2016 has already been an outlier for unexpected events. Political turbulence and violent outbursts globally are on the rise. At home, the ambush murders of police officers in Dallas and Little Rock have shocked the nation. Politically, the ascendance of Donald Trump as the Republican nominee for President is enough to let us know that we’re not in Kansas any more.

But behind the turbulence and media driven distractions, the big trends continue to unfold. Chief among them is the transformation of our society by technology, especially the emergence of artificial intelligence (AI).

Definition

John McCarthy, who coined the term “artificial intelligence” in 1956, defined it as “the science and engineering of making intelligent machines.”

“Basically, we’re talking about computer systems and algorithms that can form conclusions and determine their actions without direct human intervention. That doesn’t mean that they have human-like minds, but they may be capable of equaling—and often exceeding—human cognitive capacities with regard to specific tasks. In the broadest sense, Google Maps is employing A.I. when it helps you find a route to your destination. And the self-driving cars that might soon carry us along those routes are using A.I. to evaluate road conditions and otherwise keep us safe.” —Jacob Brogan

Applications/Impact

AI is opening virtually every field to new possibilities. Medical technology is transforming the practice of medicine—giving hearing to the deaf, sight to the blind, replacement body parts, cures for previously untreatable diseases. Engineering, robotics, education, financial management, manufacturing, publishing, communications, entertainment are all being impacted.

AI expert systems are providing medical diagnosis, strategic planning, voice recognition, face recognition, market analysis, real-time process control for space missions, developing plans for clean energy solutions and environmental clean-up, and support for education such as test assessment and AI tutors.

As the technology continues to mature, there are no fields of human activity that will not be transformed. Ultimately, the very nature of what it means to be human will be changed as we enter into the predicted Singularity, when humans merge with their technology, creating a new life form with extraordinary powers and indefinite lifespan. For the latest on the Singularity, Ray Kurzweil, the oracle of technology development, has published a new title, “The Singularity is Near.”

The Problem

One after another, some of our brightest and most successful citizens have been raising the alarm about the potential dangers of artificial intelligence (AI).

“When it (evolved AI) eventually does occur, it’s likely to be either the best or worst thing ever to happen to humanity, so there’s huge value in getting it right.”
—Stephen Hawking

“I think we should be very careful about artificial intelligence. If I were to guess what our biggest existential threat is, it’s probably that.
—Elon Musk

“I am in the camp that is concerned about super intelligence… I agree with Elon Musk and some others on this and don’t understand why some people are not concerned.”
—Bill Gates

“This is the first moment in the history of our planet when any species, by its own voluntary actions, has become a danger to itself – as well as to vast numbers of others.”
—Bill Joy

Those quoted above are the “high priests” of our machine culture: premier scientists and tech entrepreneurs—the people who are most intimately familiar with technology. If they are concerned that there is a problem with AI, we should probably listen to their concerns.

But what are the specific concerns of our techno-elites? Given the vague, yet existential nature of the threat, we can conjure up some pretty terrifying images…Terminator, Matrix, Ex Machina. Hollywood has taken the concept to the bank.

Are they actually worried about sentient killing machines rising up to wipe out humanity? Not really. Not in the near term anyway.

The Future of Life Institute, an Elon Musk initiative, published a letter in 2015 co-signed by thousands of researchers and scientists and other tech savvy citizens raising their concern about “autonomous weapons.” The letter is really a plea to world governments to forego the development of autonomous weapons systems, and the AI arms race that would inevitably result.

In other words, the issue raised is not about what the machines will do to humans; it’s about what humans will do to each other with the machines, and about the misdirection of resources away from the development of benefic applications.

Longer term, if there is something that gives the high priests of machine culture bad dreams, it IS the prospect of their creations becoming self-aware and rising up against humanity. Why would they think this is even possible?

For the most part, the creators of AI are steeped in a materialistic world view holding that life emerged from the primordial void by spontaneous combustion, and that all life forms and the human brain evolved over eons from that first spark of life, and most importantly, that intelligence and consciousness are emergent features of the computational complexity of the brain. (It is notable that this world view also holds that if you were to give a chimp a keyboard and enough iterations, it would eventually pound out “War and Peace.”)

Given their world view, it is not so surprising that our elite technologists have bad dreams about their creations becoming sentient beings that might consider biological humans a threat.

But is this a scientific world view? Or is it a belief system? Is it any more or less scientific than the belief that all creation—from the void of interstellar space to star systems to human life—is one great whole that is life, and is inherently conscious?…or even the Creationist notion that there is a deity somewhere in the heavens who created the world by his (His!) will, fully formed, in 6 Earth days?

We all adopt beliefs regarding the origins of life and our place in the universe to give us some sense of comfort about the great mystery of our very existence in this incomprehensibly vast universe. The technologists are no different in this regard.

Even so, opinion on this matter in the tech sector is not monolithic. See “The Myth of Sentient Machines” by Bobby Azarian in Psychology Today, which points out that even “a perfectly accurate computer simulation of a brain would not have consciousness like a real brain, just as a simulation of a black hole won’t cause your computer and room to implode.” Also, see “The Fascinating Truth About Why Artificial Intelligence Won’t Take Over the World” by Sean Miller. Miller’s takedown of the “cult of scientism…practicing algorythmancy” is a classic.

If, however, the machines were to become superintelligent, autonomous, sentient beings, when would this be likely to happen? The following chart shows the trajectory of computing power. By 2030 a single $1,000 computer will exceed the computing power of the human brain. By 2050 that single computer will exceed the computing capacity of ALL human brains combined.

This is the time frame in which Kurzweil is predicting the Singularity. Alternately, this is when machines might become self-aware and decide to strike out on their own.

Economic and Political Implications

AI is giving us the means to create the world we choose…IF we step up to the responsibility.

If humans achieve the Singularity, war will be unthinkable. It’s not likely humanity would survive the destructive power available to combatants. But can we survive the transition?

Presently, our society is enamored of the machines, so much so that we have lost the broader sense of life. Our culture has come to be all about machine values; repeatability, reliability, certainty, efficiency…efficiency above all.

We normal humans exhaust ourselves trying to compete with the machines, to become machine-like, while our civilization is careening off into chaos as a result of the economic disparity created by our primitive economic system running on the steroids of advanced technology.

The lack of balance in life is reflected in our leadership and public policy across the board, highlighted by the following post at the Bulletin of the Atomic Scientists, which maintains the Doomsday Clock, presently set at 3 minutes to midnight:

“Unchecked climate change, global nuclear weapons modernizations, and outsized nuclear weapons arsenals pose extraordinary and undeniable threats to the continued existence of humanity, and world leaders have failed to act with the speed or on the scale required to protect citizens from potential catastrophe. These failures of political leadership endanger every person on Earth.”

The real challenge of AI is economic and political. It is not autonomous killing machines, as frightening as they are. We are quite capable of wiping ourselves out without such tools. The atom bomb will do just fine. If we continue in our primitive ways, the machines will just make the killing more efficient.

We have been raised on the false premise of binary choices…management OR labor, Capitalism OR Socialism, conservative OR liberal, this religion OR that religion. These are false choices—primitive models that divide us and lead to endless conflict. The truth of the matter is that we need both management AND labor, Capitalism AND Socialism, conservatives AND liberals. And we need the essence of ALL religions.

