Signals from the Depths.

Democratically-elected governments have been responding to the “Great Recession” by trying to cut public spending.[1] This is a throw-back to the initial—and disastrous—response to the “Great Depression” after 1929. It is a rejection of the subsequent Keynesian deficit-spending policies that eventually got countries out of the Depression. The “sequester” in place of more stimulus has dragged on American economic recovery since 2011; the Germans insist upon austerity in the European Union, and Japan’s parliament recently passed a higher consumption tax that short-circuited an attempt to stimulate growth there.

In the absence of spending programs, central banks have used, are using, or may be about to use purchases of long-term debt (called “quantitative easing”) to pump money into the economy. This is better than nothing.[2] The Federal Reserve Bank has just ended its buying of long-term bonds and has hinted at higher interest rates in 2015. Thus, it is signaling its belief that economic recovery is well underway in the United States.

Still, amidst all the talk about an improving American economy, there have been signs of new troubles ahead in the world economy.[3] By early October 2014, world prices for bonds, currency, and commodities were being read to suggest the possibility of a new global slowdown. It isn’t clear that there are any policy tools that could check this descent.

Economic growth should reduce un-employment. Over time, lower unemployment should lead to a rise in wages and to higher prices. However, all the major advanced economies seem headed toward low long-term interest rates. There appears to be a widely-shared belief among knowledgeable people that inflation is not going to fire up any time soon. Why would people believe this?

First, the value of the dollar has been rising against the currencies of Europe, Japan, South Korea, and Japan. You could read this as investors taking flight from those currencies to the security of currently stable dollars. This may reflect a belief that by investors that the world economy is headed downhill and that there aren’t any policy tools to control the descent.

Second, stocks and bonds usually move in opposite directions. In an expanding economy, money will flow toward stocks as investors try to share in profits and rising share prices. In a shrinking economy, money will flow to bonds as people try to avoid being stuck with stocks whose price is falling. Monetary policy usually seeks to keep interest rates low when the economy needs to be propped-up. Until that is shown to be working, investors will accept even low yields from bonds. The interest rate on 10-Year US bonds has fallen over the course of the year from 3.0 percent to 2.2 percent. Purchasers are bidding-down the interest on these bonds out of their eagerness to have them in their portfolio.

Third, the price of commodities has been falling. The price of crude oil is down 22 percent since the end of June. The price of corn futures has fallen by 31 percent since late April. Abundant production is forcing down prices. It comes at an awkward time for confidence in the world economy.

What do you do when unelected experts and private investors disagree with elected representatives on the best policy? What if the experts and investors are right?

[1] Neil Irwin, “What the Bank of Japan’s Surprise Move Means for the Global Economy,” NYT, 31 October 2014.

[2] Moreover, it pushes up the prices of assets, which are owned by upper income groups, better than it stimulates employment or raises wages. So, many voters find themselves preoccupied by inequality.

[3] Neil Irwin, “The Depressing Signals the Markets Are Sending About the Global Economy,” NYT, 15 October 2014.

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What we learned from the Report of the 9/11 Commission V.

Between 1996 and 1998, Bin Laden rebuilt al Qaeda in Afghanistan. However, “Pakistan was the nation that held the key to [Bin Laden’s] ability to use Afghanistan as a base from which to revive his ambitious enterprise for war against the United States.” (p. 95.) Pakistan is a failed democracy in which the army’s most recent intervention in politics had led to an appeal to Islamist sentiment as a form of legitimization. Pakistan also is a failed economy in which large numbers of refugees from the Afghan war were educated in Saudi-funded Wahhabist “madrasas” that taught religious fervor in place of life skills. Bin Laden had long-standing ties with Pakistan’s intelligence service. [NB: Which is scary when you think about the ties between the ISI and A.Q. Khan.]

Bid Laden was hurting for financial resources, a number of al Qaeda members or allies went off on their own on the assumption that he was in decline, and one of his chief operations people had died in a ferry boat accident on Lake Victoria.

