Wednesday, August 23, 2017

Personal Observations

One of the advantages of getting older is perspective.  You can see things evolve on a timeline.   You presumably get better at managing your business and personal relationships because you have seen it before.  You don’t get thrown as often.   And you see things grow and change over time—both good and bad.  

But some things are unprecedented.   I am old enough to remember some of the social turmoil of the 60’s—the race riots after Martin Luther King was assassinated, the assassination of Robert Kennedy, the Vietnam War protests, the Kent State massacre and the 1968 Democratic convention.  The unrest felt scary at times, but I was a young boy.   The unrest today appears to have a decidedly different bend.  The protests of the 60’s were aimed largely at American policies.  The unrest today in many cases is aimed at America and American heritage itself.   Those on the right blame it on the left’s penchant for practicing identity politics. Those on the left blame it on various forces—class, gender, race, exclusion and all that.

But I believe the friction this time has a more fundamental basis.  Over a year ago, my old friend and economist Carl Tannenbaum asked me why I thought a person like Donald Trump had risen to contend for the Republican nomination at this particular time.  I responded with the Bill Clinton explanation, “It’s the economy, stupid.” (and no, I didn’t mean it to be a jab at him).  It is the underlying economic discomfort and despair of a slow growth economy coupled with technological displacement.  And it is being felt mostly in the heartland.  And while Mr. Tannenbaum undoubtedly has access to much more data than I can produce, and is more adept at interpreting it, I offer only my personal observations to suggest that this is true.  America is reputed to be the Land of Opportunity, of innovation and advancement, of continuous improvement and betterment, where each generation can move farther ahead than the preceding one.   And indeed, in the course of my lifetime, I have witnessed great achievements--- man’s landing on the moon in 1969 and the stunning defeat of the world’s third largest army in 100 days in 1991, for instance.  Technological achievements have lengthened life spans, sped up communications, and brought cheaper and a wider variety of food to the tables of Americans.  America is now nearly energy independent or nearly so.

But the places of my childhood present a sobering picture and, I think, are representative of what is going on in the wider heartland.   I had a somewhat bifurcated youth, going to school in an inner city ethnic community in Chicago, but spent my summers in rural Wisconsin.  While time can often distort memories, there are objective observations that tell us that both communities have worsened considerably over 50 years.

My neighborhood in the city was never very wealthy.  Nestled between Bridgeport and Marquette Park, Brighton Park was a blue collar enclave, comprised of mostly Polish, Lithuanian and, later, more Mexican immigrants.  Policemen, firemen, city workers, skilled labor and some unskilled labor made up the bulk of the population.  There were many small manufacturing companies and some larger employers like Nabisco and William J. Wrigley.  The crime rate was relatively low and parks were crowded in the summer with industrial 16 inch softball leagues, and kids jammed the pools on hot summer nights.  In the early 80’s, the Chicago Tribune ran a nice article about how well the Eastern European and Mexican populations got on together.  There was some poverty, but it was generally well-hidden.

Fast forward to today.   Many of the large industrial employers are gone.  A recent documentary film that featured the girls’ soccer team at my old high school (In the Game) spoke of an 80% poverty rate.  Burned out or abandoned houses are not uncommon.  The Catholic grade school associated with my old parish is long closed.  Brighton Park is now  a veritable shooting gallery.  Mothers are afraid to let their children go out and play. Gang killings are a weekly occurrence.   Most notoriously, 10 people were shot last spring at a vigil for others that had been shot.  The level of deterioration of the community is breathtaking.  It went from modest working class to Lord of the Flies in a generation.
But small town Wisconsin too, has slipped, although not as dramatically.   I recently visited and noticed that the little town and surrounding area had noticeably changed from the place I spent my summers.  The landscape, once dotted with old German and Swedish dairy farmers still has some farms but they are much less numerous.   I had a hard time even finding a produce stand.  Many of the homes seem overgrown and unkempt although there are some larger, newer homes that I suspect are inhabited by retirees from Milwaukee or Chicago.   The general store in the little town is now an animal shelter.   The gas station is now a used car lot, filled mostly with clunkers.  The local tavern doesn’t sell food or beer tap anymore, and is dark and musty.  The little decorative stone waterfall and pool in the middle of town doesn’t flow anymore and the pool is fetid and full of algae.  These are all signs of economic deterioration as the once sprightly farming and resort community lost many of farms, breweries, and cheese factories that supported these local businesses.  While not as dramatic as the decline of inner city Chicago, the ebbing is still palpable.


