Thursday, September 13, 2007

A Top Capitalist Speaks About War and America

Time to upset some stereotypes. Let me quote extensively from a recent interview, given at the recent FiRe FiVe Conference (Future In REview) where I am a yearly guest speaker. These words are from Robert Hormats, of Goldman Sachs International, discussing his new book The Price of Liberty - Paying For America’s Wars...

HORMATS: The title comes from Alexander Hamilton. After the American Revolution, the government – the Continental Congress – had accumulated a lot of debt. The states had accumulated debt. Some of that debt was to foreigners, and Hamilton concluded, with some degree of opposition from others [who believed] that perhaps we shouldn’t pay that debt, Hamilton said we should definitely pay the debt because we need to establish the credit-worthiness of the new country, and because critically important to the success of the U.S. during the Revolution was the ability to borrow from abroad, particularly from France and the Netherlands.

If there were to be another war – which was widely anticipated at the time – the view was that we’d have to borrow again and we would have to go to those same creditors to get the money, and therefore we needed to repay the first war debt in order to borrow again, were there to be another war. And that tradition of borrowing during wars and paying down wartime debt very quickly afterwards really was a key element of American financial policy up until the 1960s. So that was really one point: you had to borrow during a war, but pay it down as quickly as you can. Fiscal responsibility. Because it was seen as not just important for financial stability, but for national security as well.

And the second point that comes through this book, throughout, is that war financing is not just about raising money, it’s about engaging Americans in the war effort. When American troops are fighting abroad, Americans should be making sacrifices at home to support them. In World War I, the treasury secretary, whose name was McAdoo, called it “capitalizing patriotism.”

During World War II, Roosevelt explains to Americans, several days after Pearl Harbor, that war costs money – that means taxes and bonds, bonds and taxes; it means sacrifices from all Americans. And I think that engagement of Americans behind their troops in the war effort has been very important in mobilizing support within the country for what’s going on abroad, so that you don’t have the soldiers fighting on one side and Americans going about their ordinary business and not paying taxes, not making any sacrifices back home.

The great leaders have been very upfront and candid about what war costs, even though the amounts are very high and people don’t particularly want to pay higher taxes – many of them don’t want to buy war bonds, many of them didn’t like the sacrifice of World War II, where they had wage and price controls, and rationing. People didn’t like that. But when their leaders told them it was important for the interests of the country, they went along. If you don’t lead by bold presentation….

(Hormats goes on to describe the myriad ways in which the GW Bush administration has broken with this tradition of frankness and persuaded sacrifice. Concentrating on the fical end - the right wing mania to avoid taxes even while they declare our nation in danger - he does not mention another aspect. The fact that other wars beconed millions of young men to their local recruiting stations. But few are swallowing the “emergency” bait for this one. Despite lowering recruit standards and offering $20,000 signup bonuses, the Army cannot meet its goals.)

And the tragedy is, who sacrifices? The troops. The troops don’t get proper body armor. They don’t get proper armaments for their Humvees. Their families back home, many of them have to go on welfare. And as we’ve seen, they don’t get, in some cases, proper care after the war if they’re wounded. And a lot of the Homeland Security things that we should have done – increase public health services, police, firemen – that’s just not done. So, we didn’t establish the correct priorities, we didn’t have a national dialogue, and we’ve sidestepped tough issues. You can’t do that forever in a democracy; you need people who are educated about the issues. You need the American people to have a dialogue with them, and in past wars they’ve done this, but in this one they have not.

If there were to be a tragedy, if there were to be a terrorist attack… In 9/11 we had a budget surplus; we were not nearly as dependent on foreign capital. Today, we have budget deficit. The next decade we’re going to have big budget deficits as a result of entitlements, and we’re going to be far more dependent on foreign capital because our savings rate is so low. And that might not be there, or if it’s there it might require very high-risk premiums. So, our lack of sound fiscal policy, which is going to be a big problem in the next decade, is going to constitute both a financial vulnerability and perhaps a national security vulnerability. I think that’s the short story of a long pitch for the book.

You need intelligence. You need to have a better education system so people abroad understand what we’re trying to do, and basically you need to have alliances. I mean, the interesting juxtaposition here is the alliance Bush put together for the first Gulf War – the first Bush and the first Gulf War – it had Muslim countries in it, it had other countries contributing, because there was a genuine feeling of working together for a common good. This war... There is really, it’s really a phony alliance. No one’s given us any money. There are no Muslim countries.

Wow. May I remind folks that all of this is coming from a paramount capitalist? In the ultra meaning of that word, a man who lives and breathes what Karl Marx called the process of capital formation through a combination of asset allocation, financial deal-making and entrepeneurialism?

