Bush 3 vs Bush 4

The point of my writing has never been to tell others how to vote, especially not in elections in countries like the USA where I cannot myself vote.

But even if I was a voter in this election, there is no candidate with a chance in hell of winning who I could support. Obama and Romney are standing on the shoulders of George W. Bush.

Obama renewed Bush’s PATRIOT Act, which gutted the Fourth Amendment, Obama signed into place (and went to court to defend) the NDAA Act that creates a legal framework  for the indefinite detention of American citizens, Obama has engaged in six middle eastern wars (two more than Bush), and Obama maintains a kill-list of suspected terrorists including American citizens who — without trial, and alongside their families — are targeted for assassination by drone strike. Romney signs on to all of those initiatives, and boasts the endorsements of both George W. Bush and Dick Cheney. Both candidates promise to strike first against Iran. Neither candidate talks of downsizing the American Empire, that — at huge cost to the taxpayer — maintains bases in over 150 countries, creates huge blowback, and leaves the American military thinly stretched. And this misallocation of capital means that in areas where central government plays a useful role — infrastructure, space exploration, disaster relief and scientific research — too little is left to invest.

On the economy, both candidates are avowed interventionists who endorse bank bailouts and the bailouts of failed and unsustainable industries. Bailouts result in the malinvestment of capital, labour and productivity — giving too-big-to-fail banks and crooked and fraudulent banksters the opportunity to continue profiting from mountains of central bank liquidity, while small businesses and new entrepreneurs starve from a lack of credit. And neither candidate has any intention of implementing a solution — like Glass Steagall, which worked relatively well for over sixty years —  to end the tyranny of public bailouts. Additionally, neither candidate seems aware of the real cause of depressions — excess and unsustainable total debt. Both candidates seem intent to pursue policies of reinflating debt bubbles, only for them to burst again later rather than try to address the underlying problems. This approach is likely to render social spending pledges unsustainable, as the only thing that can pay for Social Security and present welfare commitments is strong organic productive growth, not endless bailouts of crooked banksters, mobility scooters, new social networks and the pointless reinflation of unsustainable businesses.

Both candidates are committed to one-sided free trade deals that end up shipping productive American jobs half way around the world, and rendering Americans dependent on the output of other nations. And while (much like George W. Bush) both candidates have paid lip-service to the idea of energy independence, they also support the idea of a resource-sapping global military empire, which leaves few resources remaining for the task of creating energy independence.

And both candidates promise to continue the expensive, wasteful and liberty-sapping war on drugseven though Obama was a proud and boastful drug user in his youth.

One candidate will be elected today, and their supporters will surely go wild, while the other side will be despondent. But sadly, both sides will have lost. The only winners under Obama-Romney will be crooked too-big-to-fail banksters, and the military-industrial complex.

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George W. Bush’s “Growth” Strategy

George W. Bush is back. And he’s got a plan!

From the NYT:

Two months from now, he plans to publish a book outlining strategies for economic growth. And on Tuesday, he made a rare return to Washington to promote freedom overseas.

Freedom overseas? Yes — it would be nice to be free of George W. Bush’s destructive and costly neocon agenda (and I know many people overseas agree) but sadly the current White House occupant seems to be following the same authoritarian script; Bush hit Iraq and Afghanistan, and Obama seems intent to continue expanding the wars into Pakistan and Yemen.

On the economy, let’s judge him on his record:

That doesn’t suggest that Bush has anything much to add to the conversation. But that doesn’t mean I think he should shut up and go away.

