William Marina
In reply to Roderick Long's comments on my earlier observations about his previous discussion of differences between Abraham and Mrs. Laney:
Since I have never myself talked to God, in any of his/her/its various manifestations in a number of religions, I have some doubt that others, among them Abraham and Mrs. Lacey, did so.
Certainly, Mrs. Lacey may have thought she did so, but most of us would consider that God to be a very perverse one in ordering a mother to kill her two sons.
Abraham found himself in a culture where infanticide of the first-born male as a sacrifice to the God Molach-Baal was accepted practice. Given the many years and several different scribes who created those first books in what became common scriptures for Jews and Christians, derived as they are from many stories common in the several civilizations in that area -- and my doubts that Abraham conversed with God -- I cannot determine what social pressures, including the envy I discussed, might have been at work causing him to place his son on the sacrificial alter in the first place.
His decision not to kill his son formed the beginning of Judaism. It was a brilliant stroke to rationalize that as an order from God. Abraham's seeming willingness to kill his son on God's order, resulted in God sparing him and making promises about the future; if that is not a Covenant, I don't know what one would call it.
Nowhere did I imply that dietary practices were mentioned in that passage, but rather noted,"On a related point," and then discussed those as a means whereby religious groups have sought to create, perpetuate and separate themselves from others, a special problem for the pastoral Jews, located as they were at the intersection of several advanced urban civilizations. I doubt Mr. Long is a poor reader and conclude he was simply distorting things to make debate points.
One does not have to be either a Jew or a Christian to conclude that these religions are ethically superior to the worship of Moloch-Baal and that this was a step forward in the development of civilization.
Finally, the Carthaginians developed one further cultural barbarity, crucifixion, unfortunately borrowed by the Romans to dramatize what happened to those who challenged the Empire. Ah well, without that cultural adoption Mel Gibson would have had difficulty making such a bloody film.
William Marina
Just a short addendum to Chris Sciabarra's observations about this being the 87th anniversary of our entering WWI. While I am no friend of interventionism, much of the mercantilism and cartelization he mentions, certainly the railroads, much predates the War, going back to before the Civil War. Even Wilson's move on centralized banking was completed before the War as shown in detail in a great essay by Murray Rothbard. But is the War, therefore, a"Watershed," or simply another ratcheting up in a longer trend?
If you bring in that great historian, Ayn Rand, rather than simply citing Arthur Ekirch, then it is perhaps worth mentioning she had a vested interest as an emigré from Russia, if not a bias or prejudice, in what transpired later.
We need to learn from History, and we seem to have learned little from our interventions. Certainly, a case can be made that had we not done so on the side of the Allies, a different kind of peace might have eventuated in Western Europe.
But what about Russia and events after the War? Once we were in, and with the events of the Revolution unfolding in Russia, it became increasingly clear that the great objective of Wilson's 14 points and of his League was to offer a challenge to the Bolshevik Revolution, and to all of those other revolutionary situations across the holdings of the Old Empires, and including Mexico, China and even Japan.
In the face of this effort against Russia, Lenin's adoption of the NEP might have led to greater cooperation and not have eventuated in a Stalin. Even with that, isolation of Russia meant a deal with Germany on their part as early as 1925. Lacking any cooperation with Russia on the West's part, the Nazis and Japan had a relatively free hand to move forward.
My great disappointment with Thomas Fleming's new book on Wilson, The Illusion of Victory is that he so totally ignored William Borah, and so misunderstands the whole issue as both Wilson and Borah understood it by 1919.
H.C. Lodge and T.R. until he died, argued for the same kind of unilateralism today pursued by George Bush. Wilson was ready to share power with the Old Empires, and, despite his rhetoric, go along with much of the imperial status quo much as the US has done for most of the past century even as we gradually displaced it with an American Imperium.
Only Borah, mentioned only twice and peripherally at that by Fleming, understood that America must stand, as Willliam Appleman Williams later put it, for an"Open Door," for social revolution in the Third World, and including Russia. Borah had a great confidence that most would not opt for socialism, or one of its variants. None of our subsequent leaders have had such confidence, and have always resorted to interventionist force to maintain"stability," that is no change.
It is for that reason that Borah was venerated in Third World, from China to Latin America, and his speeches carried over the radio in Spanish. Name me one other American leader in the last century respected in that fashion!