One more piece of evidence that this present crisis has nothing at all to do with the hoary and outmoded and silly so-called “left-right political axis.” Nearly all of the smartest and best capitalists hate the Bush Administration (I know one or two exceptions, Texans all)... as do nearly all of the smartest generals and admirals.... and FBI guys and members of the Intelligence community. A horde of people in crewcuts who were lifelong Republicans, are hearing the whirring, spinning sound of Barry Goldwater, spinning in his grave. Many ostriches are lifting their heads.

Will the democrats... ANY democrats... lift THEIR heads enough to realize the opportunity that this offers? To not only defeat the neocons, but repudiate them, forever? So that they cannot retrench and come roaring back with fresh doses of “culture war”?

This is vital especially to candidates like Hillary and Barak. If they want the presidency to be worth more than a bucket of spit, when they hold it, they must deal with culture war NOW. The only way to do that is to make the issue NOT Iraq, or any liberal agenda item.

The issue has to be America.


Tony Fisk said...

A lot of this sounds very familiar.

Just don't mention the war.
...or else!

Alex Tolley said...

Let's not get too carried away in believing teh virtues of teh US historically.

1. The US repudiated plenty of debt - railroad bonds are one example.

2. The Vietnam "war" had several factors similar to today - US fighting alone, mounting debts as taxes were not raised while spending more domestically, leading eventually to the $ crisis and delinking from the gold standard in 1973.

Having said that, the final point is good. However it may be as Paul Saffo suggested that there will not be a national entity called the USA in 50 years.

Woozle said...

Issuepedia now has a page about stains on American honor. I included the thing about Bush I telling the Shiites to rise up, with multiple confirmations of the quote (which is, somehow, strangely missing from GHWB's Presidential Library archives), as well as DQ's list. I haven't yet updated it with the subsequent discussions, though.

Rob Perkins said...

Woah. I go away for three weeks on a development binge, and David returns with a vengeance.

I adopted an ostrich! I initiated her into the effort by uttering the words, "I don't think I'll be voting for Mitt Romney after all." (You would have to know me and my religious affiliation in order to understand the import of that statement to her.)

I followed this by the statement, "It may be true, 50 years from now, that historians will look back and declare Bill Clinton one of the better presidents of the 20th Century."

Oh, man, the venom that flew. It's probably best not to mention Clinton in conversations with ostriches. It polarizes, and I think it's the only thing which will elect a Republican president next fall.

I still wonder how much of Romney's ick-factor is more related to media distortion, but setting that aside, he's simply affiliating with the wrong factions for his race.

I enjoyed reading your travelogue, David. My recent experiences this year have taught me that I must (must must must must must!) learn two additional languages *at least*: Mandarin Chinese, and an American dialect of Spanish. The wonder of having people with such differences accessable for conversation demands it.

And then I up and find out that no college in the county is teaching Chinese. The only course available will be available at my daughter's high school, where they've forecast no less than *120* kids who want it. Half are not from Asian-descended families. Time to write to the University higher-ups...

(That, and you get better service at a dim sum place if you already speak Chinese, right? :-) )

Floyd Gilmore said...

I have a bad feeling about the possible outcome of a Democratic landslide in the next election given this prophetic observation by a learned member of the economic sector.

The thought goes something like this;

The Democrats take the White House and a few more House and Senate seats. Their staffs are faced with the hubris and garbage left behind by the Bush II years. The number crunchers and bean counters begin their audits of the debt and what it will cost to pay down sometime before the the beginning of the 22nd century.

Then they will struggle for solutions.

And where they will turn.

And in what form the income should be obtained to pay down the debt as well as everything else the Federal Government needs to do the business of the people.

Sadly, history also shows that some solutions tend to be selected with regularity. The word tax comes to mind.

But who will shoulder this tax?

Any ideas? I believe it depends on who should be culpable for such burdens.Those who inflicted them on the nation. But that's just one middle class American's view.

One last thought before I press Publish.

On a recent episode of PBS's History Detectives, a means of Revolutionary War payment was researched. At the end of the segment, a specialist in the history of early US economics stated that Ben Franklin was the author of, what is in essence, a government promissory note. It also generated the first currency devaluation, causing the value of these notes to plummet.

Download and read the PDF document on the following page.

The link to the PDF transcript is at the bottom of the web page. The good stuff is on page 5 of the document.

Isn't history fun?

Floyd Gilmore said...

This format cut the URL in my last post, making it quite useless.

I'll break it into parts this time. You'll have to cut and past it back together.

Mark said...

