I must apologize for misspelling Mohamed A. El-Erian’s name in my earlier post. A bit more about politics which seem to compound the markets these days.
On the foreign environment, we have not as a nation been served well by the Iraq war and we are also as a nation very uninformed (like the leading Republican candidates) about what to do about its consequences. Nefarious as was the division of boundaries by the British and French in the Middle East, we will long rue the collapse of the dictatorships which inevitably rose to preserve either military rule or the privileges of one minority group over another. Further, the refusal of Dick Cheney to permit the State Department's planning for the future (a purely bureaucratic conflict) set the stage for the disastrous occupation in Iraq after hostilities. The contrast with the careful planning for the occupation of Germany after World War II (about which I am an expert) clearly shows Roosevelt was so much more visionary. Ryan C. Crocker, a well-regarded diplomat and formerly U.S. Ambassador to Afghanistan and Iraq, was interviewed on Vice about the ISIS threat. He said, in effect, conditions in Iraq are much worse for the people now than under Sadam. A stunning comment which only a retired diplomat of his standing can concede. Our policy was not improved by another notch when Obama failed to honor the popular vote which failed to support Maliki’s re-election. So mistakes were made on all sides proving our leaders’ amateur status.
Of a different category, but still almost impossible to deal with was the temptation by policy-makers to support the Arab spring after one of the dictators had been removed by Bush. You now have a Middle East and Northern Africa totally fractured. Added to this were naive attempts under Secretary Clinton’s stewardship to take advantage of popular uprising in Ukraine and whiff of talk Ukraine might move toward membership in the EU. Obviously this was enough to justify Putin’s awakening from hibernation.
We need a much more realistic assessment of the world than the illusion of superpower resulting from the aftermath of World War II. To paraphrase Lincoln, we cannot control events abroad, they have returned to control our markets today.
Others have rightly identified an earth-wrenching change we are going through, the shift from fossil fuels to conservation and alternative energy sources. Alone that is enough to explain the uncertainty of our future. It is often said, “business does not like uncertainty.” While we often want change, no one really likes uncertainty, although the world is surely boring for those who have it; hence the oft quoted Chinese curse about crisis.
My teachers of U.S. diplomatic history said, the U.S. had almost a perfect record in diplomacy when it was a relatively weak country. To illustrate: the scholar, William Appleton Williams began The Tragedy of American Diplomacy with the Open Door Notes and our foreign adventures.
Our founders knew we had to be smart when dealing with the Big Boys. They knew then, as we must learn now, the Big Boys get into trouble when their ambition exceeds their reach. They took advantage of Britain’s ignorance. ISIS is the direct result of our fumbling hubris.
The even bigger news in the Middle East is the shakiness of the Saudi regime. The conflict between that country and Iran may eventually make today’s oil price concern seem timid, indeed. The Saudis’ support for Wahhabism when translated into Salafism, their failure to diversify the economy, and the tribal orientation of the oil producing areas (Shia) of the country, combined with the regional flirtation with populism, portends eventual collapse. The two Muslim Big Boys in the Middle East need to bury the hatchet as the U.S. and Russia seemed to have. It would be neat if Israel would play middle-man in this truce, but under Netanyahu that is exceedingly unlikely. He’s not driven to seek a sure-fire Nobel Peace Prize.
How do these politics play into the market? Just as they usually do before a war. Thank God the Iranians have been estopped about the bomb for a few years, unless the Republicans take the White House and follow through on electioneering promises. Though off the thread, its time to take politics much more seriously, more than ever after Hiroshima.
