Belmont Club

Does business as usual work?

Here are links to two articles suggesting that conventional wisdom in both the political and financial spheres no longer works. First, we have Michael Totten’s interview of Robert Kaplan describing what I think may be the Abyssinian campaign of our time: Sri Lanka. The Abyssinian crisis of 1935 convinced many that the League of Nations had failed. Now Sri Lanka may have shown that force and territorial expansion is once again a viable force in international politics and that the UN, if not as moribund as the League of Nations, may be in danger of becoming so.

MJT: So you just got back from Sri Lanka. What did you see there? What did you learn?

Kaplan: The biggest takeaway fact about the Sri Lankan war that’s over now is that the Chinese won. And the Chinese won because over the last few years, because of the human rights violations by the Sri Lankan government, the U.S. and other Western countries have cut all military aid. We cut them off just as they were starting to win. The Chinese filled the gaps and kept them flush with weapons and, more importantly, with ammunition, with fire-fighting radar, all kinds of equipment. The assault rifles that Sri Lankan soldiers carry at road blocks throughout Colombo are T-56 Chinese knockoffs of AK-47s. They look like AK-47s, but they’re not.

What are the Chinese getting out of this? They’re building a deep water port and bunkering facility for their warships and merchant fleet in Hambantota, in southern Sri Lanka. And they’re doing all sorts of other building on the island.

Now, why did the Chinese want Sri Lanka? Because Sri Lanka is strategically located. The main sea lines of communication between the Bay of Bengal and the Arabian Sea, and between the South China Sea and the Indian Ocean. It’s part of China’s plan to construct a string of pearls – ports that they don’t own, but which they can use for their warships all across the Indian Ocean.

Sri Lanka defeated, more or less completely, a 26 year-long insurgency. They killed the leader and the leader’s son. But there are no takeaway lessons for the West here. The Sri Lankan government did it by silencing the media, which meant capturing the most prominent media critic of the government and killing him painfully. And they made sure all the other journalists knew about it.

MJT: Wow.

Kaplan: There are a thousand disappearances a year in Sri Lanka separate from the war. Journalists are terrified there. The only journalism you read is pro-government. So that’s one thing they did.

The Tamil Tigers had human shields by the tens of thousands, not just by the dozens and hundreds like Al Qaeda. They put people between themselves and the government and say “you have to kill all the people to get to us.” So the government obliged them. The government killed thousands of civilians.

MJT: Tamil civilians?

Kaplan: Yes. They killed thousands of civilians in the course of winning this war. It acted in a way so brutal that there are no lessons for the West.

Read the Whole Thing. The second item of interest is an interview by Naseem Talem at CNBC which argues from the bad job numbers that we are not seeing “green shoots” and that the financial system isn’t ever going to see “green shoots” because the financial system as we know it is crashing, breaking itself into another form because the current form is no longer sustainable and that consequently”stimulus” efforts will never save it.

“We’re in the middle of a crash,” Taleb said. “So if I’m going to forecast something, it is that it’s going to get worse, not better.”

The government needs to deleverage debt and not try stimulus packages that will inflate assets, he said.

“What makes me very pessimistic in not seeing any leadership or awareness on parts of government on what has to be done, which is deleverage $40-to-$70 trillion,” Taleb said.

Francis Cianfrocca in an article entitled, Forget the Green Shoots: They’re Just Weeds also makes the argument that things aren’t necessarily going to get better.

The key theme to both the Sri Lanka story and the Taleb interview is that policy makers may no longer understand what they’re doing. They’re doing the wrong things, pulling the wrong levers, because they assume the continuation of rules which have already changed forever. At a time when Barack Obama’s administration and Gordon Brown’s in the UK are arguing that what they’re doing isn’t working because they haven’t done enough, it is important to ask a more basic question: are they doing the right things? For all its cosmetic “youth”, Obama’s is actually a sump of very old ideas; a collection ideas that were “progressive” during the New Deal; that were someday going to be proven in the “future” despite all their failures in the past but which now, in 2009, are already has-beens before they were ever prime. That hypothesis might explain why things aren’t working, however harder we try. Is Barack Obama the Norma Desmond of American politics? Maybe if you get close enough to his ideas you’ll see, not a new star, but a very old one who is now ready for her close-up; ready for stardom unware that the “silent movie” era is over.

Are we headed for a world “without nuclear weapons” destined to be governed by institutions like the UN and the EU? A world in which C02 removal, gender equality and finding everyone a green job are the main concerns? If so then the current administration’s policies make sense. Or are we heading for a far more uncertain time when brute force again becomes dominant in international politics and when economies are restructuring themselves radically despite attempts to smooth them out? In that case we are headed for interesting times.

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