Thinking

The Sudden Death of the Neoliberal Consensus

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We wake up. It’s the day after. Fear and anxiety mixed with bile rises up from the pit of the stomach to the throat. How? We ask ourselves. How could this be? How could a con man bluff his way to the White House? How could Americans elect a television huckster to the highest office of the land? How could hopeful dreams of breaking the glass ceiling be shattered by—of all people—a sexual predator? Are a majority of Americans really nativist and xenophobic?

Is the American republic under threat? Is it 1933 all over again? Is this how fascism comes to America?? What will happen when the man takes office? Do brown people need to fear for their life and limb? Will Homeland Security turn into an intrusive state police kicking down doors and intimidating nonwhites? How resilient are the institutions of the constitutional republic? And what lies in store for the liberal international order that Trump has threatened with a bludgeon?

I don’t have an answer to any of these questions. Trump is an absolute wild card. The next four years could be a farce. Or they could be the late 1930s. We just don’t know.

A friend of mine asked me if there is a genuinely insightful narrative to explain what is happening in the West. Here is what I wrote:

Over the next few days, we’re going to be bombarded by a million explanations. I want to suggest a rule of thumb as we sift through them. Any good explanation must explain the geographic, temporal and class distribution of the turn to populism in the West; including and especially, dogs that did not bark. (For instance, American race relations cannot explain the developments in Europe.) With that in mind, I’d like to put forward an explanation that builds on the insights of Karl Polanyi, Dumenil and Levy, Case and Deaton, and Eric Hoffer.

Polanyi argued that society responds to the whiplash of the global market economy by clamoring for protection. This works largely through the labor market whose disruptions threaten to annihilate the body social. In his reading, the connection between the political and the economic goes through the labor market which is where society lives.

Dumenil and Levy have shown that the neoliberal counterrevolution was a political project to resurrect the liberal international economic order. The rise of neoliberalism can be traced to the stagflation crisis of the seventies which opened the way to a revolution from above. The counterrevolution was consummated in the nineties as the center-left largely abandoned pro-labor policies and in the process established the neoliberal consensus wherein there were no centrist alternatives to the rigidly pro-wealth, pro-finance, pro-globalization, anti-welfare, anti-inflation policy mix.

The neoliberal consensus held as long as the world economy was in the up-cycle; that is, until the outbreak of the Western financial crises. During the up-cycle the unshackling of the global economy had amplified the medium-term (8-30 yr) financial cycle in wealth, credit, and asset prices. The down-cycle that followed, whose amplitude was equally large, led to especially deep and long-lasting balance-sheet recessions that decimated the labor market; that is to say, the body social. (The unemployment rate in many Continental nations is still in double digits.)

All was not hunky-dory during the up-cycle either. The addition of Asian workers, especially the Chinese, to the effective global labor market, suppressed wages and employment in the West. The result was redistribution of income from the rich world lower and middle classes up to the rich and the highly-skilled and out to the low-income working class (captured in the so-called elephant curve of global income gains, see chart).

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That these twin developments hurt the great white beast is an understatement. Case and Deaton uncovered evidence showing an epidemic of self-destruction in precariat white communities in fly-over country. They documented that there have been an astonishing half-a-million excess deaths in this demographic as a result of suicide and drug overdose since 2000.

Eric Hoffer argued that decaying political orders swell the ranks of the frustrated who are ready to demolish the political center and start over. What happens in a mass-movement is that differentiated individuals are marshaled by a demagogue into an undifferentiated, solid mass of identical particles, that is then deployed as a bludgeon to demolish a decaying political order.

I believe what we have witnessed is the sudden death of the neoliberal consensus in the precise manner expected by Hoffer. The West has seen two previous periods of extended economic crises: 1930s and 1970s. The present crisis has much more in common with the general crisis of the 1930s than the 1970s. And that is very, very scary.

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World Affairs

What the Leaked Shortlist for SecState Says About Clinton’s Foreign Policy

Democratic presidential candidate Clinton discusses the Iran nuclear agreement in Washington

Nothing tells us more about an incoming President’s foreign policy agenda than her pick for Secretary of State. Indeed, even more important than the actual pick is the short list, which gives a sort of overview of the administration’s foreign policy agenda. The shortlist reported by Politico and clearly leaked by the Clinton campaign, is therefore of considerable interest.