I don't get why you tell Barak to change his ways when he is doing exactly what you claim he should be doing. Are you paying attention at all?

Even Hillary has gone largely done this path, though less than Barak.

The only major Democratic candidate acting like you claim they all are acting is Edwards.

Color me confused.

David Brin said...

I agree that B&H are trying to do this. But only pallidly. What is needed is a profoundly aggressive stance, getting right into the faces of conservative americans. Telling them, flat-out, that their entire movement has been hijacked by a gang that has diametrically reversed every conservative principle.

In fact, one of them should give a speech that is openly and honestly directed at decent conservatives. A speech promising to respect them and their views (something they never did to Clinton), but insisting first that they answer a list of maybe forty hard questions.

Make that a hundred.

What riles me is the way moderate liberalism is tainted as un-passionate and equivocating. It needs to be portrayed as militant, fierce, a driving and passionate will and determination to restore the Great Experiment.

A society that gladly embraces openness and argument, instead of hatred of our neighbors and civil war.

David Brin said...

Let me ammend the previous reply. I left an impression that the forty - or 100 - questions would be confrontational and meant to attack conservatism. Far from it!

The questions would be couched in such a way as to show the decent and genuine type of conservative that Hillary or Barack understand and "get" their beliefs and have and will listen to reasonable views, even when they disagree! Nothing disarms an opponent like paraphrasing their beliefs in a way that demonstrates that you understand them... followed by sincerely interested questions.

Nevertheless, the questions would reflect extremely harshly on the neocon kleptocrats.


Should America concentrate first on military readiness to defend our country, and only engage in "political" wars when that readiness will be unaffected?

This is a clearcut "conservative value". Yet, it does not even have to be answered, in order to realize the Bush betrayal of it.

Another: Did we lose in Vietnam because of "meddling in military matters by clueless and dogmatic armchair-general politicians?

Trapped! Conservatives have voiced this rant for 30 years. They would HAVE to nod their heads, and then see Bush-Cheney-Rummy in their minds.

Another: What matters more? Words or deeds? Deeds? In that case, why does the GOP have a reputation for fiscal responsibility, when nearly all of our national debt was rung up in the last 20 years of GOP presidencies?

The list could go on indefinitely, point our - in Socratic question form - betrayal after betrayal that have Barry Goldwater spinning in his grave.

Anonymous said...

Most apropos, and totally astounding: Greenspan rates the economic literacy of the presidents he'd served under

The worst? George W. Bush.

The best? William J. Clinton.

Mark said...

What riles me is the way moderate liberalism is tainted as un-passionate and equivocating. It needs to be portrayed as militant, fierce, a driving and passionate will and determination to restore the Great Experiment.

I'm sure there is a side of liberalism that treats moderates as you claim in the first sentence. But I identify with the modern blogosphere based liberalism, and all they really push for is what you suggest in the second sentence, regardless of the person's ideology. (As long as roughly to the left and a Democrat, of course.) Remember, Warner won largely due to support from the net roots.

What is hated, though, is the form of triangulation rhetoric where the candidate spends lots of energy denouncing the wacky liberals to their left. That works for an individual, but pushes the nation to the right.

I know you hate the left/right paradigm, but I think you raise the wrong point when you complain about it. More interesting than saying it is "outdated" is asking why the convention still holds. There is something real there; what is it? Sure, not everyone fits as lockstep as the paradigm suggests, but the correspondence seems remarkably high. Why?

David Brin said...

I agree there is something "there" in the old LR axis. I use it often myself as a metaphor. And AS a temporary metaphor it can have many temporary meanings.

But when they calcify into "sides" then you get the insanity. Where the definitions are not only nonsense but don't even matter anymore!

The right has changed almost every standard position having to do with "conservative" practices in fiscal, military, foreign or accountability matters. Yet they hew to their loyalty to "the right" and can thus be led down any road, by the annointed leaders of the right.

Left wing catechisms are more fluid. But at their worst they become "politcal correctness". Yes, PC never did much actual harm and even helped rid the language of subconscious racism. STill, it is a nasty and oppressive habit borne of indignation-addiction and it has given food to neocon ranters.

But I drift. The main apparent validity of left vs right has to do with PERSONALITY. At both extremes you have humorless indignation junkies who would be tyrants if they could. But the catechism of the left is loyalty to ever-expanding tolerance and inclusion horizons... a process that they always claim to have invented, even though it is far more the result of rising prosperity and industrial production than it arises from marches and protests.

Still, I marched. My father did, next to ML King. I am wary of the dogmatists, but since the miracle of 47, when the American left cut off the commies, it has always been far more an engine of progress than of any bad thing.

