What’s Next in the Middle East?

While the missiles, planes and rockets fly over Gaza and Israel, both Hamas and the Israeli government have been engaged in a battle of social media.

Hamas:

And Israel:

It is a battle to shape the perceptions of the rest of the world.

The IDF appears so far to have the upper hand in terms of social media, having notched up 143,000 followers on Twitter, although Hamas’ al-Qassam Brigades are in swift pursuit having just climbed above 20,000 followers.

Yet to view this as a simple conflict between Hamas and Israel is too superficial. It ignores the history and the context. This is a much bigger and broader tapestry.

Glenn Greenwald writes:

Israel‘s escalating air attacks on Gaza follow the depressingly familiar pattern that shapes this conflict. Overwhelming Israeli force slaughters innocent Palestinians, including children, which is preceded (and followed) by far more limited rocket attacks into Israel which kill a much smaller number, rocket attacks which are triggered by various forms of Israeli provocations  — all of which, most crucially, takes place in the context of Israel’s 45-year-old brutal occupation of the Palestinians (and, despite a “withdrawal” of troops, that includes Gaza, over which Israel continues to exercise extensive dominion). The debates over these episodes then follow an equally familiar pattern, strictly adhering to a decades-old script that, by design at this point, goes nowhere.

And Michael Chussudovsky writes:

On November 14,  Hamas military commander Ahmed Jabari was murdered in a Israeli missile attack. In a bitter irony,  barely a few hours before the attack, Hamas received the draft proposal of a permanent truce agreement with Israel.

“Hours before Hamas strongman Ahmed Jabari was assassinated, he received the draft of a permanent truce agreement with Israel, which included mechanisms for maintaining the cease-fire in the case of a flare-up between Israel and the factions in the Gaza Strip.”(Haaretz, November 15, 2012)

F-16 fighter planes, Apache helicopters and unmanned drones were deployed. Israeli naval forces deployed along the Gaza shoreline were involved in extensive shelling of civilian targets.

While Israel continues to enforce extreme restrictions on the lives of Palestinians, it has been inevitable that organisations like Hamas who promise resistance against Israel and Zionism will thrive. And while Hamas has thrived, Israel has continued to impose sanctions and restrictions. Both sides have been locked into a cycle of brutal retaliation (and a particularly suicidal cycle for the Palestinians).

In the latest skirmishes, Hamas has inflicted three Israeli casualties in rocket strikes, the Israeli military has already assassinated two high level Hamas commanders, and carried out successful strikes on dozens of Gazan targets resulting in thirty deaths.

But Israel and Hamas share a deeply interwoven history. The WSJ notes:

“Hamas, to my great regret, is Israel’s creation,” says Avner Cohen, a Tunisian-born Jew who worked in Gaza for more than two decades. Responsible for religious affairs in the region until 1994, Mr. Cohen watched the Islamist movement take shape, muscle aside secular Palestinian rivals and then morph into what is today Hamas, a militant group that is sworn to Israel’s destruction.

Instead of trying to curb Gaza’s Islamists from the outset, says Mr. Cohen, Israel for years tolerated and, in some cases, encouraged them as a counterweight to the secular nationalists of the Palestine Liberation Organization and its dominant faction, Yasser Arafat’s Fatah. Israel cooperated with a crippled, half-blind cleric named Sheikh Ahmed Yassin, even as he was laying the foundations for what would become Hamas.

And co-operation has continued between Hamas and Israel, even while they throw rockets at each other, and even while Hamas continues to receive funds and weapons from Israel’s major rivals, including Iran. Upon Ahmed Jabari’s killing, Haaretz noted:

Israel killed its subcontractor in Gaza.

The political outcome of the operation will become clear on January 22, but the strategic ramifications are more complex: Israel will have to find a new subcontractor to replace Ahmed Jabari as its border guard in the south.

Co-operation between Hamas and Israel should not be surprising. The two factions of hardliners — on one side Hamas, and on the other side Netanyahu’s coalition — validate each other’s existence. Without a state of perpetual enmity, the hardliners would find themselves marginalised. Nothing strengthens Hamas in Palestine like an Israeli rocket attack, and nothing strengthens Likud and Yisrael Beitenu in Israel like a Palestinian rocket attack.

However, Israel’s co-operation with Hamas may now be at an end. The surprise strike on Jabari may well be a sign that Hamas is to be cast aside and driven out of Gaza. This seems like the beginning of a new era in the middle east.

Now that the American election is out of the way, Netanyahu may be stepping toward engaging with Iran.