The press has focused on Joe Biden. The inclusion of Joe Biden is probably just a publicity stunt. Given the man’s name recognition Biden’s inclusion is aimed at generating positive media coverage. Even if he is seriously being considered that tells us little about Clinton’s agenda beyond the obvious nod to the Obama White House.

First consider who is not on the list. Secretary John Kerry: Despite all the talk about extending Obama’s work, by ruling out Kerry, Clinton is sending a clear signal that the new administration will be turning over a new leaf. Jake Sullivan: The name of the campaign’s unofficial foreign policy lead has not been floated. This doesn’t mean he is not being considered. Clinton may simply not wish to air the name of campaign insiders. Whether in State or in the White House, Sullivan is going to be a foreign policy principal. He is a known liberal interventionist who’s views are entirely congruent with Clinton’s. In the unlikely event that he is appointed SecState, he’ll be no more than a yes man. Tom Donilon: Obama’s former National Security Advisor is now attached to the Clinton camp. But his appointment as SecState is a very unlikely. The man has status issues with his boss.

Who’s actually on the list? Two names are obviously placed there for the sake of appearances. Wendy Sherman, the lead negotiator on the Iranian nuclear talks, is a sop to the doves. She simply doesn’t have the gravitas for the job. Admiral James Stavridis is a bureaucrat who’s vision for the American navy is centered on feel-good talking points and photo-ops. Neither is a serious contender.

So who is actually in the running that’s on the list? There are four serious contenders. Kurt Campbell, a key architect of the “pivot to Asia.” Bill Burns at the Carnegie Endowment for International Peace, known for his moderate liberal institutionalist views. Strobe Talbott, a personal friend of the Clintons and the president of the Brookings Institution, the think-tank recently criticized by the Times for close ties to foreign governments including gulf states. And most importantly, Nick Burns at Harvard, a foreign policy hawk who has promoted a hard line against Russia and Iran including imposing safe zones in Syria, and who has been a prominent critic of Obama’s foreign policy.

The real short-list reveals the full spectrum of the admittedly narrow liberal hegemonist world view. Campbell’s inclusion says that Clinton is committed to the pivot to Asia. If he is actually appointed that would reflect favorably on Clinton’s priorities. Bill Burns is the resident dove who is least likely to be appointed. But if he is, that would mean that Clinton is backing away from her hitherto hawkish agenda. Talbott would’ve been a front-runner but his appointment would now be quite controversial. Floating his name seems like a personal compliment.

In the Policy Tensor’s view, Nick Burns is the most likely pick. He will, of course, sail through the Senate confirmation process. His appointment would signal a return to a much more muscular US foreign policy.

The central flaw of the Clinton-Burns view is their assumption that the United States has permanent allies (Europe, Japan, Turkey, Sunni Arab states) and permanent adversaries (Russia, China, Iran, Syria). Obama’s biggest foreign policy achievements, Iran and Cuba, came from an outright rejection of this frame of reference. If Clinton appoints Nick Burns, she would be effectively burying Obama’s experiment with foreign policy realism. The United States would get dragged further into the Middle East cauldron and necessarily ignore the much more important arena further east (since there is, after all, limited bandwidth in DC). In light of the loss of the Philippines to China, this would be a grave mistake indeed.

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World Affairs

Did the Saudi Government Secretly Support ISIS?