The right (according to horizon hypothesis) features - above all - personality traits of passionate older loyalties and deep suspicion toward people who demand that those loyalties shift. Yes, most right wingers now claim never to have been racists. Many display picture of MLK on their walls. The last thing they will admit is that they HAVE expanded their horizons and that every expansion turned out to be a good thing, after all.

Next, they will become tree-huggers and claim they NEVER obstructed on climate change. When solar shingles are going onto all our roofs, they'll make money off that industry and swear they were big supporters of the research!

No, I don't swallow that this is about dogmas or even the notion that Democrats are statists! Nobody has strengthened the state more that Republicans and dems were responsible for every decent DE-regulation of government that's happened in the last 40 years!

Again, it is personality. Dems are manic about problem solving and will use any approach - even capitalism and balanced budgets - to do that. (They also vastly over-use guilt, which only winds up hobbling their effectiveness. The one dem who beat the GOP every time was Bill Clinton, because, like Ronald Reagan, he appealed to optimism.)

Conservatives hate the manic problem solving personality. They just want leaders who utter the right words and reassure them all is good.

Anonymous said...

But the catechism of the left is loyalty to ever-expanding tolerance and inclusion horizons... a process that they always claim to have invented, even though it is far more the result of rising prosperity and industrial production than it arises from marches and protests.

so if it is based on more prosperity...
if you cut us do we not bleed?
Are we not human?

TheRadicalModerate said...


Nice piece from Hormats--and good to see you taking some time off from your "manchurian conspiracy" shark-jumping practice.

In re. your last post in the comments: You bring up two important points:

1) The calcification into sides is much more rigid than it has been in a long time, if ever.

2) The positions on both sides have mutated. I agree that they've changed more on the right than the left.

I'll buy some differences in conservative vs. liberal personality, but not enough to account for what's going on. There's a common mechanism acting on both sides.

Here's my hypothesis: The portions of the electorate that actually care about politics have unprecedented access to information about public affairs. The efficiency of information flow has increased manyfold in the last 15-20 years.

There is a fundamental change in the system dynamics of how groups organize and identify themselves when information flow is that efficient. Specifically, the efficiency allows the groups to self-select extremely rapidly. Members who might otherwise be sympathetic to a portion of the agenda of a group have any unorthodoxies that they espouse instantly exposed. These members are then either forced to hew to the orthodoxy or leave the group. Those that leave the largest groups run the risk of being marginalized if they can't form their own group with their own orthodoxy, which of course tends to encourage recantation of unorthodoxy.

Look what this does:

1) Positions on issues harden rapidly into orthodoxies. Once they've hardened, they're almost impossible to change because self-selection crowds out any diversity of opinion.

2) Positions on weird issues harden and become as important as positions on more mainstream issues. Again, this is a natural consequence of self-selection. As long as there's room on a group's agenda, any random event can trigger the rapid formation of a position.

This second point is, IMO, one of the main reasons why the hard right appears to have gone somewhat more insane than the hard left. When they got a lot of their agenda (e.g. anti-communism, free trade, reduction in union power, welfare reform) institutionalized in the 80's and early 90's, the lack of a new agenda allowed random stuff to float in and take over. The hard left's agenda didn't suffer quite as badly because it was a bit more stable when the system dynamics actually changed. If the left manages to accomplish some of their agenda, I predict that the stuff that fills the void will be equally nutso.

Note also that the "culture war" fits neatly into this hypothesis as well. Once you're hardened into sides, self-selection prevents any sort of moderation or compromise in your positions. If you can't compromise, you have to demonize the other guy--it's all you've got left.

Forget the manchurian scenario and your "neocon monsters." This systemic change is the true threat to the country, because it's the root cause.

It's also fiendishly difficult to change. You obviously can't reduce information efficiency. Everybody's going to know everything at the same time, allowing each group to marshall its forces and respond by developing a consensus opinion that won't budge once it's formed.

I think the answer must be to find ways of delivering more nuanced, better quality information. As you have pointed out before, the internet is notoriously bad at delivering good data, but the crap that is does deliver it delivers really fast. If you improve the quality of the data, presumably each group will produce more nuanced positions. In nuance lies hope for negotiation.

The other major thing you can change is the process through which groups are formed and identify themselves. If you have a way to slow down the self-selection process through some structural change, you'll get more diversity of opinion within a group. This is why I'm such a big fan of the disputation forum idea. Again, moderation of opinion leads to compromise. Compromise is good.

Andrew S. Taylor said...

I certainly agree that the present crisis is not a "left-right issue", though I perhaps see a wider phenomenon than does David Brin.