John Glaser, writing for AntiWar.com lays out one theory:

Israel, lest we forget, instigated this resumption of missile exchanges last week when two Palestinian civilians were shot and killed and Israeli tanks intruded into Gaza, prompting Gaza militants to respond by targeting Israeli soldiers, which then gave Israel an excuse to unleash successive airstrikes. And Israel had numerous chances to pacify the situation, considering Hamas publicly offered to establish a total ceasefire and Egypt appeared about to broker a truce between the two. Israel has intentionally inched towards escalation from the beginning. Are we to believe this isn’t strategic?

A ground invasion, and a reoccupation of Gaza by the IDF could be the first step toward engaging Iran. It would allow for Israel to dislodge Hamas, and create a buffer between Israel and Egypt, and the forces of the Muslim Brotherhood. The Morsi government in Egypt has pledged to support the Palestinians — but is this a bluff? Does Egypt have the capability or the desire to really oppose Israel? Does Iran really have the capability or the desire to oppose Israel in a more active way? Ultimately, Iran may have no choice, as Netanyahu is certain that they are on the nuclear threshold.

The world is in motion. Israel is playing its cards. The intent? To create facts on the ground that cement Israel’s position as the dominant power in the middle east for the next century.

Now, Iran’s move.

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Dagan vs Netanyahu

Binyamin Netanyahu recently slammed critics of a pre-emptive strike on Iran as “having set a new standard for human stupidity”.

Yet Netanyahu’s view is not shared by all Israelis. In fact, there are some very prominent Israeli critics of Netanyahu’s view. Meir Dagan, the former head of the Israeli intelligence service Mossad, says that an attack on Iran would be the “stupidest idea I’ve ever heard.”

Speaking to ’60 Minutes’ Dagan noted: “An attack on Iran now before exploring all other approaches is not the right way to do it.”

Dagan should be congratulated for his rationality. It is my belief that the greater threat to Israel and the West is not the potential for an Iranian nuclear weapon — the truth remains that mutually assured destruction remains the most potent peacemaking force in history, even for supposedly irrational regimes like Pakistan, North Korea and Soviet Russia — but the dangers of blowback from a unilateral strike on Iran.

Oil and resource supplies through the Persian Gulf could be interrupted, sending energy prices soaring, and damaging the already-fragile global economy.

A regional war in the Middle East could result, potentially sucking in the United States and Eurasian powers like China, Pakistan and Russia. China and Pakistan have both hinted that they could defend Iran if Iran were attacked — and for good reason, as Iran supplies significant quantities of energy.

And with the American government deep in debt to foreign powers like China who are broadly supportive of Iran’s regime, America’s ability to get involved in a war on Israel’s behalf is highly questionable. And even without a war, further hostility and tension between America and her creditors would surely result in an even faster rush toward more bilateral and multilateral agreements to ditch the dollar for trade, something that America will almost certainly seek to avoid. So even with a President in the White House significantly more sympathetic to Netanyahu than Obama, America may find herself constrained by the realities of global economics, and unable to assist Israel.

Most discouragingly, such a high risk operation seems to offer very little reward — a successful Israeli strike on Iran is estimated to set back Iran’s program by only one to three years. And such an operation would likely require bombings over many days and in many locations.

If Netanyahu wishes to go ahead with a unilateral strike then that is his prerogative. But if he will not listen to Dagan’s wise counsel, why should the West rush to his aid if his scheme backfires?

More Americans Fear Iran Than Soviet Russia


From the Atlantic:

According to the November 1985 poll, 76 percent of Americans viewed the Soviet Union as a “very serious” or “moderately serious” threat. Only 32 percent of respondents classified the Evil Empire as a “very serious” threat. This week, CNN released a poll asking the same question, this time about Iran and other hostile nations. It estimates that 81 percent of Americans believe Iran is a “very serious” or “moderately serious” threat, with 48 percent calling it “very serious.” 

The problem with that?

Iran — according to the CIA, the IAEA and Mossad — does not have any nuclear weapons.

In 1985, 39,000 Soviet nuclear warheads were pointed at the rest of the world, enough of them ready on push-button alert to destroy the United States near-instantaneously and many times over.

Certainly, Americans are free to be concerned about whatever they want. But let’s just say that a 39,000 warhead disparity — as well as the fact that the Soviet Union was one of the largest, most powerful militaries in world history, and one that successfully defeated Nazi Germany, while Iran’s last war with Iraq ended as a pathetic stalemate —  puts today’s reality into perspective.