Like our primitive politics, our economic system is a vestige of a world that is no more. When emerging from a more primitive world, it made sense that the fruit of economy should accrue to those who had the means and knowledge to organize society and put capital to productive use. Today the means and knowledge are ubiquitous, but capital is still aggregating to the few, who increasingly don’t know what to do with it.

Excessive concentrations of capital are creating asset bubbles ($100 million NY penthouse) and turning to non-productive rent seeking while our infrastructure is crumbling and our schools are graduating students unprepared for the world they are entering. (The tools and processes required to build a house are not the same as those required to operate and maintain a house.)

Big corporations are deploying big data and advanced algorithms to know our every interest and tendency more intimately than we know ourselves, and using that information to front run our every move, at the same time shifting assets and loyalties around the world to minimize taxes and responsibilities, thus vacuuming up the fruit of economy for the benefit of a relatively small number of families, to the detriment of the remaining billions who compete for the leftover crumbs.

Our technology driven winner-take-all, “creative destruction” casino economy has enabled early adapters to suck the general wealth out of the economy, and destroy the great American middle class in a single generation.

However, just applying stale Socialist thinking to this problem is not going to solve our dilemma. Take a good look at Russia, or Venezuela, or Cuba, to see where that kind of thinking gets you. We need to transcend the old left/right, liberal/conservative paradigm. Our technology is enabling us to transcend the limitations of the physical world; it can also enable us to transcend the limitations of this stifling old binary political theology. The truth of the matter is that left/right, conservative/liberal are the left and right legs of the body politic. They are both needed to move forward.

We have a choice: we can use our rapidly expanding technology to create a better world for everyone, or we can descend into a techno-dystopia (think Elysium), where elites live in luxurious walled off compounds and the vast majority live in soul crushing poverty. That world will eventually erupt into revolution, or worse, and, given the destructive capabilities bestowed by our advancing technology, quite possibly hasten the end of human civilization on Earth.

Seems like a pretty obvious choice. And it is. But presently we are headed in precisely the wrong direction. We need a global awakening and a transformation of our politics to meet this challenge and fashion a positive outcome. See my upcoming book, The Politics of Unity.

Predicting the Future

Those who were present in the late 50’s and 60’s might remember the projections of the impact that developing technology would have on humans, often featured in the cartoon section of the Sunday paper. Chief among the benefits was…wait for it…leisure time…Hahahahaha! Hahahahaha!!!

As Yogi Berra put it: “It’s tough to make predictions, especially about the future.”

The future never works out the way we think it will. But problems are mitigated first by our awareness of them, followed by action to solve the problem. The fact that we are increasingly aware of the potential danger from AI is a positive sign in itself, and gives us hope that the dangers presented will be met and mitigated, although we don’t yet know just how, because we don’t really know yet how or in what form the greatest threats will present themselves, or the kinds of tools that AI will provide us to do so.

In the real world, the greater danger lies not in sentient, autonomous AI coming into conflict with biological humans, but in malefic actors, human actors, applying the vast problem solving ability and potentially planet destroying power bestowed by AI within the context of our primitive, tribal, violent politics. In other words, WE are the real existential threat to ourselves, not the technology.

As Albert Einstein noted, “The splitting of the atom changed everything, except our thinking.” I say it’s long past time to complete the change.

I’ll give Ray Kurzweil the last word:

“Ultimately, the most important approach we can take to keep AI safe is to work on our human governance and social institutions. We are already a human machine civilization…The best way to avoid destructive conflict in the future is to continue the advance of our social ideals, which has already greatly reduced violence.”

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The world is in a state of confusion, reflected in markets across the board, which went nowhere for all of 2015 (see Bloomberg “The Year Nothing Worked”). The new year started off with a sharp, but historically normal, selloff in stocks (Dow -13%, S&P -11%). Market fundamentals suggest more downside but the selloff precipitated a level of pessimism usually only seen at significant market bottoms.

Some good things are happening…notably the global climate agreement and the nuclear deal with Iran. At the same time there is plenty to be concerned about.

Global deaths from terrorist activity rose 80% in 2015 to the highest level ever. And the long running conflicts in the Middle East have boiled over into a geopolitical bar fight. Refugees from the conflict have thrown the European Union into chaos. The long overdue correction in China threatens to swamp the global economy. Disputes over the South China Sea and North Korean provocations are simmering in the background.

In the U.S., mass shootings (4 or more casualties) occurred on a daily basis in 2015. Black communities (Black Lives Matter) are venting their anger at aggressive police tactics that leave too many of their young men dead. A victim cult is roiling campuses with demands for “safe spaces” where they won’t be subjected to anything that offends them (see “The Real Victims of Victimhood”). And in this presidential election year the usual hyperbolic political rhetoric has ramped into outright hysteria.

If you’re not confused, you’re not paying attention.

Is this the calm before the storm? Or is this an ugly but relatively stable transition to a new normal? Stay tuned.

Markets

Financial markets are now all about the Fed, which finally began raising the Fed Funds rate for the first time in 7 years (1/4% in December). Market commentators are endlessly opining on what the Fed did, might do, might not do, should do, must do, must not do…”how could they; it’s madness,” “how could they not; it would be catastrophic.”

Market participants are equally confused. Credit Suisse recently posted a piece based on a survey of clients in the U.S., Asia and Europe entitled “Client perspectives: lost and bearish.” The bottom line…”Never have we seen so many clients who just do not know what is happening…” This pretty much sums up the state of the marketplace.

Economy

Fed confidence notwithstanding, the economy is pretty uninspiring. Job growth has been steady but the economic value of the jobs created is a fraction of the value of jobs lost. The result is stagnant growth in wages along with steady increases in cost of living…persistent, low-grade stagflation for wage earners!

Investors increasingly need to take a global view of economic developments. Monty Guild, President of Los Angeles based Guild Investment Advisors, offers an expanded and generally upbeat perspective on the global economy.

“Many market participants look at manufacturing data to get a picture of the economy…So when manufacturing data is slowing in the U.S., Europe, and China, some uninformed and shallow researchers begin to panic.

Of course it is slowing down and it can slow more in coming years. Why? Because China especially, and the developed world as well, are not on a manufacturing trajectory to economic growth. Software, services, consumer spending, and technology are all the drivers of these economies. China is in the midst of an epochal transition from an economy driven by manufacturing to one driven by the domestic consumer…

Accordingly growth is in these areas, and there is no problem with the economy if it shifts partly from metal fabrication to services and software. The changes require investors to decipher which metrics to follow in order to understand the new economy.”

Political

America was treated to a rare example of balance and honesty in a public figure when Pope Francis descended on the mad state of American public life, sending a breath of fresh air across the toxic landscape, and a brief pause in the relentless focus of our media on dysfunction and catastrophe.

The enlightened Pope gave American politicians an example of honorable public discourse. He demonstrated a combination of balance, compassion and integrity along with a deft political sensibility that communicated readily across the political spectrum to all but the rabid ideologues on the extremes. His well considered positions on divisive social issues demonstrated compassion and inclusiveness without compromising his core beliefs.