The "culture wars" are all the democrats and republicans in govt. have left to distinguish themselves from one another in any categorical sense. Why would they give that up? It's entertaining and distracting. I recall an earlier essay Dr. Brin in which he noted the psychologically addictive nature of self-righteous anger...nothing, or course, is more provocative and easily divisive than the issues of the culture war (gay rights, religion, abortion, etc.), which is why both parties have become so publicly divided on these issues.

If you start with the proposition that both Republicans and Democrats (in national elected office) represent the same social ruling class, and that on any given day, they'd rather have one another in power than give even a farthing's worth of public discourse to Greens, Libertarians, Socialists, or what have you...then the reticence of the Democrats to seriously challenge the neo-cons is entirely comprehensible and predicible. This is why you see so much drama and fiery rhetoric, but very little substantial difference in policy. This is a pretense of opposition, nothing more. The Deomcratic plan is to put up as little genuine opposition as possible while making it seem as dramatic as possible.

All of the things we object to here (or do we?) - the authorization to invade Iraq, the extremes of the Patriot Act, did not exactly happen in an atmosphere of firm Democratic opposition. The skepticism that should have met Colin Powell's transparantly weak UN speech - the "Case Against Saddam" - was almost non-existent from our Democrats in office. I suspect the Democrats, especially those of the Clinton-Kerry school, perceived a "win-win" scenario; if the war goes well, we get to claim we were behind it all the way, and if it goes badly, we can say Bush deceived us. Ditto Bush cronyism - we either get the oil, or we get high oil prices. You can't lose! Call me a cynic (many have), but these things start to make a lot more sense once you assume that there is only one political party in control of things.

Then, once the war lost public support around '05, we have the Democrats arguing -finally, and after years of protest from us proles - that "we need to pull out!" and Republicans replying "Cut and run sissies!" Totally disingenuous on both sides - for those same years, all you have to do is look at the substance of each side's proposals for Iraq, and you find that both parties are in essential agreement about policy, with perhaps some organizational differences - i.e. "at what point do we discuss setting a timeline?" Republicans were using the "cut and run" accusation against dems, saying "we cannot" leave until the enemy is defeated", when in fact their actual plan (it was no secret) was to hand the problem over to Iraqi security forces ASAP. Same for the dems - they just wanted it to happen a bit earlier.

The war against professionalism is a real phenomenon, though, I will certainly concede that point. What's new, however, is only the magnitude and audacity. It is possible that the Bushies simply lack the nuance and finesse of their predecessors?

The respect of the world at large has certainly been lost, though the opposition before the Bush years - let's be fair and honest - has always extended far beyond a few lefty enclaves in Paris or what have you.

Enterik said...

RADICALMODERATE: Note also that the "culture war" fits neatly into this hypothesis as well. Once you're hardened into sides, self-selection prevents any sort of moderation or compromise in your positions.

ENTERIK: While I agree with your overall thesis, I would refine your concept of moderation. Information efficiency has a way of compartmentalizing and idealizing its consumers. Overtime it draws pragmatics, moderates and centrists (mostly all ambivalent conservative-liberals) from the unaffiliated or loosely affiliated pool into a sharply defined political camp wherein the process of radicalization you describe begins in earnest. And it is in your self-selected groups that the Overton window may actually function. I think that both dominant camps have split a majority of the voters and are now wrangling over the remainder, the newly minted voters and the nonvoters. How do saner minds prevent the shift from pragmatic to idealistic? I wish I knew, I'd like to say inquiry based education (see NAS websites for detailed recommendations). The lure and addictiveness of idealism may need to be precise balanced between numerous factions, with a subset of voters tilting the balance based on moderating and pragmatic considerations.

ANDREWTAYLOR: This is why you see so much drama and fiery rhetoric, but very little substantial difference in policy. This is a pretense of opposition, nothing more.

ENTERIK: My cynical persona says that the Democrats knew we needed to defend our fiat currency and sought plausible deniability in a carefully worded Authorization of Military Force. They know that there role in the scheme of things is to make the world love us again. Later our militant, greedy, abusive party will grab what we need and wreak havoc. As a people we can feel both tough and altruistic, we can take risks and play it safe, we can enforce and we can nurture, ambivalent as need be. More than the GOP, I feel the Democrats represent our better intentions, even if they don't necessarily midwife them as much as I would like. For example, the recent minimum wage increase is a laughable crumb, by the time it is phased in, at least half of the added value will be eroded if current levels of inflation hold and we weaited 10 years for that? and it ain't even indexed to CPI? I like to tell myself it is because we have a sitting GOP President and no veto proof majority. regardless, could we ever realistically expect the GOP to forward such a common sense adjustment?