Category Archives: A Piece of My Mind

Looking under the rock: Why America’s economy is the next looming global crisis

Looking under the rock: Why America’s economy is the next looming global crisis

By Dr. John C. Hulsman

Introduction: The reasons for analytical failure

I have always been a dangerous man in the world of foreign policy analysis, for the simple reason that I believe wholeheartedly in the ‘plumber’s code.’ Simply put, I don’t think my colleagues at the Council on Foreign Relations–bejewelled though their credentials often are—should be hired or even taken seriously if they are as wrong as they so often seem to be. Instead, I employ the plumber’s code. If my plumber does a good job, I re-hire next time there is trouble with the pipes. If he does a bad job, I do not. By this simple but exacting standard many of my colleagues would be hard pressed to find work of any kind.

Beyond mine, how many consulting firms called Brexit correctly? Not many, as my colleagues were too busy listening to each other and their friends in Brussels, all of whom shared the same incorrect opinion. How many saw the inherent fragility of the seemingly powerful Turkish state? Again, not a lot as it is easier to merely go with largely worthless government talking points, than to investigate a complicated country for themselves.

For that matter, how many at the time of Iraq assessed that the post-war chaos would create a vacuum leading to a serious rise in radicalism, characterised by the hideous ascent of ISIS? Far easier on the nerves to merely parrot the nonsense the White House was then peddling. No, my profession has not covered itself in glory recently, and the plumbers code would consign well more than half of the pundits I know to the unemployment line.

Particularly analytically egregious has been our propensity to be constantly shocked when obvious problems, long metastasising, burst into public view. Like fruit flies, foreign policy analysts tend to only see the stimuli in front of them—whatever the crisis of the week is—rather than looking at longer-term, and often far more dangerous, risks just over the horizon.

At present, for all the talk of ISIS and terrorism, Brexit, and the Turkish coup, the single greatest threat to global stability in many ways is the wholly neglected subject of the weakness of the American economy, and all the vicissitudes this will lead to. It doesn’t make headlines but the simple fact remains if the economy of the greatest force for global stability in world is in serious, if hidden, trouble, the rest of the planet had better start worrying now, rather than being surprised later.

The scary facts

But, you protest, the American economy is in relatively good shape, certainly compared with the basket case that is European growth numbers, Japan’s failure to make Abenomics work, the collapse of much of the Emerging Market world, and China’s herculean efforts to manage a soft landing as it moves up the supply chain. Instead of parroting the very received wisdom which has proven so wrong so often lately, let’s look under the rock and the real numbers.

Overall, post-Lehman crisis US economic growth has been merely adequate, with GDP increasing by 2.4% of GDP in both 2014 and 2015. Since 2009, growth has never exceeded 2.5%, whereas the pre-crisis trend rate was more like 2.5%-3.5%. It appears the Great Recession has permanently knocked some of the stuffing out of the potential American growth rate, the rate at which the economy can grow without triggering inflation.

If this is correct, the endless, boundless concept of the American Dream itself is a thing of the past, as mediocre growth—rather than obtaining a better life than one’s parents had—is all that awaits today’s Americans. Such a diminution in potential living standards will have obvious and highly negative political and social consequences.

If potential growth isn’t what it once was, even the seemingly sunny unemployment figures in the US are cause for hidden gloom, for it all depends on what is being measured. The current headline unemployment rate is a measly 4.9%, a number that is the envy of America’s competitors.

But hold on a minute. US underemployment is a massive problem, largely masking long-term American economic peril. According to the US Bureau of Labor Statistics, were more stringent European metrics used to measure the jobless rate, American unemployment would be a far more worrying 10.1%, or roughly similar to those sclerotic European economies. Such a ‘real’ number makes it eminently clear that many Americans have been left behind, even by the feeble recovery from the Lehman crisis.

A flurry of economic statistics bolsters this doleful conclusion. Housing prices–long the traditional store of much of American wealth—have been underwater for the Working and Middle classes since 2009, meaning homeowners owe more in mortgage payments than their houses are presently worth. The piggy-bank is empty. Perhaps most arrestingly, since 1980, the wages of fully 90% of the American working population have stagnated or declined. On its own, this one number completely explains the rise of Bernie Sanders and the populist left and Donald Trump and the populist right.