I hope that some among our political elite actually took note of the Pope’s demonstration and committed themselves to a higher path.

Beltway “wisdom” is that this is a naïve and foolish sentiment. I think the American people are weary of beltway “wisdom” and hungry for some integrity in our political process.

In fact, it is the virtually universal disdain for the corrupt and inbred beltway culture that has resulted in the election of two consecutive unqualified candidates as President, in a desperate attempt by the American people to choose a leader who will bring real change to Washington. Frustration has now turned to anger, manifest in the popularity of Fascist leaning Donald Trump on the right and Socialist Bernie Sanders on the left.

Meanwhile, actions in Washington continue to erode any remaining semblance of our government as a representative democracy. E.g. After several failed attempts (due to widespread bi-partisan opposition) to extend and expand the profoundly un-American Patriot Act, the deed was accomplished by slipping the Cybersecurity Information Sharing Act (CISA) into the must-pass 2,000 page year end Omnibus spending bill so it could become law without debate.

So who is benefiting from our national dis-integration? For a clear and concise picture of what is really happening behind the scenes, read Bill Moyers’ recent essay “The Plutocrats Are Winning.”

Geopolitical

The “Arab Spring” inspired civil war in Syria along with the dismantling of neighboring Iraq created the perfect environment for the rise of ISIS, a medieval Islamic cult with 21st Century social media skills. ISIS is eager to provoke another U.S. invasion of the region so as to usher in The Day of Judgement (Armageddon) and the Final Victory of Islam. This of course has Republicans clamoring for…you guessed it…another U.S. invasion in the Middle East!

President Obama is trying to keep the U.S. out of it, but at the same time has ordered Special Forces “advisors” into Syria after repeatedly stating unequivocally “no American troops in Syria.” For those with memory of Vietnam, this will sound very familiar.

Ironically, the U.S. is huddling with Iran and Russia to coordinate a campaign against ISIS, even as both of those nations continue to pursue multiple agendas in opposition to the U.S. And President Obama’s nuclear deal with Iran is now a done deal, freeing up $100 billion in frozen assets for Iran. Our allies in the region, the Saudi’s in particular, are extremely unhappy over both of these developments, and are trying to galvanize opposition to Iran by inflaming regional sectarian conflicts. And for the icing on the Mideast FUBAR cake…U.S. ally Turkey’s President Erdogan recently praised Hitler’s Third Reich as “an example of effective government.”

Opportunity

The best opportunity these days, as it has been for quite some time, is to play defense and try to avoid losses. Continuous central bank intervention has rendered market fundamentals irrelevant, so it is difficult to take a position in anything with any degree of confidence. Bonds of all stripes are the most important area to avoid. The U.S. dollar and the U.S. stock market, especially stock in large cap global companies that can move assets globally and are in a position to take advantage of the massive growth in Asian markets, are generally seen as the preferred safe haven. These assets are currently in a correction and may soon offer a buying opportunity.

Precious metals, a traditional safe haven, have been constrained by deflationary pressures but when that cycle completes, which could be very soon — even as soon as right now — precious metals will provide excellent safety and value.

With no reliable fundamental drivers and so many potential triggers for turmoil, expect volatility and BE CAUTIOUS. Lost opportunity is far easier to endure and recoup than lost capital.

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The title of this quarter’s letter is taken from an article by Andrew Bacevich, professor emeritus of International Relations and History at Boston University. “Rationalizing Lunacy: The Intellectual as Servant of the State,” reprinted below with permission, addresses the impact of policy intellectuals on our foreign policy….characterizing them as “a blight on the Republic.”

Mr. Bacevich is a prolific author on the topics of foreign policy, national security and military affairs. He is an advocate for the Army and for the professional soldier. He both graduated from and taught at West Point, and served in Vietnam, retiring from the Army with the rank of Colonel. He lost his son, who was serving as an Army officer in Iraq, in 2007.

President Obama recently concluded a tentative interim Agreement with Iran to prevent Iranian development of a nuclear weapon. Obama makes his case in an interview with Thomas Friedman, “Iran and the Obama Doctrine,” in the April 5th New York Times. The opposition to that Agreement from Israel and the U.S. war lobby is intense. See the March 26th New York Times op-ed by perma-hawk John Bolton, “To Stop Iran’s Bomb, Bomb Iran,” and a more thoughtful analysis by Henry Kissinger and George Shultz, “The Iran Deal and its Consequences” in the April 7th Wall Street Journal.

Given the high stakes involved in the negotiations with Iran and the likelihood that a war that possibly should be fought will not be because too many wars that should not have been fought have been, it is a good time to consider the historical perspective and wise counsel of Mr. Bacevich. If we are lucky we might find him occupying the office of Secretary of Defense in the next administration.

Rationalizing Lunacy
The Intellectual as Servant of the State

By Andrew J. Bacevich

Policy intellectuals — eggheads presuming to instruct the mere mortals who actually run for office — are a blight on the republic. Like some invasive species, they infest present-day Washington, where their presence strangles common sense and has brought to the verge of extinction the simple ability to perceive reality. A benign appearance — well-dressed types testifying before Congress, pontificating in print and on TV, or even filling key positions in the executive branch — belies a malign impact. They are like Asian carp let loose in the Great Lakes.

It all began innocently enough. Back in 1933, with the country in the throes of the Great Depression, President Franklin Delano Roosevelt first imported a handful of eager academics to join the ranks of his New Deal. An unprecedented economic crisis required some fresh thinking, FDR believed. Whether the contributions of this “Brains Trust“ made a positive impact or served to retard economic recovery (or ended up being a wash) remains a subject for debate even today. At the very least, however, the arrival of Adolph Berle, Raymond Moley, Rexford Tugwell, and others elevated Washington’s bourbon-and-cigars social scene. As bona fide members of the intelligentsia, they possessed a sort of cachet.

Then came World War II, followed in short order by the onset of the Cold War. These events brought to Washington a second wave of deep thinkers, their agenda now focused on “national security.” This eminently elastic concept — more properly, “national insecurity” — encompassed just about anything related to preparing for, fighting, or surviving wars, including economics, technology, weapons design, decision-making, the structure of the armed forces, and other matters said to be of vital importance to the nation’s survival. National insecurity became, and remains today, the policy world’s equivalent of the gift that just keeps on giving.

People who specialized in thinking about national insecurity came to be known as “defense intellectuals.” Pioneers in this endeavor back in the 1950s were as likely to collect their paychecks from think tanks like the prototypical RAND Corporation as from more traditional academic institutions. Their ranks included creepy figures like Herman Kahn, who took pride in “thinking about the unthinkable,” and Albert Wohlstetter, who tutored Washington in the complexities of maintaining “the delicate balance of terror.”

In this wonky world, the coin of the realm has been and remains “policy relevance.” This means devising products that convey a sense of novelty, while serving chiefly to perpetuate the ongoing enterprise. The ultimate example of a policy-relevant insight is Dr. Strangelove’s discovery of a “mineshaft gap” — successor to the “bomber gap” and the “missile gap” that, in the 1950s, had found America allegedly lagging behind the Soviets in weaponry and desperately needing to catch up. Now, with a thermonuclear exchange about to destroy the planet, the United States is once more falling behind, Strangelove claims, this time in digging underground shelters enabling some small proportion of the population to survive.