William Marina
The death and mutilation of four American private contractors in Falluja suggests the insurgency has taken another step toward people's war. Iraqis indicate the violence was a retaliation for the First Marine Expeditionary Force's, newly arrived from Camp Pendleton to replace the Army's 82nd Airborne, attacks last week on the Fallujans to"put them in their place." While the Marines, fearing an ambush, did not intervene yesterday to halt the carnage, the American high command has indicated"we will pacify that city."
Meanwhile, in another part of Iraq, Shia militia have utterly destroyed the village of Kawali, famed since the 1920s when the British imperialists initiated their rule, for its dancers and prostitutes. No doubt the ladies and their sponsors were looking forward to some rich rewards as the Coalition forces settled in for an extended occupation.
One is reminded of the problems in Iran when that bevy of whores and their pimps known as the"Greater Southeast Asia Floating Crap Game," fled Saigon in 1975, and settled outside of Tehran where the private contractor, Bell Helicopter, had hired many of their old American soldier boyfriends from Vietnam to train the Shah's fledgling pilots. The drinking and carousing offered the mullahs a great opportunity to promote anti-Americanism.
April 1st, on Charlie Rose's television program, the former Secretary of the Navy and currently member of the 9/11 Commission, John Lehman, acknowledged that many of our policy makers, including himself, were still caught in a Cold War mind set, and ill-prepared to deal with the emergence of Al Qaida, or the events in Iraq.
Although only a little over a year ago, it seems a longer time that some of the Neocon intellectuals were assuring the American people that the overthrow of Saddam Hussein and the occupation of Iraq would be a piece of cake, and that General Eric Shenseki was sacked from the Army for suggesting otherwise.
One of those was Max Boot, a journalist formerly with The Wall Street Journal and now with the Council on Foreign Relations. That path to policy analyst in itself tells us a great deal about upward mobility among the American elite.
Mr. Boot’s fame rests upon his book, The Savage Wars of Peace: Small Wars & the Rise of American Power (2002), which made him, apparently, a kind of instant Neocon guru on these kind of interventionist counter-insurgencies. One chapter in that volume, based very much on secondary sources, recounted America’s defeat of the Filipino Insurgency a century ago. Few seemed to disagree when Boot put that forward as a model to be followed in Iraq. In the early months of the occupation he visited there, returning with glowing accounts of our success.
But the two are very different, indeed. It is evident, for example, that the insurgents in Iraq, while apparently lacking the weapons of mass destruction that we claimed existed, have no shortage of conventional weapons. The Filipinos, on the other hand, were extremely short of them. One might argue that the turning point in the Insurrection came before it had actually begun when American diplomatic pressure was sufficient to dissuade the Japanese from shipping the 5,000 rifles promised to Emilio Aguinaldo by a Captain Yamamoto. Most admirers of the .45 pistol can tell you it was developed with sufficient firepower to stop a drugged up Filipino charging at you with a bolo knife. Why would anyone, with enough guns, resort to knives?
To detail all of the crucial differences between the two interventions, however, would require at least a monograph.
How is it that the United States again finds itself in an incipient insurgency with so little real study of these events? In the case of the Philippines, Captain John R. M. Taylor tried for years to get his 5 volume study published, arguing in the late 1930s that we might need it in case the U.S. was ever involved in another guerrilla war in Asia. In that case it was because William H. Taft and other politicos did not want it revealed that the Filipino leaders in 1898 were on their way to Europe with the monies obtained earlier in the truce with the Spanish, in which they had surrendered their guns, and turned around only when they heard Admiral George Dewey had arrived in Hong Kong. Some committed revolutionists!
That event tells us volumes about the fissures among the Filipinos which the American leaders used to our advantage, helped immeasurably by the fact that the Filipinos chose to fight a more conventional war on the whole, than a real guerrilla insurgency, or a people’s war.
That is what the Iraqis, especially the majority Shia, are now preparing to do in the face of a continued American occupation.
It is amazing that Americans and their historians have so little studied their own Revolution with respect to people’s war. A Yale historian has said that the American Revolution was not a guerrilla war. Well, of course not, except in a few small areas, since the British during the whole period of the war occupied few places for any length of time, outside of New York City. A guerrilla war presupposes the enemy occupies large areas for long periods, as we are attempting to do in Iraq.