And if most Americans have been left behind by the bursts of overall prosperity for almost two generations, they are woefully unprepared for the twilight of their years. The National Institute on Retirement Security calculates that as many as 45% of US households made up of adults of working age don’t have any retirement savings at all. Further, it notes that a whopping 92% of households are financially unprepared retirement and that nation-wide there is an insurmountable savings gap of between $6.8 trillion and $14 trillion between what individuals have saved and what they will actually need in order to retire.

A major part of the problem is that, while Americans are living ever longer (a good thing), the present average age of retirement in America is 64, lower than it was in the 1960s. As is true for the rest of the west, Americans have utterly unrealistic economic expectations of what is owed to them, compared with how long they must work for it. Such unmet–even if economically illiterate—expectations, fuel rage, and the feeling that the American economic system as a whole has let the American Middle and Working Classes down. Political instability is the logical next step in this decline, a process we can now see every day.

So by analytically looking under the rock–rather than putting America out of our minds as a rare success story in these troubled times—we see a Middle Class denied the American dream of endless relative advancement, a country largely left behind by growth over the past two generations, and a people woefully unprepared for retirement, placing great strain on the country’s creaking safety net. More than even all this, the psychological malaise this is causing is eating steadily away at the American political system, as an out-of-touch elite has little understanding of these facts of life which for most Americans characterise their daily existence.

It’s the politics, stupid

It has not helped that both major American political parties have been cynically peddling wholly unrealistic bedtime stories to the people, who then are predictably enraged when these painless fairy tales fail to come to pass. Former Speaker of the House Nancy Pelosi is famous for literally being enraged if spending cuts are mentioned in her presence. This abhorrence of simple math does not bode well for the future of the most dynamic economy in the world.

On the other hand, the Republicans never met a tax cut they didn’t like, but are far more reticent to ever talk about the corresponding spending cuts that would render such a policy revenue neutral. As a consequence, in practice both parties have for a generation wholly abdicated their responsibility to their countrymen, with the Democrats spending money the country doesn’t have like drunken sailors, while the Republicans peddle the daft notion that tax cuts invariably pay for themselves, all evidence to the contrary.

Perhaps the low point in this tale of gross irresponsibility is the demise of the Bowles-Simpson report, the result of a bipartisan commission President Obama tasked with finally coming to grips with the intractable budget deficit. Headed by a former Democratic Chief of Staff and a respected Republican Senator, the report called for a sensible mix of moderate tax hikes and quite stiff spending cuts, a grown-up economic policy that would finally have brought the public debt to manageable levels. Rather than bravely adopting the proposals, the President meekly thanked the Commission for its work, and put the report in a drawer from which it has never been seen again.

This is the ultimate sign of politically how far gone America is, that any policy that prescribes pain now for gain later—any effort for the country to eat its vegetables—is seen as utterly unfeasible. Instead, it is far easier, and politically less risky, to peddle fairy tales that have absolutely no economic chance of real world success. Welcome to the age of populism.

Conclusion: There is not much time left to right the ship

On the surface, it is quite likely that the ever-wrong chattering classes will relax in January 2017, as uber-establishment figure Hillary Clinton is safely sworn in as President of the United States. Such a view, if Middle Class concerns are not immediately dealt with, could not be more wrong.

Think of it this way. An aging, deeply uncharismatic Senator from a very small (and wholly demographically unrepresentative) state with almost no legislative accomplishments to his credit just ran one of the world’s most formidable campaign machines to a near draw. The only issue anyone can remember Senator Sanders discussing is inequality, which skilfully gets at the heart of the economic malaise we have assessed, and the deep Middle Class anxiety flowing from it.

If anything the Republican Party, post election, will find itself in even worse shape, with its self-satisfied elite lying in ruins. The establishment shibboleths that have gone unquestioned for at least a generation: the obvious benefits of free trade, support for immigration, the primacy of social issues, all lie in tatters, gleefully deconstructed by the right-wing populist nativism of Donald Trump. An elite who ceased bothering to explain itself to its base has woken up to find itself superseded by its followers, who after a generation of falling economically behind are more than ready to tear the old establishment and its ideas down, to try something new.