In a single, brilliant stroke, Strangelove posits a new raison d’être for the entire national insecurity apparatus, thereby ensuring that the game will continue more or less forever. A sequel to Stanley Kubrick’s movie would have shown General “Buck” Turgidson and the other brass huddled in the War Room, developing plans to close the mineshaft gap as if nothing untoward had occurred.

The Rise of the National Insecurity State

Yet only in the 1960s, right around the time that Dr. Strangelove first appeared in movie theaters, did policy intellectuals really come into their own. The press now referred to them as “action intellectuals,” suggesting energy and impatience. Action intellectuals were thinkers, but also doers, members of a “large and growing body of men who choose to leave their quiet and secure niches on the university campus and involve themselves instead in the perplexing problems that face the nation,” as LIFE Magazine put it in 1967. Among the most perplexing of those problems was what to do about Vietnam, just the sort of challenge an action intellectual could sink his teeth into.

Over the previous century-and-a-half, the United States had gone to war for many reasons, including greed, fear, panic, righteous anger, and legitimate self-defense. On various occasions, each of these, alone or in combination, had prompted Americans to fight. Vietnam marked the first time that the United States went to war, at least in considerable part, in response to a bunch of really dumb ideas floated by ostensibly smart people occupying positions of influence. More surprising still, action intellectuals persisted in waging that war well past the point where it had become self-evident, even to members of Congress, that the cause was a misbegotten one doomed to end in failure.

In his fine new book American Reckoning: The Vietnam War and Our National Identity, Christian Appy, a historian who teaches at the University of Massachusetts, reminds us of just how dumb those ideas were.

As Exhibit A, Professor Appy presents McGeorge Bundy, national security adviser first for President John F. Kennedy and then for Lyndon Johnson. Bundy was a product of Groton and Yale, who famously became the youngest-ever dean of Harvard’s Faculty of Arts and Sciences, having gained tenure there without even bothering to get a graduate degree.

For Exhibit B, there is Walt Whitman Rostow, Bundy’s successor as national security adviser. Rostow was another Yalie, earning his undergraduate degree there along with a PhD. While taking a break of sorts, he spent two years at Oxford as a Rhodes scholar. As a professor of economic history at MIT, Rostow captured JFK’s attention with his modestly subtitled 1960 book The Stages of Economic Growth: A Non-Communist Manifesto, which offered a grand theory of development with ostensibly universal applicability. Kennedy brought Rostow to Washington to test his theories of “modernization” in places like Southeast Asia.

Finally, as Exhibit C, Appy briefly discusses Professor Samuel P. Huntington’s contributions to the Vietnam War. Huntington also attended Yale, before earning his PhD at Harvard and then returning to teach there, becoming one of the most renowned political scientists of the post-World War II era.

What the three shared in common, apart from a suspect education acquired in New Haven, was an unwavering commitment to the reigning verities of the Cold War. Foremost among those verities was this: that a monolith called Communism, controlled by a small group of fanatic ideologues hidden behind the walls of the Kremlin, posed an existential threat not simply to America and its allies, but to the very idea of freedom itself. The claim came with this essential corollary: the only hope of avoiding such a cataclysmic outcome was for the United States to vigorously resist the Communist threat wherever it reared its ugly head.

Buy those twin propositions and you accept the imperative of the U.S. preventing the Democratic Republic of Vietnam, a.k.a. North Vietnam, from absorbing the Republic of Vietnam, a.k.a. South Vietnam, into a single unified country; in other words, that South Vietnam was a cause worth fighting and dying for. Bundy, Rostow, and Huntington not only bought that argument hook, line, and sinker, but then exerted themselves mightily to persuade others in Washington to buy it as well.

Yet even as he was urging the “Americanization” of the Vietnam War in 1965, Bundy already entertained doubts about whether it was winnable. But not to worry: even if the effort ended in failure, he counseled President Johnson, “the policy will be worth it.”

How so? “At a minimum,” Bundy wrote, “it will damp down the charge that we did not do all that we could have done, and this charge will be important in many countries, including our own.” If the United States ultimately lost South Vietnam, at least Americans would have died trying to prevent that result — and through some perverted logic this, in the estimation of Harvard’s youngest-ever dean, was a redeeming prospect. The essential point, Bundy believed, was to prevent others from seeing the United States as a “paper tiger.” To avoid a fight, even a losing one, was to forfeit credibility. ”Not to have it thought that when we commit ourselves we really mean no major risk” — that was the problem to be avoided at all cost.

Rostow outdid even Bundy in hawkishness. Apart from his relentless advocacy of coercive bombing to influence North Vietnamese policymakers, Rostow was a chief architect of something called the Strategic Hamlet Program. The idea was to jumpstart the Rostovian process of modernization by forcibly relocating Vietnamese peasants from their ancestral villages into armed camps where the Saigon government would provide security, education, medical care, and agricultural assistance. By winning hearts-and-minds in this manner, the defeat of the communist insurgency was sure to follow, with the people of South Vietnam vaulted into the “age of high mass consumption,” where Rostow believed all humankind was destined to end up.

That was the theory. Reality differed somewhat. Actual Strategic Hamlets were indistinguishable from concentration camps. The government in Saigon proved too weak, too incompetent, and too corrupt to hold up its end of the bargain. Rather than winning hearts-and-minds, the program induced alienation, even as it essentially destabilized peasant society. One result: an increasingly rootless rural population flooded into South Vietnam’s cities where there was little work apart from servicing the needs of the ever-growing U.S. military population — hardly the sort of activity conducive to self-sustaining development.

Yet even when the Vietnam War ended in complete and utter defeat, Rostow still claimed vindication for his theory. “We and the Southeast Asians,” he wrote, had used the war years “so well that there wasn’t the panic [when Saigon fell] that there would have been if we had failed to intervene.” Indeed, regionally Rostow spied plenty of good news, all of it attributable to the American war.

“Since 1975 there has been a general expansion of trade by the other countries of that region with Japan and the West. In Thailand we have seen the rise of a new class of entrepreneurs. Malaysia and Singapore have become countries of diverse manufactured exports. We can see the emergence of a much thicker layer of technocrats in Indonesia.”

So there you have it. If you want to know what 58,000 Americans (not to mention vastly larger numbers of Vietnamese) died for, it was to encourage entrepreneurship, exports, and the emergence of technocrats elsewhere in Southeast Asia.

Appy describes Professor Huntington as another action intellectual with an unfailing facility for seeing the upside of catastrophe. In Huntington’s view, the internal displacement of South Vietnamese caused by the excessive use of American firepower, along with the failure of Rostow’s Strategic Hamlets, was actually good news. It promised, he insisted, to give the Americans an edge over the insurgents.

The key to final victory, Huntington wrote, was “forced-draft urbanization and modernization which rapidly brings the country in question out of the phase in which a rural revolutionary movement can hope to generate sufficient strength to come to power.” By emptying out the countryside, the U.S. could win the war in the cities. “The urban slum, which seems so horrible to middle-class Americans, often becomes for the poor peasant a gateway to a new and better way of life.” The language may be a tad antiseptic, but the point is clear enough: the challenges of city life in a state of utter immiseration would miraculously transform those same peasants into go-getters more interested in making a buck than in signing up for social revolution.