It was, however, a people’s war, and the first step, as we see in the destruction of the village of Kiwali, is to make certain that the Iraqi population understands that there will be no “free riders,” and that the population will commit to the side of the insurgents. That process will take a while, as it did in the American colonies. If it succeeds, helped by our counter violence, it will be a very long intervention and occupation.
The insurgents are now also making it clear that Coalition partners and contract companies will not have a cheap ride either. With insurance policies going up by 300%, how many besides V.P. Cheney’s old company, Halliburton, now KBR, will choose to stay the course? And, our grunts, not paid $100,000 to $200,000 salaries as with private companies for enlisting, are becoming increasingly disillusioned as well with Mr. Bush's War.
The US military has announced that it is not waiting until the end of this war to assess its successes and mistakes, but is already involved in a Strategic Study of the intervention in Iraq. Given our propensity to use the term"pacify," and its continuity to earlier imperial counter-insurgencies, it will be interesting to see if we select a variant of that term to characterize our new program in Iraq. In the Philippines, of course, we called it,"Benevolent Pacification," while in Vietnam only"Pacification," but that was the exact same term adopted by the British in America in 1778 after the American leaders had rejected their peace overtures in favor of Empire -- seeking to gain Florida and Canada as well. By far the bloodiest part of the War came after that.
Steven Horwitz
Don't know if anyone's been following the story of the Wisconsin-Madison student who was the subject of much news attention for having, apparently, been abducted last Saturday. Well, it turns out that it looks to be a hoax. There are inconsistencies in her story, she apparently was caught on camera buying the materials she said her abducter used, and someone used her computer to search for wooded areas and check the weather while she was supposedly abducted. I find this story interesting coming on the heels of the story out of Pomona College about the faculty member who faked a racist attack. And some quick searching on the web will find you a variety of similar stories, often at small schools but not always.
It's interesting to think about what might motivate stuff like this. There's the obvious explanation that some folks are just crazy, but when we see these things clustering in a way they appear to be, and when they seem to cluster around race/gender/ethnicity, then there might be larger forces at play. I saw a forensic psychiatrist on CNN talking about the Wisconsin woman and suggesting that it was designed to generate the sympathy and emotional reaction of the community. Perhaps. It may also be a way of pleasing people who share your concern about the issues the hoax calls attention to. For example, if you are taking a course on racism and hanging out with other students and faculty who have a deep political commitment to fighting racism, staging a racist attack could be seen as a way to please those folks by providing evidence for their beliefs. This would appear to be particularly powerful on a small campus like Pomona where a student or faculty member would have intense relationships with peers/faculty and where being the victim of a racist incident would be perceived as one way to establish the legitmacy of the cause and to gain esteem in their eyes.
It also seems plausible that these are intentional political acts designed to call the community's attention to some urgent issue, e.g. racism on campus, gender-based violence on campus, etc.. This piece from the Claremont Colleges student newspaper (brief registration may be required) comes close to defending doing just that:
With its greater context in mind, what implications should students draw from such an event? First, it would be incorrect to make assumptions about Professor Dunn's mindset or her goals if she did in fact vandalize her own car. Instead, students should keep in mind that faking a hate crime is not necessarily the work of an irrational person. In addition, if students and the administration interpret this hoax correctly, as an extreme expression of legitimate grievances, this disturbing scandal does not have to negatively affect on-campus dialogue on race nor hinder the progress of activist organizations like SLAM.
(Note the idea that there is a "correct" interepretation of this event. Evidently student journalists at Claremont have learned from their faculty that the belief that reality isn't objective and multiple interpretations are possible doesn't apply if the cause is noble.) This paragraph comes after one analogizing the professor's hoax to W's claim about the Iraqis buying uranium from Niger, concluding: "Although manipulating popular opinion through deceit is unethical and unjustifiable, it is not a new phenomenon." So if it's good enough for the president....?
In any case, this just feels to me like a disturbing trend that ultimately will backfire on those involved. If more hoaxes are uncovered, the often legitimate causes to which the hoaxers are calling attention will suffer from the problem of "crying wolf." Ultimately, the fight against racism etc. is best fought with the light of truth shining brightly. There's enough real racism, gender violence, etc. around that there's no need to threaten to undermine the legitimacy of those concerns by making them up where they aren't. If that's what these events are about, it's a shame on multiple levels.
Roderick T. Long
Few Americans feel much sympathy for Deanna Laney, the woman who bludgeoned two of her children to death in response to alleged instructions from God.