Therein lies the danger for both parties. For while Sanders and Trump have been very good at spotlighting a gormless elite that has lost touch with America’s hard-pressed Middle and Working Classes, what they are offering to rectify the problem is pure snake oil. Globalisation cannot be ordered out like the tide, in reality it will persist whatever populists might prefer to be the case. Indeed, it is hard to think of more self-harming policies than starting a trade war with China as Trump seems to advocate or doing away with the Trans-Pacific Partnership as Secretary Clinton has cynically been forced to propose, in order to see off the Sanders’ challenge.

If the weak-kneed establishment caves into the rising populist challenge, advocating some its dafter economic polices which stand no chance of success—then the real danger will arise. As is the case for Europe, another few years of ignoring the vast economic pain that many in the west have endured for years is bound to lead to ever more virulent forms of populism. This is a call to arms; it is time to right the ship, for an FDR to emerge who gains support and popularity by telling Americans things have indeed come to a difficult pass, but that they have a real grown-up plan for helping the floundering Middle Class. It is time for a new age of the grown-ups.

Published in Aspenia, September 2016

Who owns America? Why Donald Trump will lose–but not by much

How owns America? Why Donald Trump will lose—but not by much

 By Dr. John C. Hulsman and Lara Palay

 To put it mildly, by any terrestrial standards Donald Trump has not had a good week. Be it seeming to threaten Hillary Clinton with assassination or stubbornly refusing to back down on his Oliver Stone-like claim that President Obama is the founder of ISIS, Trump has stretched the already fraying bonds of American credulity to breaking point. While some of this can be put down to slips of the tongue and hyperbole, Trump is failing to get the benefit of the doubt precisely because he has already so coarsened American political discourse.

 Trump’s unnerving outrageousness (as all Americans know, whoever wins this ugly election will have access to the US nuclear codes) has finally started to hurt him in the polls. Clinton’s small but steady three to four point lead now looks like a far more commanding seven to eight point margin. The latest RealClearPolitics election data shows Secretary Clinton ahead comfortably in states worth 256 electoral votes; 270 are needed to win the presidency. Things are so bad for the Republicans that they are behind in Georgia, a deep south state that is part of their bedrock support for a generation.

 And yet despite his shambolic campaigning, while Trump has fallen behind, he has not yet been routed. The question isn’t why Trump has bled support; instead it is who could still possibly be supporting him and why? For he can say demonstrably fantastical things–even contradict himself in the same speech–and yet his core supporters’ enthusiasm is undiminished.

Trump’s all-but-explicit promise, beloved by demagogues throughout time, is to “take back” the country from usurpers and restore it to its rightful “owners”.

Yet ownership, as a concept, is deceptively slippery. Philosophically it’s a problem–if something isn’t a part of my body (the most primal “ownership” we can conceive of), then what makes an object mine?

Some measures–legal documents, explicit gifts–seem to be fairly clear. However, long term use and sacrifice also confer an emotionally compelling argument for ownership. Illegal immigrants–lacking the government-given stamp of approved ownership in the form of citizenship–still start to attain some ownership when they work in a country long enough or establish roots (marriage and children, for example). Ownership of a purely social construct like “a nation” is even murkier.

As many people have pointed out it is far too easy (and entirely wrong) to dismiss all Trump supporters as stupid. They clearly articulate a deep desire to own something (and it has been asserted ad nauseam how “disenfranchised” Trump supporters are, which can largely be explained by the fact that they feel they are, “owning less than before”). The Scottish philosopher David Hume thought that social consensus confers ownership. So the problem Trump voters have is that there is no longer a consensus that they have monopoly ownership over being American.

Trump’s latest outrageous insult to Muslim Americans—his tasteless argument with the Khan family, whose son died serving in the US military in Iraq—highlights exactly the real struggle of this election: who owns America? The Khan family touched a nerve with Trump because the father’s moving speech about his son at the Democratic National Convention implicitly said: we are as American as you, not least because our sacrifice has bought our right to call America ours.

