Making
Sense Of A Mad World
By Gabriel Kolko
29 November, 2006
Asia
Times Online
These
are dismal days for those who attempt to run the affairs of the world.
But how should we understand it?
It would be a basic error
to look at our present situation as if it were rationally comprehensible.
The limits of rational explanations are that they assume rational men
and women make decisions and that they will respect the limits of their
power and behave realistically. This has rarely been true anywhere historically
over the past century, and politics and illusions based on ideology
or wishful thinking have often been decisive. This is especially the
case with the present bunch in Washington.
We are right to fear anything,
particularly a war with Iran, that would immediately reel out of control
and have catastrophic consequences not only to the region but globally.
We are also correct to see limits to the power of irrational people,
for the United States is strategically weak. It loses the big wars,
as in Korea, Vietnam, and now Afghanistan and Iraq, even though its
tactical victories often prove to be very successful but also ultimately
destabilizing and ephemeral. Had the US not overthrown the Mohammed
Mossadegh regime in Iran in 1954, it is very likely the mullahs would
never have come to power and we would not now be considering a dangerous
war there.
Although the whole is far
more important than the parts, the details of each part deserve attention.
Many of these aspects are known, even predictable, but there are - to
paraphrase Donald Rumsfeld - the "known unknowns and the unknown
unknowns", the "x-factor" that intercedes to surprise
everyone. All of these problems are interrelated, are interacting, and
potentially aggravate or inhibit each other, perhaps decisively, making
our world very difficult both to understand and to run.
Putting them together is
a formidable challenge to thinking people outside systems of power.
It has always been this way; fascism was in large part the result of
economic crisis, and World War II was the outcome. How factors combine
is a great mystery and cannot be predicted - not by us or by those ambitious
souls who have the great task of making sure there is no chaos. We wish
to comprehend it but it is not decisive if we don't; for those who have
responsibility to manage it, this myopia will produce the end of their
world - and their privileges.
We can rule out the left,
that artifact of history. Socialism ceased being a real option long
ago, perhaps as early as 1914. Since I have just published an entire
book, After Socialism, and detailed its innumerable myopias and faults,
I need not say more than that it is no longer a threat to anybody.
The fakirs who lead the parties
who still use "socialism" as a justification for their existence
have only abolished defeats in the hands of the people from the price
capitalism pays for its growing follies. That confidence - the freedom
of being challenged by the unruly masses - is very important but it
is less and less sufficient to solve its countless remaining dilemmas.
The system has become increasingly vulnerable, social stability notwithstanding,
since about 1990 and the formal demise of communism.
Assume anarchy
The failure of socialist
theory is much more than matched by the failure of capitalism because
the latter has the entire responsibility for keeping the status quo
functioning, and it has no intellectual basis for doing so. The crisis
that exists is that capitalism has reached a status of most destructiveness,
and no opposition to it exists.
This malaise involves foreign
affairs and domestic affairs - vast greed at home and adventure overseas.
If the foreign-policy aspects are largely American in origin, the rest
of the world tolerates or sometimes collaborates with it. Its downfall
is inevitable, perhaps imminent. The chaos that exists, much less comes,
will exist in a void. No powerful force exists to challenge it, much
less replace it, and therefore it will continue to exist but at immense
and growing human cost. Visions to create alternatives are, for the
moment at least, mostly cranky.
Ingenious and precarious
schemes in the world economy today have great legitimacy, and they profit
in the sense that classical economics is fast becoming irrelevant. It
is the era of the fast talker and buccaneer-snake-oil salesmen in suits.
Nothing old-fashioned has credibility. Joseph Schumpeter and other economists
worried about pirates, but they are more important today than ever before,
including than during the late 19th century when they were immortalized
in Charles Francis Adams Jr's Chapters of Erie.
The leitmotif is "innovation",
and many respectables are extremely worried. I argued in Counterpunch
earlier (June 15 and July 26) that gloom prevailed among experts responsible
for overseeing national and global financial affairs, especially the
Bank for International Settlements, but I grossly underestimated the
extent of anxieties among those who know the most about these matters.