Here are a few prominent questions that George W. Bush might want to consider answering before slinking off back to Crawford:

  1. Why did you ignore the CIA’s warnings in the summer of 2001 that al-Qaeda could strike “imminently”?
  2. Why did you pledge in the 2000 election debates that you were against nation-building, and then embark on not one but two nation-building programs in Iraq and Afghanistan?
  3. You increased the Federal debt by 86%; to what extent do you accept the blame for America’s debt troubles?
  4. You reappointed Alan Greenspan as the Fed Chairman;  to what extent do you accept that his easy money policies caused the bubble that burst in 2008?
  5. Were the 2008 bailouts of well-connected banks and financial corporations engineered by your administration compatible with a supposedly “free-market” “capitalist” system? Doesn’t bailing out banks create dangerous moral hazard?
  6. How can a nation simultaneously claim to be a liberator while also practising torture?
  7. You swore to uphold the Constitution, yet passed the PATRIOT Act that authorised warrantless wiretapping, and mass surveillance in contravention of the Fourth Amendment. Do you realise that you violated your oath of office?

That would be a great start. There are, of course, swathes of other questions (including much, much darker ones) that many wish George W. Bush could be made to answer. But there is no real accountability in America today. He can go back to his ranch and his presidential library and act like a carpetbagging good old boy, while kids in the middle east continue to have their limbs blown off, and while the nation remains smothered under a mountain of debt and authoritarian creep.

We’re All Nixonians Now

People have got to know whether their President is a crook

Richard M. Nixon

I often wonder who is worse: George W. Bush — the man who turned a projected trillion dollar surplus into the greatest deficits in world history, who bailed out the profligate Wall Street algos and arbitrageurs, who proceeded with two needless, pointless and absurdly costly military occupations (even though he had initially campaigned on the promise of a humble foreign policy), who ignored Michael Scheuer’s warnings about al-Qaeda previous to 9/11, who signed the Constitution-trashing PATRIOT Act  (etc etc ad infinitum) or his successor Barack Obama, the man who retained and expanded the PATRIOT Act powers under the NDAA (2011), who claimed the right to extrajudicially kill American citizens using predator drones, who expanded Bush’s expensive and pointless occupations (all the while having run on a promise to close the Guantanamo Bay detention centre and reverse Bush’s civil liberties incursions), who proceeded with Paulson’s Wall Street bailouts, authorised the NSA to record all phone calls and internet activity, and continued the destructive War on Drugs (even though he had in the past been a drug user).

The answer, by the way, is Richard Nixon. For almost forty years after that man’s resignation, it is arguable that almost every single administration (with the possible exception of  Carter as well as Reagan’s first year in office) — but especially that of Bush and Obama — has been cut from his cloth. It was Richard Nixon who inaugurated the War on Drugs — that despicable policy that has empowered the drug gangs and obliterated much of Latin America. It was Richard Nixon who so brazenly corrupted the White House and tarnished the office of the Presidency through the Watergate wiretapping scandal.  It was Nixon’s administration that created the culture of government surveillance that led directly to the PATRIOT Act. It was Nixon who internationalised the fiat dollar, so trampling George Washington’s warnings about not entangling alliances, and of course setting the stage for the gradual destruction of American industry that continued apace under NAFTA and into the present day, where America runs the greatest trade deficits in human history. It was Richard Nixon who set the precedent of pointless, stupid, blowback-inducing militarism, by continuing and expanding the Vietnam war. It was Richard Nixon whose administration authorised the use of chemical weapons (or as George W. Bush might have put it, “weapons of mass destruction”) against the Vietcong.

Presidents since have followed — to a greater or lesser extent — in his mould. This is particularly acute this election cycle; you vote for Obama and you get Richard Nixon, or you vote for Romney and you get Richard Nixon. Nixon’s words: “we’re all Keynesians now” have a powerful resonance; not only has every administration since Nixon retained the petrodollar standard and spent like a drunken sailor in pursuit of Keynesian multipliers, but every President since has followed in the Nixonian tradition on civil liberties, on trade, on foreign policy. Henry Kissinger — the true architect of many Nixonian policies, and Obama’s only real competition for most bizarre Nobel Peace Prize recipient — has to some degree counselled each and every President since.