Revisited decades later, claims once made with a straight face by the likes of Bundy, Rostow, and Huntington — action intellectuals of the very first rank — seem beyond preposterous. They insult our intelligence, leaving us to wonder how such judgments or the people who promoted them were ever taken seriously.

How was it that during Vietnam bad ideas exerted such a perverse influence? Why were those ideas so impervious to challenge? Why, in short, was it so difficult for Americans to recognize bullshit for what it was?

Creating a Twenty-First-Century Slow-Motion Vietnam

These questions are by no means of mere historical interest. They are no less relevant when applied to the handiwork of the twenty-first-century version of policy intellectuals, specializing in national insecurity, whose bullshit underpins policies hardly more coherent than those used to justify and prosecute the Vietnam War.

The present-day successors to Bundy, Rostow, and Huntington subscribe to their own reigning verities. Chief among them is this: that a phenomenon called terrorism or Islamic radicalism, inspired by a small group of fanatic ideologues hidden away in various quarters of the Greater Middle East, poses an existential threat not simply to America and its allies, but — yes, it’s still with us — to the very idea of freedom itself. That assertion comes with an essential corollary dusted off and imported from the Cold War: the only hope of avoiding this cataclysmic outcome is for the United States to vigorously resist the terrorist/Islamist threat wherever it rears its ugly head.

At least since September 11, 2001, and arguably for at least two decades prior to that date, U.S. policymakers have taken these propositions for granted. They have done so at least in part because few of the policy intellectuals specializing in national insecurity have bothered to question them.

Indeed, those specialists insulate the state from having to address such questions. Think of them as intellectuals devoted to averting genuine intellectual activity. More or less like Herman Kahn and Albert Wohlstetter (or Dr. Strangelove), their function is to perpetuate the ongoing enterprise.

The fact that the enterprise itself has become utterly amorphous may actually facilitate such efforts. Once widely known as the Global War on Terror, or GWOT, it has been transformed into the War with No Name. A little bit like the famous Supreme Court opinion on pornography: we can’t define it, we just know it when we see it, with ISIS the latest manifestation to capture Washington’s attention.

All that we can say for sure about this nameless undertaking is that it continues with no end in sight. It has become a sort of slow-motion Vietnam, stimulating remarkably little honest reflection regarding its course thus far or prospects for the future. If there is an actual Brains Trust at work in Washington, it operates on autopilot. Today, the second- and third-generation bastard offspring of RAND that clutter northwest Washington — the Center for this, the Institute for that — spin their wheels debating latter day equivalents of Strategic Hamlets, with nary a thought given to more fundamental concerns.

What prompts these observations is Ashton Carter’s return to the Pentagon as President Obama’s fourth secretary of defense. Carter himself is an action intellectual in the Bundy, Rostow, Huntington mold, having made a career of rotating between positions at Harvard and in “the Building.” He, too, is a Yalie and a Rhodes scholar, with a PhD. from Oxford. “Ash” — in Washington, a first-name-only identifier (“Henry,” “Zbig,” “Hillary”) signifies that you have truly arrived — is the author of books and articles galore, including one op-ed co-written with former Secretary of Defense William Perry back in 2006 calling for preventive war against North Korea. Military action “undoubtedly carries risk,” he bravely acknowledged at the time. “But the risk of continuing inaction in the face of North Korea’s race to threaten this country would be greater” — just the sort of logic periodically trotted out by the likes of Herman Kahn and Albert Wohlstetter.

As Carter has taken the Pentagon’s reins, he also has taken pains to convey the impression of being a big thinker. As one Wall Street Journal headline enthused, “Ash Carter Seeks Fresh Eyes on Global Threats.” That multiple global threats exist and that America’s defense secretary has a mandate to address each of them are, of course, givens. His predecessor Chuck Hagel (no Yale degree) was a bit of a plodder. By way of contrast, Carter has made clear his intention to shake things up.

So on his second day in office, for example, he dinedwith Kenneth Pollack, Michael O’Hanlon, and Robert Kagan, ranking national insecurity intellectuals and old Washington hands one and all. Besides all being employees of the Brookings Institution, the three share the distinction of having supported the Iraq War back in 2003 and calling for redoubling efforts against ISIS today. For assurances that the fundamental orientation of U.S. policy is sound — we just need to try harder — who better to consult than Pollack, O’Hanlon, and Kagan (any Kagan)?

Was Carter hoping to gain some fresh insight from his dinner companions? Or was he letting Washington’s clubby network of fellows, senior fellows, and distinguished fellows know that, on his watch, the prevailing verities of national insecurity would remain sacrosanct? You decide.

Soon thereafter, Carter’s first trip overseas provided another opportunity to signal his intentions. In Kuwait, he convened a war council of senior military and civilian officials to take stock of the campaign against ISIS. In a daring departure from standard practice, the new defense secretary prohibited PowerPoint briefings. One participant described the ensuing event as “a five-hour-long college seminar” — candid and freewheeling. “This is reversing the paradigm,” one awed senior Pentagon official remarked. Carter was said to be challenging his subordinates to “look at this problem differently.”

Of course, Carter might have said, “Let’s look at a different problem.” That, however, was far too radical to contemplate — the equivalent of suggesting back in the 1960s that assumptions landing the United States in Vietnam should be reexamined.

In any event — and to no one’s surprise — the different look did not produce a different conclusion. Instead of reversing the paradigm, Carter affirmed it: the existing U.S. approach to dealing with ISIS is sound, he announced. It only needs a bit of tweaking — just the result to give the Pollacks, O’Hanlons, and Kagans something to write about as they keep up the chatter that substitutes for serious debate.

Do we really need that chatter? Does it enhance the quality of U.S. policy? If policy/defense/action intellectuals fell silent would America be less secure?

Let me propose an experiment. Put them on furlough. Not permanently — just until the last of the winter snow finally melts in New England. Send them back to Yale for reeducation. Let’s see if we are able to make do without them even for a month or two.

In the meantime, invite Iraq and Afghanistan War vets to consider how best to deal with ISIS. Turn the op-ed pages of major newspapers over to high school social studies teachers. Book English majors from the Big Ten on the Sunday talk shows. Who knows what tidbits of wisdom might turn up?

Andrew J. Bacevich, a TomDispatch regular, is a professor of history and international relations emeritus at Boston University’s Pardee School of Global Studies. He is writing a military history of America’s War for the Greater Middle East. His most recent book is Breach of Trust: How Americans Failed Their Soldiers and Their Country.

Copyright 2015 Andrew Bacevich

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One of the big issues for conservatives in recent years has been the size of government, at least when Democrats are in power. Grover Norquist summed it up in his stated desire to “shrink government to the size where we can drown it in the bathtub.” Conservatives are not entirely wrong in their concern with the problems of big government, but the emphasis should be more on “big” and less specifically on “government.”

Organizations become large by delivering value. Without any moderating influences, however, these large entities grow to dominate their respective fields, suppressing competition, and eventually constricting change and innovation.

