Thursday, April 20, 2006

4/20 Leaders of Military, Heartland, “Eastern Est,” High Tech Moving Too Slowly to Limit Potential Damage on Iran, Energy Prices

Sen. Lugar Supplies Crucial Link to Energy in Iran Crisis

On April 16 on ABC’s "This Week," Sen. Richard Lugar (R-Indiana), chairman of the Senate Foreign Relations Committee, said of direct talks between the U.S. and Iran, ""I think that would be useful ... the Iranians are a part of the energy picture. "Clearly their ties with India and with China, quite apart from others, are really critical to (international energy issues)," he said. "We need to talk about that. Maybe we need to focus our attention less right now on the centrifuges than on how [energy] power is going to come out ... to all of these countries in some more satisfying way," he said." link Lugar is highly respected in D.C. Time Magazine just called him the "wise man" of the U.S. Senate in naming him one of the ten best senators.

Indicating the seriousness of the current international situation, a number of retired top military officers have recently weighed in with their views on how Iraq was mishandled.

A couple of former officials with ties to Colin Powell also tried to slow-down the U.S.-Iran confrontation. In an Op-Ed on April 12 in the FT, Richard Haass, president of the Council on Foreign Relations and a top State Dept. official under Powell, wrote: "Washington should be searching harder for a diplomatic alternative, one that entails direct US talks with Iran ... Iran would be allowed no - or at most, a token - uranium enrichment programme (one too small to produce a militarily significant amount of nuclear material over the next decade) coupled with the most intrusive inspections. In return, Iran would receive a range of economic benefits, security guarantees and political dialogue. If Iran refused, the United Nations Security Council would ban investment in Iran's oil and gas sector."

Richard Armitage, deputy secretary of state under and close confidant of Powell, also came out in favor of direct talks with the Iranians, telling the FT on April 13, "It merits talking to the Iranians about the full range of our relationship . . . everything from energy to terrorism to weapons to Iraq. We can be diplomatically astute enough to do it without giving anything away."

Reports have appeared in the past couple of days in "The Asia Times" link and elsewhere that The Shanghai Cooperation Organization (SCO) is now considering allowing Iran, India, Pakistan, and Mongolia in as full members, previously they had observer status, joining, China, Russia and four central Asian states.

Rubin Seems to be Re-hashing 1990's Solution for 2000's Problem of Low-Cost Sustainable Energy

In a separate, seemingly unrelated development, Robert Rubin, former Treasury Secretary under Clinton, now a top executive at Citigroup (and co-head of Goldman prior to the Clinton admin), announced on April 5 The Hamilton Project, according to the FT, to chart a course "diametrically opposed to the current policy regime." Its first white paper warns that rising income inequality "risks a backlash that threatens the very stability of democratic capitalism itself."

Strong words, indeed. Rubin focused on deficit reduction under Clinton, and he appears to be doing so again. Deficit reduction was sold to Clinton by Rubin and Greenspan and then by Clinton to his party as a way of reducing long-term interest rates and hence ultimately create jobs and finally raise real incomes. Rubin also sold Clinton on NAFTA, which was going to save U.S. manufacturing jobs and stem immigration by leading to rapid development in Mexico link.

Low interest rates in 1990s did in fact happen, as did huge job creation and even the only reversal of the more than thirty-year decline in average real weekly earnings, aided of course by the Internet boom/bubble. Yet long-term rates have remained low in the 2000s, but with only mediocre employment growth (the loss of 3 million manufacturing jobs), and zero average real weekly earnings growth.

Unfortunately, as most recently shown in the new book "The Disposable American," Rubin was never very concerned about the devastating impact of layoffs (his answer being education and re-training, what his fellow Democrat policy advisor Gene Sperling dubbed "funeral insurance" in his latest book, which did not go much beyond that).

Rubin's is a Democratic version of "trickle down" economics, i.e. placate the financial markets, and things will work out in the long run. But they haven't. Since 1972 average real weekly earnings are now down 17%. That would seem to be long enough to say that the post-Bretton Woods experiment doesn't seem to be working very well for the average American. Rubin was Kerry's key financial advisor in the 2004 election, and the inability of Kerry to come up with a credible economic program cost him key states, especially Ohio, battered by layoffs (and now increasingly foreclosures).

Something else seems needed, though none in the "elite" seem to know what. Sen. Lugar's emphasis on the energy issue re Iran is close to the target. The world is going to have to solve the need for inexpensive, sustainable energy for global economic development. Solving that problem will cut through many others. It will perhaps also mean some "sacrifice" on the part of the U.S. in the transition period. Perhaps some Americans can no longer drive their huge SUVs to pick up a half gallon of organic milk.