It is hard to overstate the magnitude of Nixon’s actions. The demonetisation of  gold ended a 5,000 year long tradition. It was a moment of conjuring, a moment of trickery; that instead of producing the goods, and giving up her gold hoard to pay for her consumption habits (specifically, her consumption of foreign energy), America would give the finger to the world, and print money to pay her debts, while retaining her (substantial) gold hoard. The obvious result of this policy has been that America now prints more and more money, and produces less and less of her consumption. She has printed so much that $5 trillion floats around Asia, while the American industrial belt rusts. Industrial production in America is where it was ten years ago, yet America’s debt exposure has ballooned.

America has had not one but two Vietnams in the past ten years.

First, Afghanistan, in the pursuit of the elusive Osama bin Laden (or, “in the name of liberating women”, presumably via blowing their legs off in drone strikes), where young Western soldiers continue to die (for what?), even after bin Laden’s supposed death in a Pakistani compound last year.

Then, Iraq, presumably in the interests of preventing Saddam Hussein from using non-existent Weapons of Mass Destruction, or liberating more women by blowing their legs off (or as Tom Friedman  put it: “SUCK! ON! THIS!”).

Like Nixon’s Presidency, the Nixonian political system is highly fragile. Debt is fragility, because it enforces the inflexibility of repayment, and the Nixonian political system has created staggering debt, much of it now offshore. The Nixonian economic policy has gutted American industry, leaving America uncompetitive and dependent on foreign productivity and resources. The Nixonian foreign policy has created a world that is deeply antipathetic to America and American interests, which has meant that America has become less and less capable of achieving imperatives via diplomacy.

Future historians may finger George W. Bush as the worst President in history, and the one who broke the American empire. But smarter scholars will pinpoint Nixon. True, the seeds of destruction were sown much earlier with the institution of permanent limited liability corporations. This allowed for the evolution of a permanent corporate aristocracy which eventually bought out the political echelon, and turned the Federal government into an instrument of crony capitalism, military Keynesianism and corporate welfare. Nixonianism has been the corporate aristocracy’s crowning achievement. And to some extent, this period of free lunch economics was a banquet, even for middle class Americans. The masses were kept fat and happy. But now the game is up — like Nixon’s Presidency — its days are numbered.

The Changing World

The world is changing, and politicians can’t keep up.

From the New York Times:

When Barack Obama joined Silicon Valley’s top luminaries for dinner in California last February, each guest was asked to come with a question for the president.

But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

Paul Krugman adds:

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

The point is that manufacturing plants don’t exist in isolation; they benefit a lot from being part of a manufacturing cluster, with specialized suppliers and a large pool of workers with the right skills close at hand. This is the kind of stuff I emphasized in my own work on both trade and economic geography.

As I wrote in October:

Looking at global population density — with American taxpayers subsidising the cost of a flat global marketplace — where can we expect productivity to agglomerate?

The high-density zones. But it was not always thus, because the world was not always flat. Technological, intellectual and social infrastructure once dictated that the agglomeration of manufacturing, skills and industry took place in the West. Development spirals into greater development. Alas, the world was flattened under the aegis of American imperial grandeur, and so capital, skills, supply chains, and so forth took off to where the labour was cheaper, the population denser, regulations laxer, and factories clustered:

“Our customers are in Taiwan, Korea, Japan and China,” said James B. Flaws. “We could make the glass here, and then ship it by boat, but that takes 35 days. Or, we could ship it by air, but that’s 10 times as expensive. So we build our glass factories next door to assembly factories, and those are overseas.”

This agglomeration presents a geostrategic challenge to America that I am yet to see other commentators recognise. As America’s productivity has gone overseas, America has not really experienced many negative effects beyond the obvious problem of job migration. That’s because as the originator of the global reserve currency, other nations need dollars. That has meant that the fruits of the Earth, and the world’s labour have flowed and flowed into America irrespective of America’s own productive decline.

America’s internal workings — her agriculture, her internal transport network, her consumption, and indeed even her internal manufacturing (and so forth) — are dependent on a global system of resource extraction, labour, production and shipping. More or less, America is dependent on foreign energy and goods, and her foreign policy is geared toward sustaining the global flow of energy and goods. That’s why America spends more on her military than any other nation, and over 50% of the global total. However this has meant great debt, as America is producing far less than she is spending.