Conservatives who really want to do something good for America and free us from onerous government regulations would do well to target the excesses of large corporations in equal measure. Given the perverse incentives for bad behavior and lack of legal or cultural accountability for the typical large corporate executive, the regulatory function of government is often the only thing standing in the way of corporate pillaging, and the only mechanism to balance out the excesses of large corporations.

The first hopeful sign I have seen on this front is the recent FTC application of anti-trust law to slow down the wave of hospital mergers. See the article “FTC Wary of Mergers by Hospitals” by Robert Spear in the 9/17 New York Times.

Corporations themselves are beginning to recognize that size can be an impediment to their own profitability. Hewlett Packard recently announced plans to split into two companies, separating its printing and personal computer business from corporate hardware and services operations. The companies will now be known as HP Inc. and Hewlett-Packard Enterprises.

We might all benefit by some downsizing across the board.

Geopolitical

The U.S. has been exhibiting schizophrenic behavior on the global front. On the one hand, we continue to follow an expansionist foreign policy that is generating conflict with both Russia and China by failing to acknowledge their legitimate regional concerns. On the other hand, the Obama administration has been trying to distance the U.S. from the chaos in the Middle East, much of it the direct result of previous U.S. actions in the region.

The American public is receiving a rather narrow view of the dynamics contributing to the increasing global tensions and conflicts. Russia and China, for example, have been portrayed in our media as “unprovoked aggressors.” Certainly neither nation is without fault, but the media portrayal is incomplete at best.

For those interested in an expanded perspective on the conflict with Russia, John Mearsheimer recently published an article in Foreign Affairs entitled “Why the Ukraine Crisis is the West’s Fault” relating the policies and actions by the U.S. and the European Union that precipitated the crisis in Ukraine.

And for those interested in a broader perspective of the growing conflict with China this article in Global Research by Yoichi Shimatsu helps to illuminate the historical context and complexities of territorial issues in the South China Sea.

In the Middle East the U.S. is increasingly irrelevant, waffling on its commitment to Israel and uncertain who to back in the free for all ignited by the ironically named Arab Spring. The sudden rise of ISIS has brought some temporary focus into U.S. policy in the region, but the policy response continues to be confused, dependent on an air campaign to support fragmented “moderate” Syrian rebels to fight both ISIS and Assad. Our engagement against ISIS has brought us into literal, if not formal, alliance with Iran, Syria and even Al Queda in opposing them. How’s that for irony?

All of this conflict and warfare has studiously avoided dealing with the primary source of chaos throughout the Muslim world — Salafi jihadism — sponsored by our good friends at the House of Saud. See the New York Times op-ed “Saudis Must Stop Exporting Extremism” by Ed Husain for illumination on the source of inspiration and financial support for ISIS, Al Queda, Boco Haram and global jihadi culture. Also, see this insightful and unusually clear assessment of the trajectory of political Islam, “Let’s Talk About How Islam Has Been Hijacked” by Aly Salem in the Wall Street Journal.

Obama has been trying to withdraw from Pax Americana gracefully, an historical inevitability, but like market operators who corner a market, imperial nations pay a price when they try to withdraw from their increasingly burdensome commitments. Read the rather stunning and probably prescient article, “Are We Ready for the Fall of Baghdad?” by Ron Holland at the Daily Bell predicting a replay of the fall of Saigon.

America has weakened itself with 10 years of misguided and futile military engagements in Muslim countries. This relentless warfare has fueled the fire of the Salafi movement, creating chaos from Libya to Pakistan, threatening to morph into a generational war between Islam and the West.

They say if you want to know the true source of any conflict, follow the money. At the top of the military industrial heap: Lockheed Martin, Boeing, Northrop Grumman, General Dynamics and Raytheon account for $142 billion in annual sales to the Pentagon and approximately $12 billion in annual profits. Here are the top 25 beneficiaries of endless war from Business Insider.

Political

Ever since Ronald Reagan was successful selling voodoo economics to America, Republicans have simply been repeating the winning formula over and over…keep saying it long enough, with great certainty and righteousness, along with diversionary smears against the “liberal press” and divisive campaigns on social wedge issues, and the people will follow. Why bother doing real analysis and offering honest solutions when a con is so easy to pull off?

Rick Perlstein published an excellent piece at The Nation entitled “There Are No More Honest Conservatives, So Stop Looking For One,” expressing his frustration with liberal editors looking for honest conservatives to debate, and pleading for public recognition that 21st Century conservatism is an outright fraud…right down the line.

Meanwhile, our President makes excellent speeches, but he often seems disconnected, conflicted and confused by the real world. Despite occupying the most powerful office in the world he doesn’t seem to have much appetite for wielding power, especially when it comes to the hands-on political leadership required to advance an agenda. By abdicating his duty to lead, he has effectively given us 8 more years of the disastrous Bush era policies, and has allowed the most extreme elements both domestically and globally to control the agenda.

President Obama seems to be the embodiment of a collective American denial of the consequences of our political dysfunction. Jedidiah Purdy has published an insightful article entitled “Time Bomb” in the 7/3/14 edition of Politico Magazine, stating that America has been consumed and systematically degraded by “cultural vitriol stirred up by cynical posturing.” Purdy suggests that we may need a period of even more intense conflict to resolve the political degradation that is threatening our future. I encourage all of my readers to read this important article.

According to Nate Silver the latest polls on the mid-term election indicate that Republicans will retain control of the House, and take over the Senate.  Princeton’s Sam Wang gives calls the Senate race a toss-up and gives a slight edge to Democrats in the Gubernatorial races.

Markets & Economy

Markets have been trending over the last few months. At press time, the stock market is testing its all-time highs. Metals and commodities have been trending lower, reflecting cyclical deflation flowing from fiscal austerity and troubles in Europe. Bonds have been rallying in response to the soft economic numbers and the assumption that the Fed will continue to maintain a low interest rate environment regardless of what they say.

At the same time the real economy continues to struggle. The total number of jobs has recovered to 2008 levels, but the economic value of present day jobs lags far behind the value of 2008 jobs. A recent report from the Pew Research Center demonstrates that real wages peaked in 1973, and today’s wages have the same purchasing power as in 1979.

The employment numbers relative to the population have barely moved off the recessionary bottom. See the 9/9/14 Wall Street Examiner article posted at Yves Smith’s NakedCapitalism.

There is no question but that there will eventually be a big price to pay for all the money printing. In fact we have already been paying, but it’s more like the drip, drip, drip of a leaky faucet instead of the sudden breach of the dam that many, including this author, expected. See the Futures Magazine interview with the always insightful Jim Rogers.

The Fed learned something from Alan “keep it slow and no-one will know” Greenspan. The purchasing value of the dollar is draining away, just more slowly than one would expect, with the biggest impact cleverly offset into the future.

Paul Krugman’s assurances to the contrary notwithstanding, there will eventually be a grand finale to the dollar devaluation, but when that will be, and what it will look like, is not possible to know at this time.

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose.”  John Maynard Keynes

Opportunity

Opportunity is scarce these days. Assets are overvalued, reflecting Fed liquidity operations; demand is generally soft, reflecting fiscal austerity and the difficulties of American consumers generally. For the most part any opportunities are narrow, one-off situations, demanding specialty knowledge. General themes will continue to be security, alternative energy, local agriculture and servicing the growing tide of boomer retirees…10,000 a day…75 million over the next 15 years.