On August 17, 2014, Clinton wrote to John Podesta, then Counselor to the President and later her campaign chair, outlining the intelligence on ISIS and laying out her policy position on how to deal with the challenge. Most of the stuff—on FSA, peshmerga, Turkey and so on—is clear from open sources but there was one particular bombshell. She claimed that the governments of Qatar and Saudi Arabia provided clandestine financial and logistic support to ISIS. Here’s the full paragraph:

Armed with proper equipment, and working with U.S. advisors, the Peshmerga can attack the ISIL with a coordinated assault supported from the air. This effort will come as a surprise to the ISIL, whose leaders believe we will always stop with targeted bombing, and weaken them both in Iraq and inside of Syria. At the same time we should return to plans to provide the FSA, or some group of moderate forces, with equipment that will allow them to deal with a weakened ISIL, and stepped up operations against the Syrian regime. This entire effort should be done with a low profile, avoiding the massive traditional military operations that are at best temporary solutions. While this military/para-military operation is moving forward, we need to use our diplomatic and more traditional intelligence assets to bring pressure on the governments of Qatar and Saudi Arabia, which are providing clandestine financial and logistic support to ISIL and other radical Sunni groups in the region. This effort will be enhanced by the stepped up commitment in the KRG. The Qataris and Saudis will be put in a position of balancing policy between their ongoing competition to dominate the Sunni world and the consequences of serious U.S. pressure. By the same token, the threat of similar, realistic U.S. operations will serve to assist moderate forces in Libya, Lebanon, and even Jordan, where insurgents are increasingly fascinated by the ISIL success in Iraq.

Now it is well understood that private donors in the gulf, including and especially rich Saudis and Qataris, have provided significant funding for ISIS. But Clinton said quite explicitly that the Saudi and Qatari governments were providing clandestine support. If the claim is true then this would be the greatest national security scandal in US history. For the United States government has gone out of its way to portray the Saudis as a valuable partner in the fight against ISIS.

The US has also gone out of its way to support the Saudis’ aggressive foreign policy in the region. Despite knowing that the Saudi terror bombing of Yemen would strengthen AQAP, the administration has provided blanket operational support for the air war. In Bahrain, the administration quietly acquiesced to the Saudi intervention to quell the uprising of the island’s majority Shia against the Al Khalifa. In Syria, the administration has repeatedly signaled its support for Saudi-backed salafist insurgents—often described as Western-backed—despite considerable concerns about their sectarian and ideological agenda.

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President Obama and Saudi Deputy Crown Prince Mohammed bin Salman

The systematic appeasement of the Saudis is presumably meant to mollify Saudi anger about US policy vis-à-vis Mubarak and the nuclear deal with Iran. But if it is publicly established that the Saudis directly supported ISIS, that would completely undermine domestic support for the US-Saudi alliance. Put simply, Saudi Arabia would become a pariah. Instead of talking about strengthening the alliance, we would be talking about containment. So this is an issue of considerable importance.

ISIS poses an existential threat to Saudi Arabia since the self-styled caliphate rejects the Saudis as the legitimate protectors of the two holy mosques; a job which would naturally fall on the caliphate if one were in existence. The Kingdom has also been the target of ISIS and its predecessors. The Saudis could conceivably use ISIS as a bludgeon against Assad and the Iranian-dominated regime in Baghdad. But such a policy would come with grave risks.

Even supposing that the Saudis could stomach the risk and bankroll ISIS, the second part of the claim is even less credible. For if US intelligence was aware of Saudi clandestine support for ISIS, that information would be extremely difficult to suppress. It is hard to imagine that the administration would bank on keeping the lid on this explosive affair. Indeed, if it ever came out it would ruin the career of every single person involved in the conspiracy to cover up a matter of such grave national security interest.

A much more credible interpretation is that Clinton was being flippant. What she meant to say perhaps was that the indiscriminate support provided by the Saudis and the Qataris (as well as Turkey) for the insurgency against Assad was helping ISIS. Specifically, that the flow of weapons and funds from the gulf regimes to the insurgents was ending up with ISIS. There is considerable evidence to suggest that weapons and monies meant for other insurgent groups ended up in ISIS’ hands through raids and defections. The addition of a single word, inadvertently, would rehabilitate her claim:

While this military/para-military operation is moving forward, we need to use our diplomatic and more traditional intelligence assets to bring pressure on the governments of Qatar and Saudi Arabia, which are [inadvertently] providing clandestine financial and logistic support to ISIL and other radical Sunni groups in the region.

I believe this is the correct interpretation of the email. If I am wrong and Clinton’s words can be taken literally, then we may be facing a true game-changer in the Middle East. But pending further revelations, it would be unwise to give it much credence.