UPDATE:

In the interests of inciting some fierce debate, here’s my back-of-an-envelope estimate of the top nation states that are a threat to America’s national interest:

  1. America
  2. China
  3. Russia
  4. Pakistan
  5. Iran

Stiglitz vs Krugman

A very interesting front is opening up regarding the current state of America.

Some economists believe that the main problem in America is a lack of demand, defined as the desire to buy, the willingness to buy, and the ability to pay for it

From Paul Krugman:

There is nothing — nothing — in what we see suggesting that this current depression is more than a problem of inadequate demand. This could be turned around in months with the right policies. Our problem isn’t, ultimately, economic; it’s political, brought on by an elite that would rather cling to its prejudices than turn the nation around.

The implication here is that people just don’t have the money in their pockets to spend at the levels they were five years ago, and the solution is (through whatever means) giving them that money.

As well as the obvious (and accurate) Austrian retort that demand in 2006 was being pushed skyward as part of a ridiculous and entirely artificial debt-financed bubble, other economists believe that a lack of demand is just a symptom of other underlying symptoms. I myself believe that the three main problems are a lack of confidence stemming from high systemic residual debt, deindustrialisation in the name of globalisation (& its corollary, financialisation and that sprawling web of debt and counter-party risk), and fragility and side-effects (e.g. lost internal productivity due to role as world policeman) coming from America’s petroleum addiction.

Now Joe Stiglitz has weighed in in a lengthy and essential Vanity Fair piece:

The trauma we’re experiencing right now resembles the trauma we experienced 80 years ago, during the Great Depression, and it has been brought on by an analogous set of circumstances. Then, as now, we faced a breakdown of the banking system. But then, as now, the breakdown of the banking system was in part a consequence of deeper problems. Even if we correctly respond to the trauma—the failures of the financial sector—it will take a decade or more to achieve full recovery. Under the best of conditions, we will endure a Long Slump. If we respond incorrectly, as we have been, the Long Slump will last even longer, and the parallel with the Depression will take on a tragic new dimension.

Many have argued that the Depression was caused primarily by excessive tightening of the money supply on the part of the Federal Reserve Board. Ben Bernanke, a scholar of the Depression, has stated publicly that this was the lesson he took away, and the reason he opened the monetary spigots. He opened them very wide. Beginning in 2008, the balance sheet of the Fed doubled and then rose to three times its earlier level. Today it is $2.8 trillion. While the Fed, by doing this, may have succeeded in saving the banks, it didn’t succeed in saving the economy.

Reality has not only discredited the Fed but also raised questions about one of the conventional interpretations of the origins of the Depression. The argument has been made that the Fed caused the Depression by tightening money, and if only the Fed back then had increased the money supply—in other words, had done what the Fed has done today—a full-blown Depression would likely have been averted. In economics, it’s difficult to test hypotheses with controlled experiments of the kind the hard sciences can conduct. But the inability of the monetary expansion to counteract this current recession should forever lay to rest the idea that monetary policy was the prime culprit in the 1930s. The problem today, as it was then, is something else. The problem today is the so-called real economy. It’s a problem rooted in the kinds of jobs we have, the kind we need, and the kind we’re losing, and rooted as well in the kind of workers we want and the kind we don’t know what to do with. The real economy has been in a state of wrenching transition for decades, and its dislocations have never been squarely faced. A crisis of the real economy lies behind the Long Slump, just as it lay behind the Great Depression.

At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years. Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume.

What this transition meant, however, is that jobs and livelihoods on the farm were being destroyed. Because of accelerating productivity, output was increasing faster than demand, and prices fell sharply. It was this, more than anything else, that led to rapidly declining incomes. Farmers then (like workers now) borrowed heavily to sustain living standards and production. Because neither the farmers nor their bankers anticipated the steepness of the price declines, a credit crunch quickly ensued. Farmers simply couldn’t pay back what they owed. The financial sector was swept into the vortex of declining farm incomes.

The cities weren’t spared—far from it. As rural incomes fell, farmers had less and less money to buy goods produced in factories. Manufacturers had to lay off workers, which further diminished demand for agricultural produce, driving down prices even more. Before long, this vicious circle affected the entire national economy.