Some are finding opportunities offshore. Eastern Europe and Southeast Asia offer strong growth and attractive opportunities, but these are far away lands for Americans. Latin America offers similar opportunities, and is much closer to home. The cost of living there is generally 1/3rd or even less than in the states. Real estate is a bargain and development is proceeding. Careful due diligence is required, however. Latin America presents a wide variety of local conditions. Panama is especially attractive for Americans due to its political stability, first world infrastructure and healthcare, and healthy dollar based economy. Soon there will likely be opportunities in Cuba. See the October 11th New York Times editorial, “End the U.S. Embargo on Cuba.”

A wealth of information regarding offshore opportunities can be found at Kathleen Peddicord’s Live and Invest Overseas website.

Summary

The world is an increasingly fragile place. Conflicts have broken out around the globe and the economic malaise is not showing any signs of lifting. The Fed dream of “escape velocity” that was supposed to be generated by quantitative easing is nowhere on the horizon, and in fact the Fed is gradually reducing its growth projections.

Meanwhile, China is flexing its geopolitical muscle, the jihadi movement that spawned Al Queda is metastasizing, and the transatlantic alliance that has for so long been the foundation of global stability and economic growth is experiencing unprecedented distress. As Henry Kissinger put it, “The concept of order that has underpinned the modern era is in crisis.” See Kissinger’s new book “World Order.”

In the global world of Realpolitik Obama is seen as a weak and indecisive leader, so I expect that both Russia and China will push hard over the next two years to maximize their advantage while he is in office, as will the growing array of our enemies in the Middle East. It is not lost on them that whomever will come after Obama will likely be more decisive.

No-one knows how this is going to play out; whether the world will settle down and re-order itself peacefully, or whether the downward spiral into increasing chaos and conflict will continue. War cycles are not encouraging…predicting increased conflict until 2020.

For the time being, capital is flowing to the U.S. and into the dollar for safety.

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Karl Marx got some things right. “History repeats itself: first as tragedy, then as farce.” The spectacle emanating from Washington in recent months is nothing if not a farce.

Republican neo-Confederate nihilists pushed the limit over the debt limit in October, causing a 16 day shutdown of government services and threatening to drive the U.S. into default on its obligations if they didn’t get their way on spending issues. Threatening default, as Warren Buffet put it, is “an economic weapon of mass destruction” and should be “off the table for everyone, for good.”

The near term damage of this action has been mostly to the Republican Party, which is finally beginning to wake up to that fact and start to push back against the lunatic wing of the party. But the real damage this action has done to America will only be known over the long term. As Larry Summers put it, “future historians may well see today’s crisis as the turning point at which American democracy was shown to be dysfunctional – an example to be avoided rather than emulated.” That would be unfortunate, considering the historic contributions that American democracy has made to human dignity around the world.

Obama held the line against the insurgency. The hostage was released and the matter resolved at the 11th hour. After five years of disengaged leadership, it was bracing to see Obama acting Presidential. Regardless of policy differences, as Bill Clinton put it, the people prefer a President who is “wrong and strong to one who is right but weak.”

Obama then promptly made his own contribution to the farce, snatching political defeat from the jaws of victory with an epic display of incompetence in the rollout of the Affordable Care Act, otherwise known as Obamacare. The result was a solid month of Chicken Little hysteria that has erased the memory of malfeasance by House Republicans over the debt ceiling.

For those who would like to get a handle on the reality of Obamacare, which, for better or worse, is absolutely not going away, I would suggest two recent balanced articles: “A Realist’s Take on Obamacare” by Josh Marshall at Talking Points Memo, and “The Healthcare Reality Conservatives Ignore” by Paul Waldman at CNN.

It’s a shame that Republicans have refused to try to make health care reform actually work, instead of trying by any means to prevent any change in the indefensible status quo. In fact, it’s more than a shame; it’s a betrayal. Americans pay twice the price for an inferior health care outcome relative to every other developed nation on the planet. Republicans should be as concerned about this as Democrats are. As Warren Buffet put it, “Healthcare costs are the tapeworm of American business.” The following chart sums it up.

Markets

So far, markets seem to be treating the madness in Washington as theater, keeping a wary eye on the Fed and a steady bid under the stock market. The resolution of the debt limit hostage episode only kicked the can down the road a few months so we will probably have an attempt at a replay of some sort in January or February. But the “burn the house down” caucus will not have the support of party leadership this time, so the odds of a repeat crisis over the debt limit are not high.

The real test for the markets will probably come with the installation of the new Fed Chairman, Janet Yellen. Stocks are overdue for a good correction and regardless of the trigger, the marketplace may want to test Yellen’s commitment to QE.

It is worth noting that every change in Fed Chairmanship has been accompanied by a market correction of at least 7%, and most of them were complete in the first six months. (Data Courtesy Ned Davis Research).

Meanwhile, the recognition that the 30 year bond bull market is finished is gradually penetrating a reluctant marketplace. Selling is quickly forming above any bond rallies and with few options for spare cash, going into stocks, giving support to the Fed driven rally.

Gold and commodities continue to sell off. Fiscal austerity has extended the cyclical deflation that continues to undermine Fed efforts to re-flate.

Economy

The economic “recovery” continues to chug along, weak but persistent, and lately picking up speed. Q3 GDP was 4.1%, housing starts are back over the 1 million mark, at a five year high, and inflation remains muted at 1.2%. The lack of jobs is still the big problem. Official unemployment is down to 6.7%, but the improvement is mostly from people leaving the labor force, not new hiring. Real unemployment (U6) is almost double the official rate at 13.1%.

We can’t dismiss the possibility that our “leaders” in Washington will do something truly destructive, but the stock market is a leading indicator and it appears to be saying that something good this way comes. Stocks continue to climb the wall of worry and all major stock indexes are making new all-time highs, without the irrational exuberance normally seen at a major top.

If the stock market’s discounting function is indeed alive and well, then it is entirely possible that Republicans, who have persistently and aggressively log rolled in front of the recovery so as to undermine Obama, nation be damned, are going to be totally routed in the by election, clearing the way for fiscal stimulus in the form of funds for research and education, desperately needed infrastructure investment and jobs programs, perhaps a national service corp…the kind of things that generate real economic growth.

Policy changes are coming that will finally bring some moderation to the big banks’ untouchable status. The banks have pretty much kneecapped the much anticipated Volker rule, intended to limit the banks’ risk taking. But Elizabeth Warren is leading the charge for a revival of Glass-Steagall to separate commercial and investment banking, noting that the too big to fail banks are now 30% larger than they were in 2008…the five largest controlling half the nation’s banking assets.

In another telling sign, William Dudley, President of the Federal Reserve Bank of New York and a former Chief Economist at Goldman Sachs, delivered a speech entitled “Ending Too Big to Fail” at the Global Economic Policy Forum in November, highlighting Wall Street’s “deep seated cultural and ethical failures.” While commenting on regulatory efforts to deal with the problems of too big to fail banks, Dudley made this astonishing statement…

“Collectively, these enhancements to our current regime may not solve another important problem evident within some large financial institutions — the apparent lack of respect for law, regulation and the public trust.”