So does that mean globalisation is bad? No — I am all for free trade, and global markets, and that requires a degree of security. But at the same time, free markets require proper pricing mechanisms. American manufacturing has been out-competed in the American market predominantly because Chinese products do not accurately reflect the costs of global security; those costs are reflected not in prices, but in the Pentagon’s budget, and in Federal deficits. Those cheaper Chinese goods might not have put so much American industry — and subsequently industrial infrastructure — out of business without that subsidy; for a start shipping would be costlier and less reliable. With a less obvious advantage in selling to the American market, it is likely that both China’s growth, and America’s decline would have been slower.

So America’s rising government debt burden, and America’s lost industrial infrastructure are in at least one way two sides of the same coin. Less world policeman would not only mean less debt, but more domestic industry.

These concerns are reflected in Obama’s recently announced foreign policy and global defence doctrine:.

From the Washington Post:

President Obama pledged that the $489 billion in defense cuts he has proposed over 10 years would be governed by a concerted strategy, and on Thursday he delivered one. At the Pentagon, Mr. Obama unveiled a “strategic guidance,” which aides said reflected a considerable investment of his personal time and ideas. The president’s thesis is that the need for fiscal austerity coincides with a global “moment of transition,” in which the United States is winding down a decade of land wars in Iraq and Afghanistan and facing the need to turn toward a very different set of challenges, particularly in Asia.

Several previous administrations have tried to shift to Asia from the messy Middle East, only to be dragged back by wars, terrorists, turmoil and the unending need to protect allies and the flow of oil. The Obama strategy acknowledges that history and says this pivot will be different. The means to reduce spending and build capacity in Asia, it suggests, will come not from the Mideast but from U.S. deployments in Europe, benefit and retirement costs, Cold War weapons systems and the U.S. nuclear arsenal.

The trouble is, this is much too little much too late. Had President Bush announced this in 2002 (or President H.W. Bush in 1992) years of fruitless imperialism in the middle east and trillions in debt might have been avoided. American industry, supply chains, technology, industrial infrastructure and skills have already been gutted; as Steve Jobs alluded to, the iPhone will never be made in America. America is still deeply dependent on foreign oil.

More or less, this strategy is trying to close the stable door after the horse has bolted.

The effects of decades of policy will be hard to mitigate. America must face the fact that her most important export — dollars and Treasury bonds — will be blighted by the end of the dollar as the global reserve currency.

A significant number of Eurasian nations — including Japan, India, China, Russia and Iran — have pledged to in future conduct bilateral (and surely soon also multi-lateral) trade in their own domestic currencies, including for trade in oil and other commodities.

The impact of this would be disastrous. Simply, nations would not need to sell their wares and resources to America; a hostile Chinese or Arab regime could foreseeably cut America off from essential resources, components or goods. China already limits exports in rare earth metals. How long before nations feel capable of blackmailing America by withholding or heavily taxing resources, goods and components on which America depends?

Hawks might respond that no nation on Earth would feel capable of doing that, because America has the military clout to bite back. But for all of Obama’s assertions that the military is refocussing on the Asia-Pacific, America is too broke to start a war or proxy war with her great creditor. More importantly, such an event would probably shut down or slow the flow of global goods and energy meaning immediate and disastrous economic consequences for America.

America could be taking every step imaginable to make herself energy independent  (or at least dependent only on North American energy) as soon as possible as a matter of urgent national security. This would be a solid base from which to build. Alas, Obama totally rejected the Keystone XL Pipeline, which could have formed a major plank toward this goal.

Is the Middle East About to Explode?

It looks like Israel and America’s secret war on Iran has finally provoked a response.

From AP:

Iran’s semiofficial Fars news agency says the country’s armed forces have shot down an unmanned U.S. spy plane that violated Iranian airspace along its eastern border.

The report says the plane was an RQ170 type drone and is now in the possession of Iran’s armed forces. The Fars news agency is close to the powerful Revolutionary Guard.