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Thinking

Was the Release of the Lewd Trump Tape Timed to Coincide with the Wikileaks Clinton Dump?

Sexual predator. The phrase popped into my head while listening to Donald Trump and Billy Bush’s so-called locker room banter. Except this wasn’t harmless locker room banter. This was a textbook illustration of rape culture.

Trump: You know I’m automatically attracted to beautiful — I just start kissing them. It’s like a magnet. Just kiss. I don’t even wait. And when you’re a star, they let you do it. You can do anything. 

Bush: Whatever you want.

Trump: Grab them by the pussy. You can do anything.

Note that Trump is literally bragging about sexual assault: Non-consensual kissing and grabbing of women’s genitals.

The revelation has gravely injured the Trump campaign. Numerous Republicans have withdrawn their support. Trump’s numbers with women were already appalling. We can now expect them to collapse. This may well turn out to be the arrow that slayed the monster.

Was the Clinton campaign behind the story?

Whosoever had this tape must’ve been sharply aware of its explosive potential once Trump started dominating the Republican contest. But they sat on it even as Trump secured the GOP nomination. This means that the original source’s sympathies did not rest with Trump’s Republican adversaries. That they released it at all means that their sympathies did not rest with Trump either.

Even after the general election campaign started in earnest, the source sat on the tape. What were they waiting for? Why release it on Friday, October 7?

Modern presidential campaigns have extensive operations to dig up dirt on their adversaries. Since they have the greatest stake in the matter they hire armies of sleuths and devote considerable resources to the effort. If there are skeletons to be found in the closet of their adversary, there is a good chance a priori that their black ops team would find them.

Assume that the Clinton campaign had discovered the tape. What would be the ideal time to surface it? If I were a strategic advisor to the Clinton campaign, I would advise them to hold it in reserve and use it as a defensive weapon when the campaign was at a serious risk of being harmed. In particular, I would hold it in reserve to use against any “October surprise.”

Now, Assange had been promising a game-changer for a while and more recently dropping hints of a major dump this week that would hurt the Clinton campaign. Here was the “October surprise” that Clinton strategists had been waiting for.

The unnamed source who had the tape called Washington Post reporter David Fahrenthold around 11am on Friday, October 7. The Post published the story at 5pm on the same dayAt 6pm, Wikileaks dumped a treasure trove of Clinton campaign emails online.

It seems that the Clinton campaign timed the release of the Trump tape absolutely perfectly. The operation ensured that the sordid Trump story would drown out the Wikileaks dump. It was straight out of The Art of War. I can almost hear the champagne popping in Brooklyn.

This may sound like a criticism of the Clinton campaign’s machinations. Far from it: The affair demonstrates the strategic superiority of the Clinton campaign. Not only do they have a bigger war chest and a superior ground operation, even their strategists are more cunning. The Policy Tensor is impressed.

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Markets

A Whopper From the President

Wages have risen faster in real terms during this business cycle than in any since the 1970s,” according to the president. That doesn’t sound credible to anyone aware of the tepid pace of wage growth. As I’ll show, he is not even close.

We date expansions as beginning in the first quarter after an NBER recession and ending in the last quarter before the next recession. We then calculate real wages as the ratio of total wages and salaries (BEA) to total hours worked (BLS), deflated by the headline inflation index (FRED). Figure 1 shows the overall gains in real wage per hour during the expansions under the four two-term presidents since the 1970s. We see that real wages grew 11% during the Clinton expansion, whereas they have only grown at 4.2% in the Obama expansion. Indeed, Obama’s performance is even slightly worse than Bush’s 4.5%.

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Figure 1.

But the president did not say wages have grown the most in his expansion; he said they have grown the fastest. Since the expansions are of different lengths—ranging from 24 quarters under Bush to 40 quarters under Clinton—perhaps the president has a point about the pace of gains in real wages?

Not even close. Figure 2 shows the annualized growth rate of wages per hour in the four expansions. We see that although the gap is narrower by this metric, the Clinton expansion still yielded significantly larger real wage gains than the Obama expansion (1.05% vs. 0.59%). And instead of being statistically tied, Bush pulls away from Obama. His expansion saw an annual increase of 0.73% in real wages per hour. Meanwhile, Reagan lags behind at 0.41%.