I can’t help but think there are many, many communities across the Midwest that are in visibly worse condition than they were 30, 40  or 50 years ago.   The signs of decline are everywhere.   And I posit that the social and racial discord that we are experiencing today are not rooted as much in animus as in the economic decline that people know and sense.  The photo above is what remains of what was a beautifully maintained red and white farmhouse that was landscaped with flower beds and inhabited by a German family 50 years ago.  The picture says it all.  And it is, I believe, why reverberations are being felt in our country.

Tuesday, August 15, 2017

Trump Gets Schooled

The conventional wisdom today, especially among Trump supporters is that Trump's tough stance on North Korea got him to stand down.  Kim Jung Un announced that we was not going to fire at Guam after all, after he received plans from his generals to turn the U.S. base into a "ring of fire."  Pundits had been comparing the crisis with North Korea to the Cuban Missile Crisis after it was revealed that North Korea had apparently mastered the technology to miniaturize a nuclear warhead and fit it onto a missile. The crisis persuaded China to cut off North Korean imports of coal, iron and lead.  General Mattis warned as late as yesterday that it would be "game on" if the North Koreans fired at or near Guam. 

The world breathed a sigh of relief when Kim Jung Un announced that it would not do so but reserved the right to change his mind if the U.S. continued in its "reckless behavior."  Memadbers of the administration are high fiving each other, convinced that as in the Cuban Missile Crisis, we went eyeball to eyeball with the Norks and the Norks blinked.

That's not how I see it.   Round 1 goes to North Korea.  Kim Jung Un got all of what he wanted. Trump came away empty handed.   Kim Jung Un played a weak hand masterfully, just as Putin did with Obama.  The man that brags about his negotiating skills got outblustered.

As I predicted, a bad actor would probe the new president to find out where the lines were.  By creating this crisis, Kim Jung Un revealed where all the lines existed.  Last week China announced that the little dictator would be on his own if he fired first at the U.S. but that they would come to his aid if the U.S. launched a preventive war.   Trump responded correctly by bluntly announcing that North Korea would face "fire and fury" if it attacked first.  This blunt language permitted the left wing media to jump to the side of the North Koreans, with the number 2 Democrat publicly stating that Kim Jung Un "is acting more responsible" than Trump.  Others in the MSM voiced similar sentiments.

The only way that the North Korean problem will be solved is through crisis which ends in a negotiation.  Yes, the Chinese implemented some sanctions, but the North Koreans have shown that they can withstand sanctions and over time, those will either be evaded or relaxed. Now that the crisis has abated and he has successfully recruited the American Left as an ally, there is no immediate pressure to pressure the Chinese into leaning into him harder.  The consequence is that Kim Jung Un will, over time, find Chinese sanctions relaxed, the Americans relying on deterrence, and he has learned where everyone's "reserve price" is.  

Well played.  He will keep his program.  And soon the Iranians will have their nuclear missiles too.







Saturday, August 12, 2017

North Korea

Usually, I like being right. 

Especially about predictions because making predictions is hard.  As the wise Yogi Berra once said, “It’s hard to make predictions, especially about the future.”  Consequently, I try not to make too many of them, and, having learned a thing or two from my brothers and sisters in the field of economics, I usually hedge them when I make them.