Iran is locked in a dispute with the U.S. and its allies over Tehran’s disputed nuclear program, which the West believes is aimed at the development of nuclear weapons. Iran denies the accusations, saying its nuclear program is entirely peaceful.

Iran’s response to the downed U.S. drone’s violation of its airspace will not be limited to the country’s borders, a military source told state television.

“The Iranian military’s response to the American spy drone’s violation of our airspace will not be limited to Iran’s borders any more,” Iran’s Arabic language Al Alam television quoted the military source as saying, without giving details.

Iran said in July it had shot down an unmanned U.S. spy plane over the holy city of Qom, near its Fordu nuclear site.

Why is this happening?

As I wrote last month, a new middle eastern war can provide a lot of opportunities to the Western establishment:

  1. Create a new post-9/11-style hard-to-question patriotism — “There’s a war on — we all need to rally together around the flag — the complainers and protestors must hate America”
  2. Put America back to work — in weapons factories, and on the front lines.
  3. Give the economy a large Keynesian injection — through war spending.
  4. Take out Iran, a powerful enemy of America — and send a threatening message to other uppity Eurasian autocracies like Russia and China.
  5. Curtail civil liberties & censor the internet — “There’s a war on — we all need to rally together around the flag — and those who don’t must be working to undermine America”

The real danger here is that this won’t solely be a middle eastern war. Israel and America have grossly miscalculated the odds of drawing Russia and China into a global confrontation. Russia and China want a new world order centred around themselves, not America, and they will grab this opportunity to dethrone the West.

Russia is already supplying Bashar al-Assad’s Syrian regime with cruise missiles.

Western policy has been built around a false cornerstone of interdependence, the idea that there can be no war between China and America because America is dependent on Chinese goods, and China is dependent on the American monetary system. Nothing could be further from the truth — America (and its consumeristic zombie hordes) need China far more than China needs America. China’s dollar reserves are a luxury, not a necessity, and they are a luxury that can be thrown away in the name of Chinese dominance in Eurasia and the Pacific.

Of course, although a new middle eastern or global war will be an economic, political, social and humanitarian disaster, it will be very profitable for weapons contractors, and provide a large boost to aggregate demand.

Coalition of the Unwilling

Obama and Sarkozy haven’t yet been fully won around to the military-Keynesian view on Iran.

From Y-Net:

According to a Monday report in the French website “Arret sur Images,” after facing reporters for a G20 press conference on Thursday, the two presidents [Obama & Sarkozy] retired to a private room, to further discuss the matters of the day.

The conversation apparently began with President Obama criticizing Sarkozy for not having warned him that France would be voting in favor of the Palestinian membership bid in UNESCO despite Washington’s strong objection to the move.

The conversation then drifted to Netanyahu, at which time Sarkozy declared: “I cannot stand him. He is a liar.” According to the report, Obama replied: “You’re fed up with him, but I have to deal with him every day!”

French President Barack Obama that he could not “stand” Prime Minister Benjamin Netanyahu and that he thinks the Israeli premier “is a liar.”

If only Netanyahu made the economic case for war against Iran more clearly! He could adopt the tones of, say, Paul Krugman and frame it in terms of the boost to aggregate demand that a new middle eastern war would give the cash-strapped American economy! 

Heck, maybe Netanyahu should go the whole hog and declare that the only thing that can save America from the horrors of the liquidity trap is World War 3! After all, the military-Keynesians say that World War 2 “brought us out of the Great Depression?”

I apologise for the sarcasm. I’m glad that the Western powers are fragmented, and that Netanyahu is as divisive a figure as ever, because it makes it significantly less likely that they will intervene and that this saga will end in some kind of middle eastern or global conflagration — because unlike the military-Keynesians, I recognise the destructive effects war has to infrastructure, to productivity, to capital and labour markets, and to economic confidence.