Yet most Americans believe in the existence of God and in the possibility of receiving communications from him. Nor do they necessarily doubt that Laney had some experience which she interpreted as such a communication.
Why, then, do they not hail Laney’s actions as a sublime expression of faith?
I suspect they do not do so because they think Laney should have regarded the horrific content of the communication as evidence that it did not come from any authority worth obeying.
And surely they are right to think this; a command to slay one’s own children seems far more likely to be the product of delusion, or perhaps of some malicious spirit, than an injunction from a wise and loving deity.
Yet of those who condemn Laney, vast numbers are Jews and Christians who have nothing but praise and admiration for the biblical patriarch Abraham’s readiness to obey the divine command “Take now thy son, thine only son Isaac, whom thou lovest, and get thee into the land of Moriah; and offer him there for a burnt offering upon one of the mountains ....”
So what’s the difference between Abraham and Laney? Why shouldn’t Jews and Christians praise Laney as Kierkegaard (in Fear and Trembling) praised Abraham, as a “knight of faith” who achieved a “teleological suspension of the ethical”? Or if Laney is to blame for not wondering whether it truly was God that was speaking to her, why isn’t Abraham likewise to blame for wondering the same thing? There seems to be some cognitive dissonance here.
As Sartre notes in Existentialism is A Humanism:
If I hear voices, what proof is there that they come from heaven and not from hell, or from the subconscious, or a pathological condition? What proves that they are addressed to me? ... If a voice addresses me, it is always for me to decide that this is the angel’s voice; if I consider that such an act is a good one, it is I who will choose to say that it is good rather than bad.When people praise on the Sabbath what they condemn every other day of the week, we are entitled to suspect that some hard thinking has been shirked.
Gus diZerega
Many of the questions gave us a choice between two alternatives: favoring private business or favoring government. In my opinion this is a philosophical and practical error, and perpetuates a false dichotomy that deeply impoverishes liberal (in the broad sense) thought.
Government and markets are two institutional means for pursuing policies, but they are not the only such means. Markets are particularly successful at serving consumers, but are not necessarily equally able to serve other legitimate values. We are all consumers, but we are all more than consumers. To see why consider the following example, adapted from a point Mark Sagoff made in his book The Economy of the Earth. In my environmental politics class I always ask my students the following hypothetical:
Suppose a toll highway existed along the Cascade mountain crest in Washington. It runs from the Canadian border to the Columbia Gorge. It is one of the most scenic highways in the world, with beautiful overviews, access to high country trailheads, and good restaurants. How many would pay the toll to drive the highway? Virtually all my students, as well as I myself, answer “yes.”
I then ask my students how many think the highway should be built. In three years only one (a follower of Ayn Rand) said it should. The opposition was usually unanimous. I agreed.
The first choice was that of a consumer. Given existing choices, what would I do? But that situation does not adequately reflect people’s preferences. In the case of this highway it is logically possible to imagine a profitable toll road driven (except for the Objectivist) by people 100% of whom wished it didn’t exist.
Demonstrated preferences are contextual.
If transaction costs were zero, the highway would never have been built because the very people paying to drive it and make it profitable may well have been willing to pay even more to save the area from a road. But transactions costs are not zero, and are not equally distributed with respect to serving all possible voluntary values.
Transactions regarding public values – values which to be realized for some need to be realized for all or for a great number – are generally higher than for consumer values within a market context. It is easier to find a small number of people willing to finance a profitable venture than to find a much larger number of people willing to contribute smaller amounts to pay for keeping that venture from happening. Ironically, the profit for the former group may come from expenditures by the latter, once their wishes for a more favored outcome are thwarted. They actually play a key role in keeping their real preferences on the issue from being fulfilled because of the contexts of choice they face, once we factor in transaction costs.
This is one kind of public value, and public values largely disappear in the libertarian test, except as they are served by government.
But what if government is not much better at serving many public values than it is at serving those of consumers? In that case we might have the following possibility: it is better to have public values served by government than not to have them served at all – but it may be still better to have them served by other institutions better able to do the job.
A major weakness of contemporary liberal theory is that on the libertarian and classical liberal side there is next to no recognition of the importance of public values, and on the more activist government liberal side there is little recognition that these values may be better served through other institutions.
From this perspective we can think of democracy as melding together the coercive institutions needed for law enforcement and defense with some means by which the people in an area can seek to discover and realize whatever public values they may want to pursue. That their efforts are sometimes stymied by the capacity of government to twist these values out of all recognition or subordinate them to the interests of politicians and organized private interests is no argument against the validity and importance of these values.