It was especially difficult to make predictions about Donald Trump, a sometimes impulsive and outsider to the Washington game.  But I did make two.  I predicted that on many dimensions, African Americans as a group would be better off under a Trump administration than they were under Obama.  My second prediction was that after 8 years of American acquiescence and withdrawal from the world stage, he would be tested early in his term.  While the first prediction has yet to be determined, the international test came earlier and with more at stake than I would have thought.  Hundreds of thousands and perhaps millions of lives are on the line as North Korea has revealed its nuclear capability.  North Korea has apparently achieved the ability to miniaturize a warhead (this ability was known to Obama since 2013) and possesses more warheads than was previously thought to be the case.  Kim Jung Un continues to issue threats to the U.S. and, as of this writing, have threatened to fire missiles at or near Guam by mid-August.  The situation presents Donald Trump with the most serious crisis since the Cuban Missile Crisis in 1962 (for an excellent analysis of the decisions by the Kennedy Administration read Essence of Decision by Graham Allison).

Former National Security Advisor Susan Rice (and others) have criticized Donald Trump for his clear, direct, and unequivocal threats against North Korea.  She further asserts that we could tolerate a nuclear North Korea, and rely on deterrence.

She couldn’t be more wrong.

The U.S. has kicked this can down the road as far as it can be kicked.  As I warned in my blog post of April 16, I think we are in the most dangerous period since the 1930’s and I don’t see a feasible deal with the North Koreans.  Kim Jung Un will not give up his nuclear weapons.  Susan Rice is dead wrong.  We cannot live with them.  A nuclear North Korean regime must end one way or the other and it must happen within the next few months.

I am loath to criticize prior administrations for not wanting to make the hard decisions sooner.  The horrible calculus always involved a tremendous loss of life.   The North Korean artillery would certainly inflict 50,000-100,000 casualties in Seoul and no American leader has been able to stomach the sentencing of South Korean civilians to death in those numbers.

So we skated along with the Agreed Accord which the Norks violated.  Then Bush tried to appease them by sending cash and aid in exchange for shutting down their reactor, and even took North Korea off the list of state sponsors of terror.  They predictably took the cash and aid and restarted.  The North Koreans continued to test under Barack Obama (4 tests), who put more sanctions in place that did nothing to deter the North Koreans program.  Obama at least took a more aggressive stance and launched a cyberwar against their program.

But here we are.   Kim Jung Un has an arsenal of approximately 60 warheads and at least 2 legs of the nuclear triad at his disposal--- ICBM’s and submarine capability (although his submarines are generally older and more trackable, he has 70). He has threatened to launch against the mainland and has unveiled a plan to fire missiles at Guam.

No, Ms. Rice, we cannot tolerate a nuclear North Korea.  This Lucy, Charlie Brown and football charade needs to end now.  This crisis takes us way beyond the vacuous policies of “leading from behind,” and “strategic patience.”   There are several reasons why tolerating a nuclear North Korea is folly.   Aside from the risks associated with relying on Mutual Assured Destruction (which one may argue prevented nuclear catastrophe in the Cold War) with a small nation that is not a peer power, there is the risk that North Korea will become a manufacturer, distributor and licensor of nuclear materials.  Always starved for cash, North Korea would be tempted to sell warheads or know-how to a willing purchaser, whether it be ISIS, the mullahs in Iran or Al-Qaeda.  There is already quite a bit of evidence that Iran and North Korea are cooperating on missile technology.  “Tolerating” a nuclear North Korea is tantamount to “tolerating” a nuclear Iran, which has the destruction of the Great Satan and destruction of the Little Satan written into its charter. Furthermore, permitting North Korea to retain a limited nuclear arsenal is unacceptable because of the risk associated with the electromagnetic pulse (EMP).  A single warhead detonated over the U.S. could wreak havoc and have dire consequences.  Trump was absolutely correct to reject the initial bid of China to propose a nuclear freeze.

Kim Jung Un must not be permitted to remain in power with his nuclear toys.   Period.  He has now changed the risk matrix, making a violent outcome –the unthinkable more thinkable.