This sticks in the craw of many Trump supporters and seemingly the man himself, who have conjured up the very un-American (in historical terms as the country is entirely made up of immigrants) argument that the amount of time lived in America gives a citizen the right to ownership of the country. This is a very old European idea that has done nothing throughout history but stifle new, creative energies on the continent.

Ironically, America has been the prime beneficiary of such an elitist notion. When once asked by a German colleague what I didn’t like about ‘Old Europe’, I merely replied that the difference between him and me was both sets of our relatives had complained about the injustices of the old world, but only mine had gotten on the boat. It is best to have a country of doers, and not victims.

Give Donald Trump’s supporters great credit, for—far from being knuckle-dragging Neanderthals—they are among the first to tap into a great issue of our time: who owns a country? Trump’s likely defeat should not allow the rest of us to turn away from this seminal question, whose answer will do much to determine the long term fate of western democracy.

Written with Lara Palay, Published in City AM London, August 15, 2016

 

 

Erdogan’s victory over the coup makes clear a geopolitical sea change

Erdogan’s victory over the coup makes clear a geopolitical sea change

By Dr. John C. Hulsman

Introduction: ‘A Gift from God’

The short term consequences resulting from the recent stunning failed coup attempt in Turkey seem clear enough. Surviving President Recep Tayyip Erdogan’s position is strengthened, with him calling the failed uprising ‘a gift from God,’ allowing him to energetically purge the disloyal army of both Gulenist and Kemalist factions.

There is little doubt who the enraged Sultan blames for this affront to his rule. In his defiant speech from Ataturk Airport in Istanbul, Erdogan laid the blame for the coup squarely at the feet of ‘those in Pennsylvania,’ meaning exiled cleric Fethullah Gulen, a former supporter of the president, now turned bitter enemy. A shadowy figure with followers permeating the military, court system, and police, for years Gulen proved to be a powerful, important, ally of the Turkish President.

However, in 2013, these former political partners in staring down Turkey’s secular establishment dramatically parted ways. Mired in corruption scandals which tainted his image as a clean pair of hands, Erdogan blamed Gulenists for targeting his supporters, including his son Bilal. He responded to the charges by purging the judiciary and police of Gulenist supporters, shifting back toward a temporary alliance with the cowed secular army as a base of power to see off the Gulenist challenge.

In this purge he was successful, as ultra-loyal police forces just played a major role in putting down the attempted coup. With the failure of the plot—and with the introduction of emergency powers for the next three months–Erdogan can continue his housecleaning of Gulenists from Turkish society itself.

The end of Kemalism

But in reality the coup was primarily Kemalist in nature, with the Gulenists playing a far more minor (if any direct) role. As harmed as the Gulenist cause is by the failure of the revolt, the aborted coup signals nothing so much as the death knell of the formerly dominant secular ‘Deep State:’ the cadre of secular political, intelligence and military officials who have really run the country for much of the time since Ataturk founded modern Turkey.

The army has a special place in Turkish national life. It is an institution that traditionally sees itself as the guardian of the modern state founded Mustafa Kemal Ataturk, who defined the new Turkey as being a strongly secular western-leaning country. This view holds that what defines Turks first and foremost is a sense of nationalism, almost entirely separate from any religious identity, based on the achievements of Turkey, its past glories, a sense of self-improvement, and the preservation of the unity and integrity of the Turkish republic. This worldview includes a strong affinity with western practices and culture, including seeing Turkey as being part of the west itself.

To uphold this vision, the Army–well before the advent of Erdogan in 2003–dramatically inserted itself into national life when it felt the secular state was being threatened, often directly through military action. Since 1945 there have been four successful coups by the Army: 1960, 1971, 1980, 1997. Although the coup leaders in each case claimed to be acting on behalf of democracy, often their grievances were specifically directed against any perceived attacks by the rising Islamist political class toward a strongly secular Turkey.

Throughout most of Turkey’s history, the army was largely self-governing, not allowing for any real civilian oversight of its activities. Fearing a coup d’état, democratically elected leaders did not challenge or interfere in internal Army affairs in any meaningful way until the election of Erdogan as Prime Minister in 2003.