Further, I recognise that a nuclear-armed Iran will finally bring a counter-balance to a middle east overshadowed by a nuclear-armed Israel, forcing the Zionists and Muslims to achieve a lasting peace. Iran seeks nuclear arms as a counter-balance, not as an offensive force. The vast majority of middle easterners want iPads, cars, roads, Coca Cola and economic development, rather than nuclear conflagration. There does exist a tiny minority of religious fundamentalists — some of whom are Jewish, and some of whom are Muslim — who wish to exterminate the other side. But nuclear-armed nations including Israel, Pakistan and America have had governments led by religious fundamentalists without incident, and there is absolutely no reason to believe that a nuclear-armed Ahmadinejad would be any more threatening to world-peace than a nuclear-armed George W. Bush. Bush, lest we forget, was a former cocaine addict, alcoholic and religious fundamentalist who believed he could personally communicate with the Almighty.

The True Cost of Zombification

Hank Paulson, George W. Bush & Ben Bernanke killed Western capitalism. During the 2008 crash, when the banking system was failing (as is entirely predictable and natural in a hyper-levered house-of-cards economy) they decided to end market-led creative destruction, and institute a system of government-led bailouts, bailouts and bailouts — or, more accurately, uncreative stagnation.

Uncreative stagnation deserves its name for a number of reasons:

  1. As Steve Jobs put it: “Death is very likely the single best invention of Life. It is Life’s change agent. It clears out the old to make way for the new.That is just as true for businesses, markets and governments as it is for organisms. When businesses, systems and markets fail, they open holes to be filled by new businesses, systems and markets.  Without allowing for the natural death of failed systems and businesses, governments close the door to new — and often necessary — innovation.
  2. Without the market (i.e. the preferences of people in the economy spending their money) determining what businesses and systems work, those decisions are transferred to central planners and bureaucrats — in this case those who decide who gets bailed out (and who gets state subsidies) and who doesn’t. This means that capital will be allocated to things that people out in the market don’t want or need.
  3. The high debt-acquisition levels necessary to “save the system” necessitate higher taxation, which means that significant quantities of capital — instead of being reinvested into new businesses and ideas — go toward paying down interest on debt. Broadly, because American and Western debt is often owned by Eastern manufacturing nations, this means that productive capital that could be used by Western businesses is being siphoned eastward. So the capital will still get invested, but in businesses in the East.
  4. The money-printing necessary to “save the system” necessitates inflation, which discourages saving and investment and encourages spending on consumption, transferring more capital from Western consumers to Eastern producers.

Just how much debt and money-printing was necessary to “save the system”?

Here’s a chart Nomi Prins produced in 2009. The spending levels (and therefore debt levels) are truly staggering:

So not only did the bailouts disable creative destruction (the engine of innovation and social progress), they also created so much debt that they have already damaged the ability of future generations to save, invest and innovate.

Worse, they did nothing to address the fundamental fragility of the system. All of that interconnected debt means the system is still fragile to a default cascade, which means that if the system is to be “saved” again, it will require more bailouts and more debt-acquisition, further eroding the ability of taxpayers to save and invest, as governments tax and inflate the currency to pay down the debt.

I expect future generations to look back on this episode as a bizarre aberration. America — surely the greatest producer and innovator in the history of human civilisation — forgot how markets work and the notion of creative destruction, forgot that an empire dependent on hostile partners (i.e. China and the Arab world) is hugely fragile, and then forgot the fact that America emerged as a superpower as a direct result of its status as a great creditor and manufacturer, and that the old European empires lost their superpower status through loss of productivity and massive debt acquisition.

Future historians in the post-American epoch may attribute this bizarre lapse of concentration to a desperate desire for stability, in the wake of the world-shattering events of 9/11. The public and the establishment simply could not face radical change. America got too old, too stubborn, too rich and too established to face the kind of creative destruction that had historically shaped American politics and civilisation. America traded the liberty of creative destruction for the “security” of bailouts, the security-state, and governmental paternalism. As we shall see in the next decade (and contrary to Japan’s experience thus far) this is a totally false security.