The conventional wisdom is that China hold the key to solving the North Korea problem.  That is true and more than we even know and at many levels.  North Korea is an important client state of China.  It exists in its hostile bellicose posture toward the U.S.  because that is exactly what China wants.  China is not our friend.  It seeks to overtake the U.S. and become a dominant world power.  Its actions in the South China Sea over the past few years belie its intent.  North Korea is a useful client state.   North Korea continuously challenges the U.S. and that is of value to the Chinese, because it gives the Chinese plausible deniability.   Moreover, North Korea gives the Chinese a “free look” at our military exercises and our responses on the South Korean peninsula.   General Jack Keane said outright that the Chinese are not only complicit in the North Korean nuclear program, the speed at which the North Koreans advanced their program suggests that the Chinese supplied some of the parts and technology.   The fact that Chinese trade with North Korea actually expanded during this period says a great deal.  As I wrote in my prior blog post—follow the money. I’m sure that they secretly hope that we decide to attempt to knock down the next North Korean missile test.  The Chinese would love to see how our systems respond under battlefield conditions.    All the while the Chinese are shrugging their shoulders, claiming that their influence over the North Korean dictator is limited.   The status quo exists because China likes it this way.

Those that criticize Trump for his rhetoric are mistaken.  Kim Jung Un needs to be told clearly and publicly that an attack on U.S. soil or one of our allies will end his regime.  Trump is doing his best to send this message personally and through General Mattis.  We’ll see if it actually sinks in.  Kim Jung Un may conclude that the U.S. draws false “red lines” and that he has the upper hand.  It would be a miscalculation of historic proportions.  But it is a miscalculation that Saddam Hussein made.

War in the Korean Peninsula would be horrific and would entail massive loss of life.  And unlike our wars with Iraq, in which the Iraqi army did not put up much of a fight, our experiences in Asia have been quite different.  In WWII, the first Korean War and in Vietnam, we learned that Asians will fight and will fight until the end.   We have 1 win, 1 loss and 1 draw in Asia and we won against Japan by going nuclear.  In order to save Seoul, we might very well be forced to go nuclear in Asia again.  On the plus side, unlike 9/11 where we were caught by surprise, we have been preparing, scenario planning and war gaming a war with North Korea for over half a century. 

If there is a diplomatic way out, it is by bargaining directly with China.  I would consider offering this bargain to China:  Kim Jung Un goes.  His nuclear program goes.  The artillery gets pulled back from the DMZ.  You may install a puppet government more or less to your liking.   We would offer to pull back a certain amount of our troops, take out the THAAD system and put a moratorium on war games on the peninsula for a period of time- say three years.   I would also point out to the Chinese that they would not tolerate a threat such as North Korea against them, and that the alternative is either (1) a catastrophic war on the peninsula or at best (2) a massive deterrence that includes arming up the South Koreans and Japanese and that arming up may include nuclear forces.   But any bargain cannot include maintaining North Korea as a nuclear power.

Where this ends, I cannot predict.  Since China has said that they will defend the Norks if we act pre-emptively, I suspect that Kim Jung Un will test that line in an ambiguous way by firing missiles in the direction of Guam but not close enough to cause casualties or damage property.  I also suspect that there will be some form of military engagement before it is over.  This crisis will come to the brink before it is resolved—one way or another.

The crisis with North Korea must be seen in conjunction with Trump's actions in Syria.  Leon Panetta's statement that "this is not a reality show" is irresponsible and misguided.  What we are seeing emerge is a form of a Trump doctrine in foreign policy.  And it is this, "IF YOU USE WMD AGAINST ANYONE OR THREATEN TO USE WMD AGAINST US OR OUR ALLIES, THERE WILL BE AN IMMEDIATE, FORCEFUL AND UNAMBIGUOUS RESPONSE."  

This is a deadly serious chess game.  So far, Trump is playing it correctly by messaging the Chinese as well as the North Koreans that we will respond if the situation requires it.