the Vietnam War, Federal R&D spending declined. It rose, although not as fast as during the 1950s and 1960s, during the Reagan Administration under the impetus of the Strategic Defense Initiative and the rearmament program.

America’s response to Sputnik set in motion the eventual productivity recovery of the 1980s, with the fastest rate of increase of federally funded R&D in the nation’s history. It is difficult to identify the fundamental research component in overall R&D spending, to be sure, but a rough proxy is the percentage of Federal R&D spending. The Defense Department, NASA and the Department of Energy have provided a disproportionate share of funding for research with long-range objectives in basic science as opposed to incremental improvements on existing technologies. Federal R&D spending has fallen from nearly 2 percent of GDP in 1963, at the height of the Cold War and space program, to less than 1 percent during the past two decades. That may not sound like much, but as with falling infrastructure investment, 1 percent compounded over a decade or two is a very significant number.

America should be reliving the Sputnik moment of 1957, when Russia’s first space flight prompted a big shift in resources towards science education and basic R&D. America also should make it easier for foreign students (who comprise a disproportionate share of our scientific and engineering student body) to settle in the U.S. and obtain funding for new ventures. China and the United States never will be allies, and probably won’t be friends, but the world’s two largest economies can compete peacefully for the high ground of technological innovation. That’s what America once did best. If America can’t sustain its commitment to innovation, its complaints about China’s ascendance will be futile.

 

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