Not everything was against Bin Ladin by any means. Most of Afghanistan was governed by the Taliban, a bunch of religious fanatics who thought that anything and everything OBL said made a lot of sense. While the Pakistanis may have wanted a friendly government in Afghanistan to give their country “strategic depth,” Pakistan also provided Afghanistan with the same sort of strategic depth against American retaliation. Afghanistan swarmed with terrorist-wannabes and jihadist from all over the Muslim world.   Various veterans of the war against the Soviets ran terrorist training camps, and supplied weapons, and arranged travel for jihadis. Donations from all over the Arab world, but especially from Saudi Arabia, kept most of these enterprises afloat. As one of the American counter-terroism people would later phrase it, “Under the Taliban, Afghanistan is not so much a state sponsor of terrorism as it is a state sponsored by terrorists.” (p. 263.)

 

Bin Laden revived his activities of the Afghan war and shared the results with the Taliban: the “Golden Chain” fund-raising system provided money and the recruiting system among Islamic fundamentalists provided manpower. Bin Laden seems to have creamed off the best of both for his own movement. (pp. 97-99.) Thus, the “Golden Chain” raised about $20-30 million a year. Al Qaeda paid the Taliban about $10-20 million a year for protection and support, so al Qaeda had about $10 million a year to spend on all his projects. (pp. 247-248.) Al Qaeda ran terrorist training camps in Afghanistan. About 70 percent of the people in the al Qaeda camps were Saudis; another 20 percent were Yemenis; and 10 percent came from various other places. (p. 336.) By 1998, after a year to a year-and-a-half of hard work, Bin Laden and al Qaeda were back in business.

Along the way, Bin Ladin renewed contact with Khalid Sheikh Mohammed. They had known each other in the Afghan war in 1987, but had not been in contact since 1989.

One thing worth noting is that Bin Laden was rebuilding al Qaeda at the same time that George Tenet was rebuilding the CIA. While bin Laden’s efforts were smaller than were those at CIA, they were also more tightly focused. Who would be ready first?

Thomas H. Kean and Lee H. Hamilton, The 9/11 Report: The National Commission on Terrorist Attacks Upon the United States (New York: St. Martin’s Press

Climate of Fear VIII.

In September 2014 the New York Times published a hard-headed essay by Robert Stavins, one of the authors for multiple reports by the UN’s Intergovernmental Panel on Climate Change.[1] He made some important points.

First, Americans first became sufficiently concerned about the environment to take action back in the late 1960s, when air and water pollution had become too obvious to be ignored. Then their attention turned to the issue of climate change during the 1980s and 1990s. Joining in a movement with other advanced economies, the United States signed a series of international agreements to reduce the emission of greenhouse gases. As a result of those agreements, emissions by these countries were held flat or even reduced.

Second, developing nations (China, India, South Korea, Mexico, Brazil, South Africa) refused to join in such agreements because their own industrialization is both carbon-fueled and essential to raise the living standards of their people. China leads this process: China produces 29 percent of the world’s annual carbon emissions and will pass the United States as the world’s leading total carbon emitter before mid-century. None of the developing countries want to check their own emissions because they fear that it will check economic growth. Their preferred solution is that the advanced countries restrict their emissions even more than they have to make space for the emissions of developing countries.

Third, unlike economists such as Robert Frank and Eduardo Porter (see: Climate of Fear II), Stavins doesn’t try to sugar-coat the costs of limiting emissions. The UN wants to hold the temperature rise to two degrees Celsius above the pre-industrial temperature. That would entail reducing carbon emission by 40 to 70 percent by 2050. Stavins argues that this would reduce economic growth by 0.06 percent per year from now to the end of the 21st Century. In total, that would cumulate to an annual reduction of economic activity of 5 percent.