To the degree this is true, democracies are not so much states as alternative discovery procedures for finding and serving values systematically slighted by the market order. They are not unique. As Hayek recognized, there are many spontaneous orders in society, and they all serve different general values. Hayek would have listed science as another example.
Hopefully these provocative remarks will stimulate some interesting discussions in the week to come.
William Marina
Today's NYT, April 2, 2004, carries an article about the larger context of the story of the 4 Americans whose bodies were mutilated in Iraq, "Private U.S. Guards Take Big Risks for Right Price".
While the mutilation of these human beings in Iraq was tragic, and will not be made right by the mullahs promising to halt such barbarities in the future, it is important for Americans to recognize what has been developing for some years now as an integral aspect of the American Empire.
Even when the soldiers (private guards) are from the U.S. rather than Great Britain or elsewhere, they are really part of an American Foreign Legion. These soldiers are a part of the kind of volunteer, standing army that some of the Founding Fathers, Classical Republicans, warned about as the essence of Empire. These men do not need to pledge allegiance, with or without the phrase"Under God," to the United States of America, or to its Constitution.
It is well to remember that in the popular movie,"The Gladiator," the heroic Spaniard/Roman's last words had nothing to do with"Restore the Republic," or any such impossible nonsense, but rather,"Free my Men," an acknowledgement that the personal loyalties of a nascent feudalism had already replaced the Rule of Law in Rome.
It would appear that the American Government has no such feelings of responsibility for its hired guns, and which makes the title of a World War Two movie,"They Were Expendable," take on a whole new meaning.
Chris Matthew Sciabarra
So, if yesterday was April Fool's Day, today is another historic date that people should never forget, lest they be made into fools. It was on this date, the NY Times reminds us, that President Woodrow Wilson declared war against Germany, marking the United States' entrance into World War I.
Before Congress, Wilson stressed:"The world must be made safe for democracy." And even as he promised to act with humanity toward loyal Germans, he emphasized:"If there should be disloyalty it will be dealt with a stern hand and firm repression."
World War I was one of the worst conflagrations in the history of humankind, ushering in an unparalleled era of state repression. Ayn Rand, who drew from the work of historian Arthur A. Ekirch, argued that the war was the by-product of a rise in the"spirit of nationalistic imperialism," which had"influenced the policies of Theodore Roosevelt and Woodrow Wilson":
Just as Wilson, a"liberal" reformer, led the United States into World War I,"to make the world safe for democracy"—so Franklin D. Roosevelt, another"liberal" reformer, led it into World War II, in the name of the"Four Freedoms." ... World War I led, not to"democracy," but to the creation of three dictatorships: Soviet Russia, Fascist Italy, Nazi Germany. World War II led, not to"Four Freedoms," but to the surrender of one-third of the world's population into communist slavery.
Rand had the advantage of judging U.S. intervention abroad by relating it to the ripple of events that followed in its wake. And that is crucially important: History is never to be judged in terms of what is happening at this very moment. It must be judged in terms of the consequences—intended and unintended—of the actions that human beings take. We can all revel in the fact that a bloody dictator, such as Saddam Hussein, has been toppled. But we do not know the shape of things to come, and if we act in ways that show no appreciation of the complex factors at work, we will be doomed to similar nightmarish results.
When Wilson declared war, 87 years ago today, he ushered in what Murray Rothbard has called"the critical watershed for the American business system," a system of"war collectivism ... which served as the model, the precedent, and the inspiration for state corporate capitalism for the remainder of the twentieth century." The economy was cartelized, prices were raised, production was restricted, monopolies were granted, labor was tamed, and whole systems (e.g., railroads) were nationalized by the government in league with corporate planners. This served as the fulfillment of the Progressive movement in America, a"triumph of conservatism" as Gabriel Kolko had called it, a triumph of"political capitalism." It is no coincidence that the Wilson administration integrated greater government intervention—including the establishment of a cartelized banking structure in the Federal Reserve and the curtailment of civil liberties—at home, with greater U.S. intervention abroad. Each became organically linked to the other.