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Figure 2.

The White House itself publishes annual estimates of real wages that are included in the Economic Report of the President. Unlike the BEA’s numbers which are for all employees, these are for blue-collar workers only (“production and nonsupervisory workers”). And because the numbers are annual, we have to make a choice of which years to include. We date our expansions from the first year after the end of an NBER recession and the last year before the next NBER recession. For example, the Clinton expansion is taken to be 1991-2000 since the first recession ended in the last quarter of 1990 and the next one began in the first quarter of 2001. We then calculate the annualized gain in real wages per hour for blue collar workers from the data provided by the White House. Figure 3 displays the results.

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Figure 3.

We see that according to the president’s own numbers, blue-collar workers did nearly twice as well under Clinton than under Obama, even as the working class did twice as well under Obama than under Bush. During the Clinton expansion, blue collar wages per hour grew at the pace of 0.73% per annum, versus 0.4% per annum during the Obama expansion. Meanwhile, blue-collar workers got shafted under Ronald Reagan. Their real wages per hour fell by 2.8% between ’83 and ’89.

The bad news is that this has been the worst expansion for the middle class since Reagan. The good news is that the Clintons will be back in the White House soon.

………

Correction: An earlier version of Figure 2 displayed quarterly growth rates instead of annualized growth rates for real wages per hour in the four expansions.

Appendix. Quarterly growth in real wages since the 1970s.

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Markets

An Illustrated Guide to the US Financial Cycle

Claudio Borio of the Bank of International Settlements is one of the most interesting and original economists of the day. A key innovation of his is the concept of the financial cycle. The idea is that the excess elasticity of the financial sector has dramatic consequences for real activity. Specifically, the supply of credit to the real economy is much more elastic than macroeconomic models have hitherto assumed or would be justified by macroeconomic fundamentals. In good times credit is plentiful and even very dicey borrowers can obtain credit quite cheaply. In difficult times even worthy borrowers find it hard to secure credit.

In order to empirically capture this boom-and-bust cycle, Borio and others developed a measure that uses filtering techniques. The idea is to isolate medium frequency movements in key indicators: credit-to-GDP ratio, total credit to the private sector, and property prices. Borio showed that the comovement of these indicators captures national financial cycles for a number of countries.

Technically: Borio uses a bandpass filter to isolate cycles with length ranging from 8 to 30 years in these three variables and averages them to obtain the financial cycle. Figure 1 displays Borio’s financial cycle for the United States.

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Figure 1. Source: Claudio Borio

I recomputed Borio’s financial cycle with more recent data. Figure 2 displays the US financial cycle from 1976-2015. We see that the financial cycle has turned since Borio calculated it.

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Figure 2.

US housing has always been a leading indicator of economic activity. Housing-finance is the primary channel through which the excess elasticity of the financial sector propagates to real activity. In what follows, we will see that a single metric of housing-finance, namely mortgage credit-to-gdp, captures the comovement of the components of the US financial cycle quite well. Figure 3 displays raw and detrended US mortgage credit-to-GDP. We can see the extraordinary boom in the run-up to the Great Financial Crisis. Figure 4 displays filtered US mortgage credit-to-GDP from 1951-2016 (using the same bandpass filter).

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Figure 3.

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Figure 4.

The US housing-finance cycle has become increasingly coupled to credit-to-GDP (Figure 5). It has long been coupled to property prices (Figure 6) and has become increasingly synchronized with the raw credit cycle (Figure 7).

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Figure 5.

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Figure 6.

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Figure 7.

Figure 8 displays the comovement of the US financial cycle and the US housing-finance cycle as measured by mortgage credit-to-gdp. We can observe three closed financial cycles that can be identified either by the three peaks or the four troughs. Mortgage credit-to-GDP (the US housing-finance cycle) barely rose in the first. Then there was a discernible but mild boom in mortgage lending during the late-1980s financial boom. But in the financial boom of the 2000s the two were phase-locked; so to speak. Note the increasing amplitude of both the cycles and the rigidity of the comovement in the last cycle. The past twenty years have witnessed a coupling of the two cycles.*

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Figure 8. The US financial cycle and the US housing-finance cycle.