Furthermore, even those predictions depend to some extent upon the rapid development of cheap alternative energy sources and technologies to limit emissions. Absent such cheap new technologies and the cost estimates are more than twice as high. Stavins appears skeptical that this will happen. Furthermore, cutting carbon emissions will require a large-scale use of nuclear energy and a world-wide carbon tax.

Fourth, the politics of meeting popular expectations raise a huge barrier to action. This isn’t a “democracy versus autocracy” issue. The rulers of China and India are sensitive to the economic aspirations of their people, even if they aren’t real democracies or democracies at all. Greenhouse gases are invisible and their impact is slow to show itself, rather than dramatic in form. So what if the people of the Seychelles have to take to the boats? Imposing costs immediately to avoid something bad in the future (or to someone else in the present) isn’t going to be popular anywhere. Similarly, the UN is just trying to limit the rise in temperature in the future, not to roll-back the 0.8 degrees Celsius rise that has already taken place. “If you make big sacrifices, then things will stay the way that they are now or get a little worse.” Try putting that on a bumper-sticker, then run for office.

Couple of things worth thinking about. On the one hand, is the best we can hope for a patchwork of wavering national efforts to limit emissions through administrative action? On the other hand, is there a way to make higher energy prices and more nuclear reactors palatable to voters? Or do we just adapt by drilling for deep water and moving back from the coasts?

[1] Robert N. Stavins, “Climate Realities,” NYT, 21 September 2014.

 

Climate of Fear VII.

Back in 1792, the Marquis de Condorcet was in hiding from some French Revolutionaries who wanted to cut off his head. To while away the time in a garret, he wrote an essay predicting the continual improvement of the human situation. Science would tell us more about the world, while education would make that knowledge widely understood and the emancipation of women would enrich the stock of human capital. A week later he was dead, but his philosophical essay continued to inspire optimists. In 1798, Thomas Malthus approached the issue of human progress from the hard-headed perspective of mathematics. Human population would always tend to run ahead of food supply. Most people would find their standard of living forced down to the bare subsistence level. Two intelligent people approaching the same question from two different perspectives arrived at radically different answers.[1]

Accept that global warming is real. What’s the worst that could happen? As was the case with Condorcet and Malthus, the answer depends on who is doing the imagining. Diane Ackerman, The Human Age: The World Shaped by Us (New York: Norton, 2014) is “enormously hopeful.” For one thing, humans have been remodeling the planet almost since they climbed down out of the trees. It has been one long Lowe’s project: dams, dikes, canals, logging, and moving life-forms (bacteria, plants, animals, people) from continent to continent. All of this even before the Industrial Age began. Human beings do stupid things, or smart things that turn out to have awkward, unforeseen consequences. However, human beings are also endlessly inventive when solving problems. Florida may become uninhabitable as the seas rise, but Florida only became inhabitable for large numbers of people in the first place through the invention of air-conditioning and insecticide. People will accommodate to a changing environment; new technologies will emerge to deal with new demands.[2]

Both Naomi Oreskes and Erik Conway, The Collapse of Western Civilization: A View From the Future (New York: Columbia UP, 2014) and Naomi Klein, This Changes Everything: Capitalism vs. the Climate (New York: Simon and Schuster, 2014) are less sanguine.[3] Klein argues that “we have not done the things that are necessary to lower emissions because those things fundamentally conflict with deregulated capitalism, the reigning ideology for the entire period we have been struggling to find a way out of this crisis.” Where will this lead? http://www.youtube.com/watch?v=5BmEGm-mraE Naomi Klein at least, urges a “Great Transition” away from capitalism that will solve not merely the climate crisis, but will also resolve a host of other social ills.

Nathaniel Rich, “Books: Feeling Our Rising Temperature,” NYT, 23 September 2014, D5.

 

So who is correct? Goldilocks. It’s likely to be worse than Ackerman expects, especially if you live in one of the fragile zones of the Earth. Human adaptivity will deal with the changes better than Klein, Oreskes, and Conway fear.