The welfare-warfare state has matured over the past century. And so, it is also no coincidence to see the same dynamic at work in the administration of George W. Bush. Why do pro-war bloggers have difficulty grasping this fact? For example, Andrew Sullivan rails against Bush's anti-gay constitutional shenanigans. Feeling betrayed by the Bush administration, which had claimed it would never"use anti-gay sentiment to gain votes," he states:"We were all lied to." Sullivan is upset with Karl Rove for leading the way in this constitutional"brigade," and admits that he has been" culpably naive about this administration on this issue."
On this issue?
This is an administration that has led the same activist brigade into Wilsonian"democratic" nation-building in Iraq—on the basis of either faulty intelligence (in which case it has failed the test of preserving American security) or outright lies about alleged WMDs and alleged ties between the Hussein regime and Al Qaeda.
This is an administration that has forged a hugely expensive Medicare corporatist boondoggle, and countless other government programs.
This is an administration that has created the greatest government budget deficit in history.
This is an administration that has eaten away at civil liberties, all in the name of American PATRIOTism.
As my fellow blogger David Beito has stated, the"president's foreign and domestic policies are not contradictory but entirely consistent with a long Wilsonian tradition in American history." On the occasion of this Wilsonian anniversary, we need to understand the nature of this consistency—as a means to overturn the system of political economy that makes it possible.
David T. Beito
David T. Beito
Keith Halderman
Chris Matthew Sciabarra
Okay, I admit it. I was wrong. I am now in favor of the War in Iraq and a full, open-ended Period of U.S. Occupation. I think the invasion was justified. Forget all that nonsense about nonexistent WMDs and nonexistent ties to Al Qaeda! What matters is that we are building a democracy in the heart of the Middle East, and a powerful military base from which to launch future campaigns against Islamo-fascists who threaten Our Way of Life. And bring on Patriot Act II! Let's dispense with civil liberties! And let's finally embrace censorship. Not just against Janet Jackson's breast and Howard Stern's rantings! The real enemy is this new liberal radio network. Bah!
William Marina
This is no April Fool's joke, but rather an addition to my earlier comments on pieces offered by Steven Horwitz. The huge inflationary/derivatives Bubble that I mentioned is Global in nature, not confined to the US. I have included the entire article below because it is available to only Subscribers of the FT. Downloads of the papers mentioned therein are $5 each from the NBER.
Financial Times March 30 2004
The Fed is forced to fuel a global boom
By Martin Wolf
You may think the Federal Reserve is the US central bank. But it is much more than that. It is the central bank of more than half the world. That explains much of what is happening in the world economy. Fed policies are driving the rest of the world quite as much as the US.
Today, the world's important economies are divided into those within a zone of fixed or quasi-fixed exchange rates against the US dollar and a zone of currencies that float relatively freely against it (see charts). In the 1960s, the European and Japanese currencies were tied to the US dollar via the system established at the Bretton Woods conference of 1944. Now, Asian currencies are tied, more or less informally, to the dollar.
This illuminating description of the global monetary regime was advanced by Michael Dooley of the University of California at Santa Cruz and David Folkerts Landau and Peter Garber of Deutsche Bank in a paper published last September.* They have followed it up with a new one.** The Asian tail, they argue, is wagging the US dog.
This new dollar zone can be divided into a US core, an inner circle and an outer circle. The inner circle contains currencies tied very closely to the US dollar. The outer circle includes currencies whose movement is constrained by large-scale intervention (see chart). The former group consists, above all, of China: the US and China are in effect one economy. The latter adds India, Indonesia, Russia, Singapore, South Korea, Taiwan and Japan. The inner circle generates 35 per cent of world gross domestic product, of which 31 per cent is inside the US, and contains 26 per cent of world population, of which 21 per cent is in China. The outer and inner circle generate 53 per cent of world GDP and contain 52 per cent of world population. Together, the US and Japan generate 42 per cent of world GDP, while China and India contain 38 per cent of world population.
What are the implications of the emergence of this dollar zone?
First, the Fed's aim is to expand the US economy until it reaches full employment. But to do so it must stimulate the whole of this vast dollar zone: a proportion of the extra spending that the US authorities generate spills directly over into imports and so expansion abroad; but dollar-zone economies are also stimulating their economies by keeping interest rates low and intervening heavily in foreign currency markets. Developing members of the dollar zone have easy access to advanced technology, high rates of capital formation and colossal supplies of underemployed labour. The US has a high rate of productivity growth and highly stretched consumers. Japan has suffered from years of deflation. For these reasons, the stimulus needed is enormous and the inflationary pressure that results is minimal.