Quantitative Easing, initially necessary as triage, is also coming in for some changes. QE has become increasingly ineffective over its iterations and is widely viewed as a growing liability. For his role in QE, former Fed Governor Andrew Huszar made a public apology to the American people in a November 11th Wall Street Journal op-ed piece entitled “Confessions of a Quantitative Easer.” A must read…beginning “I can only say: I’m sorry, America.”

Politics

“Suppose you were an idiot, and suppose you were a member of Congress. But I repeat myself.”

Not much has changed in the 120 years since Mark Twain penned this observation, except that the condition seems to have spread to the other branches of government.

The political scene in America is pretty grim these days. However, lately there have been some signs that democracy is not totally dead. The growing indignation over NSA dragnet spying and demands for reform are heartening. Also, Democrats have finally overcome their cowardice long enough to put an end to the serial abuse of the filibuster by Senate Republicans. Over half of all filibusters since the founding of the republic have occurred in the past five years. Enough is enough.

While the spectacle of nihilism and incompetence in Washington is sucking up all the media oxygen, the political cutting edge has manifested in the election of liberal dark horse Bill DeBlasio as mayor of New York City on his campaign of “two New Yorks,” which is echoing across the political landscape.

There has been virtually no left wing in American politics for the last 30 years. It is now coming back to life. This is the next major trend in American politics. In this two minute video, Elizabeth Warren gives voice to the issues that will define the next era of political discourse in America.

Given the massive amounts of money and effort expended by political operatives to spin the daily news cycle, you would think that there is political gold to be mined from it. This interesting article by Ed Kilgore suggests that it’s all pretty much wasted effort, and that elections are really decided by fundamentals like incumbency, economy and demographics.

Geopolitics

The global scene has been a tinderbox for a long time, with nascent upheavals around the world held in check by an assertive U.S. military presence. With the U.S. fiscally challenged and war weary after long, inconclusive campaigns in Iraq and Afghanistan, that stabilizing influence is in question, and the world is getting even more unstable.

Cycles analysts are pointing to long term cycles of war that indicate rising conflicts over the next decade or so. The Middle East and Asia are the most likely places for a major conflict to erupt. The Ukraine is also spiraling into civil war, and Africa has spawned one more in its seemingly endless and brutal wars, this one in Sudan.

On the Asian front, China and Japan have been increasingly in conflict over the disputed Diaoyu/Senkaku islands, which are also claimed by South Korea and Taiwan. China has recently deployed an air defense zone around the islands. In response, Japan’s Prime Minister, Shinzo Abe, has pushed through a new Secrecy Law giving his government sweeping powers to define what constitutes state secrets and impose draconian punishments on bureaucrats who leak them and journalists who publish them. This move is widely seen as providing cover for his plans to remilitarize Japan. China and Japan appear firmly on a track to war, which would be extremely disruptive to the global economy.

In the Middle East, the ironically named Arab Spring has generated chaos throughout the region. The Obama administration’s vacillating policy in the region has angered America’s Arab allies, and Israel as well. The Syrian civil war in particular continues to metastasize, poisoning the entire Middle East. Egypt appears to be on the path to civil war. Iraq is spiraling into civil war and a resurgent Al Queda is now in control of Falluja!

Iran’s quest for nuclear power is especially troublesome. While the mainstream media have played up Obama’s negotiations with Iran, many observers worry that Obama’s desire to make a deal is blinding him to the bad faith of his negotiation partners. In other words, that Obama is being played by the Iranians just as he has been played by Republicans at home.

Israel views the Iranian nuclear project as an existential crisis, and rightly so. Even worse, if Iran goes nuclear, the entire region will quickly follow, and then it will only be a matter of time until some religiously inspired lunatic presses the button and the entire region goes up in a series of mushroom clouds. Worse yet, the region is rife with militias and access to nuclear weapons by terrorist groups would become much more likely.

The U.S. military — once seen gratefully in most quarters as a global stabilizing force — has gradually become deeply resented almost everywhere. The drone wars in particular, and the endless reports of “collateral damage,” (read, dead children and other civilians) are an ongoing PR disaster for the U.S. The blatant dishonesty of Administration claims that there have been zero civilian casualties just adds insult to injury and further degrades America’s moral standing.

It is interesting to note the internal unease about the drone program. Pentagon brass floated a plan to award combat medals to drone jockeys, and it was shouted down by front line officers. The redeeming value in the soldier’s trade is in the courage of those facing death and the honor with which they execute their task. Blowing people up with a joystick from thousands of miles away just doesn’t sit right on that score.

The NSA spying scandal has further undermined America’s position in the world. Not that there is anything new about spying, but the sheer magnitude and pervasiveness of it is shocking, and the apparent lawlessness of it. Enemies and allies alike are reevaluating their relationship with the U.S., and with U.S. technology companies. Germany is especially incensed that Angela Merkel‘s cell phone was bugged, apparently since 2001, and that Obama knew about it and allowed it to continue. Israel is also angry over reports that a former Prime Minister and Defense Ministers have been tapped. Yes, it is true that all countries spy on each other and always have, but phone tapping the German Chancellor and Israeli Prime Minister goes a bit far.

Opportunity

The economy is generally weak, but still expanding. Private equity has been very active in the housing sector, but I think this is probably not going to work out so well for them, and especially not for their renters. If you have the resources, it seems like a good time to buy a home, but real estate as an investment is going to have issues going forward.

In this cycle, advantage is being sought primarily by investing in stocks. Gold is still selling off, but it we are approaching levels that are starting to look attractive for the long term. 50% of the move up from 2001 is $1,063 and the old high from 1980 is $800. Gold is presently hovering just above $1,200.

In the real economy there is a very strong and rapidly growing trend toward Made in America products. If the global scene erupts in conflict, then Made in America will become imperative overnight. Those companies with deep ties to Asia, especially with major investment in mainland China, are at great risk. Economic, social, political and geopolitical developments are all supporting this trend, and policy will increasingly be favoring companies that manufacture in America.

Summary

The economic recovery is gaining steam, and even though the Fed surprised with its December mini-taper, the Fed is not going anywhere and will continue to support at the first sign of weakness. The stock market is at all-time highs without any signs of irrational exuberance or other indications of a major top. In fact, sentiment is surprisingly tepid, arguing for a continuation of the rally.

At the same time, the seating of a new Fed Chairman has historically been the signal for a market correction. This would coincide with the Presidential Cycle, which also indicates a selloff into the spring, and possibly into October of 2014. The selloff could be triggered by a new round of debt limit madness in Washington, or by the eruption of military conflict in the Middle East or Asia.

All things considered, a market selloff in the first half of 2014 should be a buying opportunity, as long term indicators are all in favor of a continuation of the bull market.

Jobs continue to be the big problem economically, and that problem is not going away. Overcapacity and technology, combined with fiscal austerity will continue to undermine any substantial improvement in the employment situation for the foreseeable future.

Geopolitically, cycles of war argue for an increase in global conflicts over the coming decade, and growing economic pressure will give political leaders traditional thoughts of relieving political pressure at home by creating conflicts with external enemies. Given the delicate condition of the global economy and the dollar based monetary system, an outbreak of hostilities could quickly spiral into another major economic crisis. Caution is recommended.

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