What is the most prudent response? Do what we can to limit the changes that will come, while creating an environment to stimulate adaptive responses and new technologies. Carbon taxes would be a good place to start. Raise the price of carbon. Let consumers and entrepreneurs—not governments—figure out how to respond.

[1] Julian Simon and Paul Ehrlich continued this debate in the late 20th Century.

[2] My own hope is to grow rich by building a marina and resort on Baffin Island.

[3] I suppose you could call them “Naomi-sayers.” Ha! Is joke.

 

The 9/11 Commission Report.

The 9/11 attacks took place in 2001.  The National Commission on Terrorist Attacks on the United States, commonly called the 9/11 Commission, issued its report in 2004.  Ten years on seems like a useful point at which to look back on the Report.

The historical “lessons” of the 9/11 Report have entered into the understanding of that “informed public” beloved of college professors and newspaper editors.  They shape much  American policy in the world.  They are worth examining if only on those grounds.

The Report also identified serious problems in American government and politics.  It defined a broad agenda for reform.  In this it resembles earlier American manifestos, like the journalism of the “muckrakers” in the Progressive Era and the reports on crime and violence, and on race relations that came out in the 1960s.  It is fair to ask, ten years on, how far have we come in reforming our problems?

I thought that I would spend some time  revisiting what we learned from the Report fo the 9/11 Commission.  Comments are always welcome.

What did we learn from the Report of the 9/11 Commission? III

Osama bin Laden seems to have encountered Sayidd Qutb’s philosophy through the tape recordings of a Palestinian evangelist named Abdullah Azzam, while attending Saudi Arabia’s Abdul Aziz University in the late Seventies. (p. 82.) Bin Laden adopted this worldview and only the conversion of everyone everywhere to his version of Islam would end his war with them. (pp. 76-77.)

Then the Soviets invaded Afghanistan in 1979 to support a threatened Communist regime. The Afghans fought back and devout Muslims from all over the world came to participate in the “jihad” against the Soviets. While the CIA channeled immense amounts of American aid to the “mujahideen through the Pakistani intelligence service (ISI), a parallel private network—the so-called “Golden Chain”—also raised money in Saudi Arabia and recruited fighters for Afghanistan. Osama Bin Laden and Abdullah Azzam played an important part in this latter effort.

At some point Bin Laden developed “a vision of himself as head of an international jihad confederation.” (p. 86.) When, in April 1988, the Soviets cried uncle and announced their plans to leave Afghanistan by the end of the year, Bin Laden and Azzam cast around for a new enemy to attack. Azzam argued for struggling to create a pure Islamic state in Afghanistan, then attacking Israel; Bin Laden argued for a global war. (p. 84.)

In fall 1989 Hassan al Turabi, an important Islamic fundamentalist leader in Sudan, invited Bin Laden to use Sudan as a base of operations. Turabi had a vision of Sunni and Shi’a putting aside their religious differences to make common cause against Israel and the United States. (p. 90.) Did Azzam oppose this move? On 24 November 1989 Azzam died in a car bombing. At the time, the bombing was attributed, but which now looks suspiciously like Bin Laden settling the debate.

Bin Laden then accepted al Turabi’s invitation. He sent men to begin buying property, while he himself returned to Saudi Arabia. Soon afterward, Iraq invaded Kuwait and threatened Saudi Arabia. A broad international coalition formed, led by the United States, to oppose a move that threatened the stability of the world oil market. Between August 1990 and April 1991 Bin Laden made himself deeply unpopular with the Saudi government by bitterly criticizing its decision to ally with the United States rather than calling on Islamic volunteers to oppose the invasion of Kuwait. By this time he was already profoundly anti-American. (p. 87.)