Over time, Erdogan has been highly successful in dealing with the once over-mighty army, pensioning off secularists in the high command (and marginalising the remnant), all the while promoting more overtly Islamist officers. This has ensured that the Turkish Army has been subordinated to Erdogan to a degree it has not been under the thumb of civilian government since the days of Ataturk himself.

In their statement announcing the coup, the Kemalist military faction accused Erdogan of undermining the country’s secular tradition, with his advocacy of a relatively moderate form of Islamism. Given the armed forces unofficial but deeply held belief that it is the guardian of country’s founding Kemalist secular culture, this was reason enough for Erdogan’s overthrow.

It was this mortal final institutional threat to their shrinking power base that seems to have compelled the Kemalist faction within the army to act. Their failure signals their political doom, as Erdogan has grimly noted that the failed coup amounts to ‘an opportunity’ to once and for all cleanse the armed forces of its formerly dominant Kemalist orientation.

True to form, Erdogan has quickly used the state of emergency to clean house. As of this writing at least 15,000 teachers have been suspended, 1500 university professors ordered to resign, 6000 members of the military arrested, with 24 generals already awaiting trial. Further, 3000 judges have been suspended, fully 1500 officials from the Finance Ministry have been dismissed, while 24 radio and television stations have seen their licenses revoked. All these are seen as bastions of Gulenism and Kemalism. The Sultan has been quick to pounce.

Turkey exits the west

However, the most important consequence of the death of Kemalism is the definitive turning away of Erdogan’s Turkey from the officers’ pro-Western foreign policy. Going further, Erdogan–playing to the Turkish crowd and showing his disdain for the rule of law–demanded the US extradite Gulen immediately, if it wished to prove itself a true ‘strategic ally’ of Turkey. Secretary of State John Kerry, so often gormless, bravely asked that some evidence of Gulen’s complicity be produced. US-Turkish relations are in for a stormy time.

In the aftermath of the coup, Erdogan shut off the power at NATO’s strategically important Incirlik military base, and called for a temporary halt in the US’s bombing of ISIS from the post. Erdogan is throwing his weight around in a manner that would never have happened in the previous more settled bipolar era, when the alliance with America was beyond question.

Instead, the Sultan is pressuring the Obama White House to hand over Gulen to them, not so subtlely reminding the US that Turkey’s strategic location makes it an invaluable ally in staging military operations across the Middle East itself. The price for Turkey’s continued cooperation seems to be growing as Erdogan is increasingly unmoored from Turkey’s traditional links with Washington.

For it now must be clear to all that Erdogan’s Turkey is entirely off the reservation in terms of serving as a broadly reliable and important western ally, as it has since World War II. Instead it is nothing so much as a frenemy of the west, that wonderful new word denoting a country that is seemingly friendly, all the while possessing a fundamental dislike of and rivalry with its former allies. In the multipolar era, far more than in the bipolar Cold War system, terms like ‘ally’ and ‘enemy’ no longer explain the world we actually live in.

Rather than hard and fast alliances, foreign policy will be conducted in a far more transactional manner, run more overtly by interest-backed calculations alone. Most great powers will find themselves along a continuum with each other between the terms ally and enemy. Instead of these black and white certainties, states will see each other as shades of grey, sometimes collaborating and sometimes competing as befits their specific interests over specific policy areas. In this case, Erdogan’s Turkey is merely ahead of the multipolar curve in bolting from the old, decaying alliance structure, and instead striking out as a great regional power on its own.

A prime example of Turkey’s new view of itself is the way the Sultan has handled a decrepit Europe over the recent refugee crisis. Acutely aware that European bungling of the crisis (and the alarming east-west divisions the crisis made manifest within the EU itself) had harmed dominant actor Angela Merkel’s personal domestic standing, Erdogan offered to help Berlin, but not out of the goodness of his heart or to prove his allied credentials.

Instead, he straightforwardly agreed to serve as Europe’s night watchman for a price: 3 billion euros a year (since upped to 6 billion over two years), visa free travel for Turks in Europe, and tacit support of his party’s re-election bid in the pivotal November 1, 2015 vote. No longer believing in the fairy tale of Turkish accession to the EU, instead Erdogan acted as any great regional power might when seeing the weakness of a competing bloc; he was willing to assist them in policy terms only in so far as they practically rewarded him for doing so. Turkey’s days in the west are definitively over. It is now merely another regional great power. The west would do well to wake up to this new fact.