More important, over the
past months officials at much higher levels have also become much more
articulate and concerned about the dominant trends in global finance
and the fact that risks are quickly growing and are now enormous. Generally,
people who think of themselves as leftists know precious little of those
questions, questions that are vital to the very health of the status
quo. But those most au courant with global financial trends have been
sounding the alarm louder and louder.
The problem is that capitalism
has become more aberrant, improvised, and self-destructive than ever.
It is the age of the predator and gamblers, people who want to get very
rich very quickly and are wholly oblivious to the larger consequences.
Power exists but the theory to describe the economy that was inherited
from the 19th century bears no relationship whatsoever to the way it
operates in practice, a fact more and more recognized by those who favor
a system of privilege and inequality.
Even some senior officials
at the International Monetary Fund (IMF) now acknowledge that the theory
that powerful organizations cherish is based on outmoded 19th-century
illusions. "Reconstructing economic theory virtually from scratch"
and purging economics of "neoclassical idiocies", or that
its "demonstrably false conceptual core is sustained by inertia
alone", is now the subject of very acute articles in none other
than the Financial Times, the most influential and widely read daily
in the capitalist world.
Capitalism as an economic
system is going crazy. In late November there were a record US$75 billion
in global mergers and acquisitions in a 24-hour period. Global capitalism
is awash with liquidity - virtually free money - and anyone who borrows
can become very rich, assuming he or she wins. The beauty of the hedge
fund is that individual risks become far smaller and one can join with
others to wager big and much more precariously.
So spectacular chances are
now being taken: on the value of the US dollar, the price of oil, real
estate and countless others gambles. Amaranth Advisors lost about $6.5
billion at the end of September on an erroneous weather prediction and
went under. At least 2,600 hedge funds were founded from the beginning
of 2005 to October 2006, but 1,100 went out of business. The new financial
instruments - derivatives, hedge funds, incomprehensible financial inventions
of every sort - are growing at a phenomenal rate, but their common characteristic,
as one Financial Times writer summed it up, is that "everyone [has]
become less risk-averse".
Therein lies the
danger
Hedge funds will bet on anything,
pension-fund members being only the latest examples of their addiction
to taking chances. London is fast replacing New York as the center of
this activity, and the capital market in general, because the regulatory
regime the British Labour Party established is much more favorable to
this sort of activity than what US President George W Bush's Republican
minions allow, though this may change because Wall Street does not like
losing business.
On September 12, the IMF
released its report on "Global Financial Stability", and it
was unprecedented in its concern that "new and complex financial
instruments, such as structured credit products", might wreak untold
havoc. "Liberalization", which the "Washington consensus"
and IMF had preached and helped realize, now threatens the US dollar
and much else. "The rapid growth of hedge funds and credit derivative
mechanisms in recent years adds to uncertainty," and might aggravate
the "market turbulence and systemic impact" of once-benign
events. Hedge funds, it warned, have already "suffered noticeable
losses".
At the end of October, Jean-Claude
Trichet, head of the European Central Bank, deplored these new financial
products, which have been increasing and growing into the trillions.
He could not comprehend them, and there was scant oversight over them.
Many were pure hype, and nothing prevented them from creating immense
domino effects on the entire financial system were they to collapse,
thereby also dragging the well-regulated parts of it down. Then, at
the beginning of November, the quasi-official UK Financial Services
Authority (FSA) issued a report that detailed the existing risks to
the entire world financial structure. Despite its tone, it is dynamite.
The FSA report documents
the many risks to the private-equity sector: excessive leverage, unclear
ownership of risk, market abuses and insider trading. There were conflicts
of interest of every sort, the system was opaque, hedge funds made inherent
dangers even riskier. "Given current leverage levels and recent
developments in the economic/credit cycle, the default of a large private-equity-backed
company or a cluster of smaller private-equity-backed companies seems
inevitable."