In April 1991 he escaped from Saudi Arabia and established himself in the Sudan. For the next few years Bin Laden worked hard at building covert international networks for finance and operations. He called his group al Qaeda. In this effort he seems to have had the strong support of Hassan al Turabi. The Sudanese leader created a “Popular Arab and Islamic Conference” as a forum for “violent Islamist extremists” who came to confer in the Sudan. Most of these groups forged links to al Qaeda. (p. 90.) Sudan also provided a safe haven for other terrorists who would attack surrounding Arab countries.

 

Thomas H. Kean and Lee H. Hamilton, The 9/11 Report: The National Commission on Terrorist Attacks Upon the United States (New York: St. Martin’s Press, 2004).

What did we learn from the Report of the 9/11 Commission? II

Westernized elites (lawyers, bureaucrats, soldiers) provided the leadership for the successful nationalist movements in the Middle East after the Second World War. The initial economic situation of the new states did not appear unpromising: “The established commercial, financial, and industrial sectors.., supported by an entrepreneurial spirit and widespread understanding of free enterprise, augured well.” (p. 79.) However, the secular variant of the new states failed to deliver on the extravagant promises made in the early period of independence. The governments of many new states followed policies that slowly stifled all economic progress.

In the Arab world the oil shocks of the 1970s inflicted grave damage in the disguise of a great blessing. The enormous profits proved transient, but the governments used them for efforts to transform Arab society that had long-term consequences. Governments spent heavily on “huge infrastructure projects, vastly expanded education, and…subsidized social welfare programs. Cronyism meant that lots of money stuck to members of the ruling elites, as well.

Modern medical care led to a soaring birthrate all across the Muslim world. This large, young population needed jobs to be created at a rapid rate, but the stagnant economies of all the Muslim states failed to fulfill their tasks. The result was the proliferation of angry, frustrated, aggrieved, half-educated or mis-educated young men. (p. 80.) Rather than yield power or turn to new policies, the ruling elites settled for repressing dissent.

When a sharp rise in population intersected precipitously declining oil revenues in the 1990s, the government had to sharply reduce spending. The generous programs of the early 1980s “established a wide-spread feeling of entitlement without a corresponding sense of social obligation.”   The later effort to cut spending “created enormous resentment among recipients who had come to see government largesse as their right.” (p. 79.)

Many people turned to religion. As is the case with Christianity, Islam has been subject to periodic reform movements that could be called “fundamentalist” or “revivalist.” One exponent of reform was the 14th century scholar Ibn Taimiyyah, who “condemned both corrupt rulers and the clerics who failed to criticize them. He urged Muslims to read the Qur’an and the Hadith for themselves, not to depend solely on learned interpreters like himself but to hold one another to account for the quality of their observance.” (p. 75.) NB: In short, Calvin’s Geneva.

In the 1940s, Sayyid Qutb, an Egyptian scholar had visited the United States at the behest of his government and returned to Egypt deeply estranged from everything Western. (pp. 75-76.) Qutb espoused a Manichaean worldview in which pervasive, corrosive “unbelief” (jahiliyya) among non-Muslims and Muslims alike threatened to overwhelm true belief. True believers had to fight the unbelievers by all means and to the death. (pp. 76-77.) “The extreme Islamist version of history blames the decline from Islam’s golden age on the rulers and people who turned away from the true path of their religion, thereby leaving Islam vulnerable to encroaching foreign powers eager to steal their land, wealth, and even their souls.” (p. 75.)

By the late Seventies and early Eighties there had arisen a powerful religious movement among young men in the Muslim world. Osama Bin Laden was inspired by a preacher in the late Seventies. Khalid Sheikh Mohammed became attracted to “jihadism” in the early Eighties. In the early Eighties “Hambali” became attracted to Islamist preaching in Malaysia. Young jihadis went to fight in Afghanistan (1980s), in Bosnia (1990s),

Thomas H. Kean and Lee H. Hamilton, The 9/11 Report: The National Commission on Terrorist Attacks Upon the United States (New York: St. Martin’s Press, 2004).