Second, the US wants a currency depreciation, to keep as much of this stimulus as possible at home. Blocked by the actions of members of the dollar-zone currencies, it is all the more important for it to enjoy a depreciation against significant currencies outside the zone. The monetary policy the Fed is pursuing naturally generates that result.
Third, dollar short- and long-term interest rates remain much lower than one might normally expect. Short-term interest rates are low to generate the needed stimulus. But interest rates are also kept down by the reserve accumulations of dollar-zone central banks. At the end of last year, more than two-fifths of US Treasuries were held by the Fed or foreign official sources. This year, buying of US Treasuries by foreign official sources may reach another $750bn. The impact, argues the paper, is to keep real interest rates up to a percentage point below their historic norm.
Fourth, dollar-zone central banks cannot diversify out of the dollar and into, say, the euro without undermining their dollar peg. If they purchase euros, they must intervene to avoid an appreciation against the dollar. This will, again, support the dollar and the prices of US Treasury securities. But should they go ahead with diversification, upward pressure on the euro might become intolerable for the eurozone members, though be of little concern to anybody else.
Finally, it is perfectly possible for the foreign central banks to continue to buck the market indefinitely. The view that the market can always defeat central banks is half true and half utterly mistaken. It is impossible for a central bank to defend a currency that the market wishes to sell, but simple to defend one the market wishes to buy, provided it does not care about (or can manage) the monetary consequences. The Bank of Japan and the People's Bank of China can create infinite quantities of yen or renminbi should they wish to do so. At present, they do.
How might this saga end? To answer the question, we need to examine the motives of the participants: the US is able to enjoy low real interest rates and a large excess of spending over income; members of the dollar zone achieve more stable growth by subsidising manufactured exports and minimising vulnerability to volatile capital flows. The US might attack the policies of its dollar-zone partners if the administration found the political drawbacks of trade deficits greater than the advantages of low interest rates. Its partners might change their policies if they found the dangers of overheating, or US protectionism, greater than the advantages of competitive exchange rates.
In the meantime, as the more recent of the papers concludes,"the unwillingness to accept the inevitable downward slide in the US dollar, due to a massive labour surplus in much of Asia and cyclical fears in Japan, is leading to intervention flows that are unprecedented . . . We are experiencing an official sector effort to reverse global private capital flows on a scale that we have never seen, even at the end of Bretton Woods."
The Bretton Woods system was broken by US protection against imports and worldwide inflation. Either could recur. But timing is unpredictable. Meanwhile, efforts to expand the US economy are driving a global boom. Enjoy!
* An Essay on the Revised Bretton Woods System, Working Paper 9971, September 2003, www.nber.org; ** The Revised Bretton Woods System: The Effects of Periphery Intervention and Reserve Management on Interest Rates and Exchange Rates in Center Countries, Working Paper 10332, March 2004,
David T. Beito
As someone who has not hesitated to use his academic freedom to criticize the war (normally considered a"leftist" cause), I would urge Montgomery to take this request seriously. This could be an excellent way to build bridges between conservatives, libertarians, liberals, and socialists and thus be better able to defend academic freedom for everyone. It would also be a wonderful advertisement for Joe and Jill Six Pack about the across-the-board consistency of the OAH.
Ivan Eland
Do they really believe this line of reasoning or not? Either answer is troubling. If they don't, then it is a cynical rationale for not cooperating with a commission inquiry that could produce (and has already has produced) embarrassing facts. If they do, then I guess they haven't heard about the"imperial presidency." Many of the founders believed that the Congress and the states would be the most powerful players in the federal system. In reality, wars and crises associated with them over the years have increased the size, power and influence of the executive branch far beyond what the original Constitution had envisioned.
One of the most important examples of diminished congressional influence has been the erosion of the very important congressional war power. Since Harry Truman, presidents have taken us to war without a formal declaration. George W. Bush's father, George H.W. Bush, maintained that he needed no congressional authority at all to attack Iraq during the first Persian Gulf War but sought legislative branch approval only as a courtesy. Bill Clinton bombed Kosovo and threatened to invade Haiti with no congressional authorization at all.
So the Bush administration's expediency in submitting to the unrestricted questioning of its highest officials by an independent panel investigating the origins of the administration's"war on terror" does erode some of the executive's authority. And that erosion of already excessive presidential power is good for the republic.