The parallels between the story of the origin of the Great Depression and that of our Long Slump are strong. Back then we were moving from agriculture to manufacturing. Today we are moving from manufacturing to a service economy. The decline in manufacturing jobs has been dramatic—from about a third of the workforce 60 years ago to less than a tenth of it today. The pace has quickened markedly during the past decade. There are two reasons for the decline. One is greater productivity — the same dynamic that revolutionized agriculture and forced a majority of American farmers to look for work elsewhere. The other is globalization, which has sent millions of jobs overseas, to low-wage countries or those that have been investing more in infrastructure or technology. (As Greenwald has pointed out, most of the job loss in the 1990s was related to productivity increases, not to globalization.) Whatever the specific cause, the inevitable result is precisely the same as it was 80 years ago: a decline in income and jobs. The millions of jobless former factory workers once employed in cities such as Youngstown and Birmingham and Gary and Detroit are the modern-day equivalent of the Depression’s doomed farmers.

The consequences for consumer spending, and for the fundamental health of the economy — not to mention the appalling human cost—are obvious, though we were able to ignore them for a while. For a time, the bubbles in the housing and lending markets concealed the problem by creating artificial demand, which in turn created jobs in the financial sector and in construction and elsewhere. The bubble even made workers forget that their incomes were declining. They savored the possibility of wealth beyond their dreams, as the value of their houses soared and the value of their pensions, invested in the stock market, seemed to be doing likewise. But the jobs were temporary, fueled on vapor.

So far, so excellent. Stiglitz first shovels shit over the view of Fisherian debt-deflation as the main cause of the slump in demand — debt-deflation is a symptom, and a very nasty one, but not really a cause. Second, Stiglitz also correctly notes that today’s ailments are the result of social, infrastructural and productive upheaval in the real economy. He correctly identifies the leading trend here — manufacturing (and, it should be added, primary industry) has been ripped out of America by the forces of globalisation, and the powerful pull of cheaper wages. This is a strong explanation of why Krugman’s view — that the only thing missing is demand, and that government can fix that in an instant — is nonsense.

As I wrote earlier this month:

The point here is that economic health — and real industrial output, measured in joules, or in “needs met” — and money circulation are in reality almost totally decoupled. Getting out of a depression requires debt erasure, and new organic activity, and there is absolutely no guarantee that monetary easing will do the trick on either count. Most often, depressions and liquidity traps are a reflection of underlying structural and sociological problems, and broken economic and trade systems. Easing kicks the can down the road a little, and gives some time and breathing room for those problems to be fixed, but very often that just doesn’t happen. Ultimately, societies only take the steps necessary (e.g. a debt jubilee) when their very existence seems threatened.

Stiglitz continues:

What we need to do instead is embark on a massive investment program—as we did, virtually by accident, 80 years ago—that will increase our productivity for years to come, and will also increase employment now. This public investment, and the resultant restoration in G.D.P., increases the returns to private investment. Public investments could be directed at improving the quality of life and real productivity—unlike the private-sector investments in financial innovations, which turned out to be more akin to financial weapons of mass destruction.

Now, I don’t really have a problem with the idea that government can do some good. If people in a democracy choose to solve problems via public spending, well, that’s part of the bargain in a democratic state. Even Adam Smith noted that government should fund “certain great institutions” beyond the reach of private enterprise.

But here we reach the great problem with Stiglitz’s view:

The private sector by itself won’t, and can’t, undertake structural transformation of the magnitude needed—even if the Fed were to keep interest rates at zero for years to come. The only way it will happen is through a government stimulus designed not to preserve the old economy but to focus instead on creating a new one. We have to transition out of manufacturing and into services that people want — into productive activities that increase living standards, not those that increase risk and inequality.

The United States spent the last decade (arguably longer) and trillions of dollars embroiled in wars aimed at keeping oil cheap, and maintaining the flow of global goods precisely because America is dependent upon those things. America does not play global policeman out of nicety or vanity — she does it out of economic necessity. That is precisely because America let globalisation take away all of her industry, making her dependent not only on the continued value of her paper dollar, but on the flow of global trade in energy and goods.

Investing more money in services will leave America dependent on these contingencies. And dependency is fragility — and the more fragile America becomes, the more aggressive she becomes in maintaining and controlling the flow of global goods.

Any stimulus package ought to instead be focussed on making America energy independent, and encouraging innovative new forms of manufacturing (e.g. 3-D printing) that can undercut Chinese labour.

So while Stiglitz must be commended for seeing through the haze, it is rather puzzling that his alternative is services, rather than self-sufficiency.

While America is dependent on foreign goods and energy, she is prone to not only waste huge amounts of productive capital on war and weapons, but she also risks serious economic damage from events such as oil shocks, geopolitical shocks, regional wars, and — well — anything that might slow down or endanger global trade. Her need to police the world makes her even hungrier for oil, which means she spends more money on the world, which makes her hungrier for oil.