What explains the coupling of the financial and housing-finance cycles? One word: Securitization. Basically, the extraordinary amplitude of the financial cycle in the lead up to the Great Financial Crisis was the result of shadow lending. Figure 9, 10, and 11 show the contributions of banks and credit unions, US housing-finance agencies (“Agency MBS”), and shadow banks (“Private-label MBS”) respectively. Shadow lending accounted for 90% of the increase in mortgage credit-to-GDP during the housing-finance boom of 2003-2007.

Shadow banks here refers to finance companies, ABS issuers, and mortgage real-estate investment trusts (M-REITS), which are essentially artificial firms created by Wall Street to warehouse the raw material (mortgages) used to manufacture financial assets. Thus, securitization brought expanding dealer balance sheet capacity to the housing market and thereby amplified the US housing-finance cycle.

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Figure 10.

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Figure 11.

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Figure 12.

An interesting question for future research is whether housing-finance cycles are synchronous with financial cycles more generally. That is, is this an American peculiarity or is it true of other countries as well? Another open important question is how Borio’s financial cycle relates to Rey’s global financial cycle which is defined in terms of the comovement of global asset prices.


*We know from Rognlie’s work that the growing share of capital income in total income is explained almost entirely by capital gains on real-estate. That’s a third closely-related cycle.

 

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Thinking

Gary Johnson and the Case for Isolationism

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Gary Johnson’s humiliation (“What is Aleppo?”) at the hands of Mike Lauer of NBC has gone viral. Johnson’s remarkable ignorance of foreign affairs is widely seen as disqualifying. This is not an unreasonable judgement but I will argue that it is mistaken. The knowledge and sophistication of the President herself is of secondary importance. What matters first and foremost is the nation’s grand strategy.

The Libertarians, including and especially Johnson (“No more policing the world”), are Isolationists. Because Isolationism has been demonized for decades Libertarian political entrepreneurs try very hard to avoid the label. But that is also mistaken. Isolationism is and will always remain a viable and attractive grand strategy for the United States.

A grand strategy is a state’s core formula for survival and security in a dangerous world. It serves as the organizing principle of foreign policy. Great Britain’s nineteenth century grand strategy was to maintain maritime primacy and act as an offshore balancer on the Continent. Bismarck’s grand strategy in the 1870s and 1880s was to ensure that Germany was always in a “party of three” among the five great powers. Both grand strategies were informed by the geopolitical positions of the state and were thus very effective.

The first fundamental fact about the United States’ geopolitical position is that vast oceans separate the United States from all other great powers. Because of ‘the stopping power of water,’ even if the United States were not the strongest state in the system it would continue to remain extraordinarily secure. The second fundamental fact about the US’ geopolitical position is that it has been the strongest state in the system for over a century.

Because of these fundamental geopolitical facts, the United States enjoys extraordinary leeway in choosing its grand strategy. Unlike any other great power in the system, the United States can choose its level of strategic engagement outside its home region. Different grand strategies correspond to different levels of strategic engagement. Put another way, the United States can choose to define its national interest more and less expansively and deploy its considerable power resources accordingly. There are five main grand strategies available to the United States which can be ordered by the level of engagement:

  • Pure Isolationism: US forces would be withdrawn to the US homeland. And the United States would strategically disengage from the rest of the world (incl. S. America) leaving it to other powers to sort it out. It would continue to interact with the rest of the world economically and culturally but not in the security sphere. Instead it would husband its own strength.
  • Hemispheric Isolationism: The US defense perimeter would be withdrawn to the middle of the Atlantic and the Pacific; thus strategically isolating the western hemisphere. The US would maintain preponderance in the hemisphere but avoid security interactions with Eurasia unless the western hemisphere is threatened.
  • Offshore Balancing: The US would maintain global maritime primacy and prevent other great powers from replicating its feat of achieving regional preponderance. In practice, this means that the US would strive to maintain a favourable balance of power in the two extremities of Eurasia. However, US forces would not be deployed on Eurasian land unless they were necessary for deterrence (as was the case in Europe during the bipolar era). It would also ignore weak states unless there was a clear threat.
  • Defensive Hegemonism: The United States would play the role of the global policeman. It would take it upon itself to defend the territorial order by the force of its arms; identifying its national interest with the stability and security of the international system. It would seek to contain near peers and grow its retinue of protectorates. US forces would be deployed across the world for deterrence and enforcement of rules multilaterally when it can and unilaterally when it must.
  • Offensive Hegemonism: The United States would play the role of the global policeman. But instead of simply defending the territorial status quo by the force of its arms it would seek to forge a more favourable international order. It would in effect act as a revisionist hegemon, seeking to “roll back” near peers instead of containing them, and conquering and reconfiguring weak confrontation states where possible.

In accordance with Parkinson’s law of international politics, the definition of US national interest has expanded along with its relative power. In the first century of its existence, the United States followed the strategy of Pure Isolationism. During the 1890s the US shifted to Hemispheric Isolationism. In the short twentieth century (1915-90), the United States deployed military forces in Eurasia to defeat and contain a sequence of potential regional hegemons (Imperial Germany, Imperial Japan, Soviet Union) and sought and achieved maritime primacy in accordance with Offshore Balancing. With the capitulation of Soviet Russia and the advent of the unipolar world, the United States has lurched back and forth between Defensive Hegemonism and Offensive Hegemonism.

Pure Isolationism is not a viable grand strategy for the United States; nor has it ever been entertained as such since the United States emerged as a great power. It would mean the end of the Monroe Doctrine; something that is unlikely to be on the table for a very long time. Offensive Hegemonism is also no longer on the table since it is widely seen to have been tried and failed. The lesson that US policy elites have learned from Iraq and Afghanistan is that the costs of stability operations are simply incommensurate with the expected gains. As former Defense Secretary Robert Gates put it:

Any future defense secretary who advises the president to again send a big American land army into Asia or into the Middle East or Africa should have his head examined.

We are thus left with (Hemispheric) Isolationism, Offshore Balancing, and (Defensive) Hegemonism. Loosely speaking, Libertarians prefer Isolationism; Realists prefer Offshore Balancing; and Liberals (esp. beltway foreign policy wonks) prefer Hegemonism.

The Policy Tensor prefers Offshore Balancing but that is not because Isolationism is not viable. Isolationism has the virtue of being cheap. Bringing the boys home would allow the United States to cut its wasteful defense spending. More importantly, the United States would entirely avoid meddling in weak states (which is also true of Offshore Balancing). And perhaps most importantly, it would remove a major driver of friction with other great powers.

A key issue in the coming years is whether a rising China should be contained or accomodated. In particular, Whether, and if so when, the United States should surrender maritime primacy in the Western Pacific. Isolationists would argue that even if China were to become preponderant in Asia, it would not threaten the United States. And this is indeed the case if US national security interests are defined exclusively in terms of the defense of the homeland, which would remain protected even after the exit from unipolarity as a consequence of the insularity of the US homeland and strategic nuclear deterrence.

If however, continued prosperity and international influence are seen as vital US national interests, then Isolationism would likely fail to achieve it. In particular, US access to world markets and resources would be subject to the veto of other great powers who would take the place of the United States in the game of world power. The Isolationists would counter that the United States would not suffer very much at all even if China became the dominant power in Asia because the United States would remain a very attractive trading partner and source of technology and innovative ideas. That depends on the state of the world. If the United States poses no threat to other great powers, they may be willing to grant it access to world markets. If they see the United States as a potential threat, they may not. In either case, the United States could easily survive but it might be poorer and marginalized.

The fundamental issue then is whether global influence is a vital interest of the United States. Isolationists argue that global power and influence are unnecessary and probably immoral. I don’t agree with it but is a consistent and ethical position. And it should be up to the American people to choose. The American people have in fact long been denied this choice. I therefore hope that Gary Johnson makes it to the debates.

 

 

 

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