Unless the U.S. population shows it is serious about solving the global energy and related issues, which include clean water in many of the critical areas of the world, I expect the world to continue to go down its current unpromising path.

Needed: Another "Grand Vision" as Followed WW II, Only Far Better

Bush's "War on Terror" is not a positive vision. The U.S. ultimately "won" the "Cold War" by offering hope of a better life. The same is needed now.

Following the end of WW II, some leading Wall Street investment bankers/lawyers, grouped around a far more influential Council on Foreign Relations, managed to cobble together a coalition with previously isolationist midwest industrial conservatives and the U.S. military around a policy of Soviet "containment" and economic development of the core capitalist sector of the global economy.

It was better than thermonuclear brinkmanship "rollback," but a far cry from what was really needed, and resulted in more than a forty year "Cold War" (except for the many hundreds of millions unfortunate to be caught in the hot spots) and delayed economic development over most of that period for the vast majority of humanity.

Unfortunately, every time a critical opportunity for real global peace and development came along, someone would yell "commie! commie!" and the media and populace would give the inevitable pavlovian response.

But today something more is needed. The genie is out of the bottle, and it can't be put back, the vast majority of the world is focused on economic development, with or without the U.S., no matter how much Bush/Cheney shout "terrorist! terrorist!"

One of the author's of that post WW II policy, Dean Acheson, wrote a book about that period called "Present at the Creation." As things are currently going, some future historian may well have to write a concluding volume, "Present at the Dissolution," referring to "The American Century." It doesn't have to be that way, but it will come down to leadership, and so far, that is sorely lacking.

The power and influence of the "Eastern Establishment" is far less than it was from 1945-71 (famously described for the Vietnam War generation in David Halberstam's "The Best and the Brightest"). If that crowd has anything left, now is the time to show it. But the key issues are not diplomatic, as it prefers to see things, they are economic and military. (Haass' book last year "The Opportunity" barely touched on global economic issues.)

High-tech, Wal-Mart, Don't Get It: Asset-Light Supply-Chain Cost Shifting Not Sufficient

Similarly with the high-tech set, which just doesn't seem to realize that the world needs energy, water, housing, health care, education, etc., not iTunes and incessant Internet celebrity gossip.

The high-tech set, along with the Wal-Mart's, have deluded themselves into thinking that by cost-shifting, in the name of "productivity" and "shareholder value," all the onerous burdens of real production, including fixed assets, fully loaded compensation, environmental "externalities," etc., onto weaker members of their global supply chains in Asia that somehow these costs have miraculously disappeared.

I.e., if they don't exist on their balance sheets and impact their stock options, these economic realities don't exist in the minds of most American CEO's, and especially for the unregulated hedge funds and private equity funds to whose tune they dance.

The Failure to Face Reality: "The Curse of the Dollar"

For more than two decades, American business has had it drummed into its head to listen to and respond to the market and customers. But as a nation, the U.S. doesn't think this way, because it has an unlimited credit card, the dollar, the world's reserve currency. So the thought has never entered the national conscience, how do we find and win customers to pay for all this stuff we are buying on debt.

Since 1971, the global financial markets have not forced Americans to face and deal with this crucial reality. Most experts think this has been a big advantage underwriting American hegemony, but in the end, it will perhaps prove to be its undoing.

Economists call the tendency of most countries (Norway excepted) heavily endowed with petroleum to fritter away their luck in graft, waste and corruption the "curse of oil." The U.S has been "blessed" with the "curse of the dollar." One can not change thirty-five years of bad habits overnight, but the sooner we start, the better for everyone.

How Much Longer for Unstable Equilibrium of Bretton Woods II?

As I currently see it, to much of the world, the U.S. appears to be unilaterally, "pre-emptively" embarked on policies which seem to have the effect, well-intended, unintended or otherwise, of helping to destabilize key regions, such as the Mideast, Iran, central Asia, North Korea, the former Soviet republics, etc. East Asia and Saudi Arabia are in effect financing the ability of the U.S. to pursue these unilateral policies by holding huge amounts of very low-yielding U.S. debt securities which will most likely significantly depreciate.

Stability in these key regions is critical to the paramount interest of most of these Eurasian nations, economic development. In addition, most of East and South Asia have huge internal infrastructure development needs, on the order of $400 billion per year, which are not being met, about equal to the amount it is adding to its forex reserves.

Thus, taking into account other costs and benefits (access to U.S. market, technology, management, etc), how much longer will the rest of the world finance U.S. military policy? How Iran is resolved might go some way to resolving that question.