In the month before the coup, and part and parcel of its new non-western strategy, Erdogan moved to repair fraught relations with regional powers Israel, Russia, and Egypt, drifting toward a new multipolar position far more equidistant between the west and the rest in the Middle East. It is the final, telling sign that Turkey under Erdogan will now go its own way in foreign affairs.

Conclusion: A sign of weakness, not strength

But if in the short run Erdogan emerges from the ashes of the failed coup phoenix-like, with his power enhanced, and if his enemies in the Gulenist movement and the army lie in ruins, the longer term picture for Turkey that the coup exposed is far less clear.

The standard western narrative about the present state of the Middle East holds that the Arab world is in chaos following the failure of the Arab Spring, while the more coherent, non-Arab states at the periphery of the Middle East—Iran, Israel, and Turkey—are the dominant players. The failed Turkish coup calls this common belief into fundamental question, as suddenly Erdogan’s reign seems far less secure than it did, even days ago.

Erdogan’s actions taming the army have not taken place in a vacuum and are consistent with other policies taken by the Sultan to dismantle many aspects of the secular Turkish state. This has included seizing control of the police, strengthening first the powers of the Prime Minister and then, once he was elected President, the office of the Chief Executive.

Erdogan has cracked down on freedom of the press, to the extent that criticisms of the President or his policies can result in either costly litigation or lengthy prison sentences. When the Parliamentary election results of June 2015 resulted in Erdogan’s Party, the AKP, losing its parliamentary majority, Erdogan responded by doubling down, clamping down even more harshly on criticism and escalating the war against Kurdish separatists as a way to regain political control of the situation.

Like another local strongman, President Putin of Russia, Erdogan too thrives on the idea of external and internal enemies threatening to tear the country asunder and imperil the progress the leader has achieved, except the Sultan often manages to sound even more ridiculous when conjuring up enemies. During the Taksim Square protests, for example, Erdogan loudly and proudly vowed he would defend Turkey from the marauding armies of the social media, saying, ‘I promise I shall not leave the country at the mercy of YouTube and Facebook.’ Recently the old routine has seemed stale.

Even more dangerously, economic growth has faltered, an ace in the hole which has been the real buttress of Erdogan’s long rule. Growth has tumbled from a very healthy 6-9% a year in the early 2000s, to merely 2-4% of GDP in recent years. This pronounced economic downturn has called into question the very narrative of Erdogan’s ‘successful’ AKP rule.

This has all taken place in a context where Erdogan has stepped up censure of criticism against him, while at the same time there have been increasingly open and brazen displays of personal enrichment by both Erdogan and his family. This includes the construction of a new, garish $700 million Presidential Palace in Ankara, a Versailles constructed just for the Sultan. Erdogan seemed to be losing his populist touch.

The Turkish President’s form of majoritarian democracy–a system with few checks and balances beyond the ultimate power of the people to eject him from office—now looks politically brittle. By sweeping away competing power centres in the army, the judiciary, and the police force, Erdogan has superficially vanquished his foes, rather than co-opting them through the usual democratic norm of political compromise.

The problem with this method is that while the ruling AKP Party tends to have slightly more than majority support across the country, it does leave a huge, embittered and massive minority of the country (well over forty percent) implacably opposed to Erdogan’s increasingly over-mighty behaviour.

The fact that he has no rivals in his own party means that he also has no obvious successor to carry on his mildly Islamist reforms in a heretofore secular Turkish society. In dominating everyone, Erdogan is a one-man band.

The problem with this is that it exposes the fragility of his political project, in that he and he alone is all that is holding his immediate political ascendancy together. It is that political fragility that the failed coup has just exposed for all to see.

So while in the aftermath of the failed coup, the Turkish President bestrides the Bosporus like a political colossus, real cracks are showing in the grand edifice of his rule. What we have been saying for literally years should now be apparent to all, after the events of the past weeks. Turkey is not the stable state it was taken for just a few days ago. Political and economic risk in Turkey simply could not be higher.

Published in Limes Italy August 2016