Given this growing consensus
of risks, on November 13 John Gieve, the deputy governor of the Bank
of England, concluded that each national state regulating full-blown
financial crises was no longer feasible: the financial system was so
international in scope today that no national mechanism could handle
it. There have been at least 13 borderline or full-blown financial crises
since the late 1970s, and some of the methods for dealing with them
were "less easy to deploy" under present conditions, which
was a polite way of saying they were irrelevant.
His conclusion: regulators
"should practice coping with global crisis", "work together"
on practical examples to develop machinery, especially to avoid the
"moral hazards" of bailing out firms in trouble, including
"closing down a large firm in an orderly way".
The chances of developing
a common transnational approach or rules are close to zero, if only
because nations of the world are rivals to attract financial companies
and regulation, or lack of it, is a major factor on where to headquarter.
When the next financial crisis occurs, and the likelihood of that happening
has grown by leaps and bounds, it is more likely than ever to drag the
entire global economy with it. At least the "experts" think
so. They did not before now.
So economics may foul up
politics. Perhaps not, but it could become a very important factor in
the overall situation.
Power in Washington
Bush made this month's congressional
election a referendum on the war in Iraq and was badly repudiated; his
party suffered a disaster. Disorientation, depression and defeat have
left the US president and the neo-conservatives adrift. They have two
more years of power, so we are at the mercy of people who are irresponsible
and dangerous.
Their rhetoric proved a recipe
for disaster in Afghanistan, and Iraq has become a surrealistic nightmare.
The US public is largely anti-war (55% of those who voted on November
7 disapproved of the Iraq war, most of them strongly); they voted against
the war and only tangentially for Democrats, most of whom vaguely implied
they would do something about the war but immediately after the election
shamelessly reaffirmed their support for its essence.
But people, and voters in
particular, are such a nuisance everywhere; they more quickly than in
the past respond to reality, which means that traditional politicians
must betray them very speedily. They create certain decisive parameters
that ambitious politicians flout at greater risk than ever because the
people have shown themselves ready to vote the rascals - whether Democrats
in 1952 and 1968 or Republicans this month - out of office.
The US public is more anti-war
than ever, and no one can predict what the future holds, including some
Republicans outflanking the Democrats from a sort of anti-war left so
that they can remain in, or gain, office. That the people are subsequently
cynically ignored - as they have been immediately after the last US
election - is a fact also, but their role can neither be overestimated
nor gainsaid.
Experience shows that politicians,
whatever they call themselves or however nationalist, can never be trusted.
Ever. But the facts on the ground are today very bad for those who advocate
wars.
Israel: The dream
comes apart
Hawks in Israel, ascendant
since the founding of the Jewish state, are still debating their 33-day
war in Lebanon and the decisive limits of their once-awesome, ultra-sophisticated
modern military power that their Lebanon adventure exposed. The Israeli
press is full of accounts of ministers' sexual offenses and corruption;
Prime Minister Ehud Olmert's government is badly divided, backbiting,
and may fall soon.
The army is openly split,
and Olmert would like to dump its chief of staff, Dan Halutz, and the
minister of defense. The Zionist project is increasingly surrealistic
and in an unprecedented state of disrepair and depression, with profound
demoralization taking hold. Olmert himself is a complete mediocrity,
a minor Likud politician who parlayed himself into the No 2 spot and
was lucky. His comment when he visited the US in the middle of November
that America's Iraq war had brought stability to the region either infuriated
or embarrassed everyone. He is basically a shrewd politician but a very
stupid man.
The most devastating analyses
of Israel's war in Lebanon have appeared in Israel itself, and "the
fact the Israeli army is at a low point", according to a writer
in Haaretz, has goaded rather than deterred Iran. "Almost every
weapon lost its significance and effectiveness as soon as it was used,"
Ofer Shelah wrote in the Jaffee Center's Strategic Assessment.
The Israeli military relied
on massive, overwhelming firepower delivered by the most modern means
possible, and it failed to stop incoming rockets and enemy mobility,
much less win the war. Hezbollah not only showed Syria how to defeat
the Israeli army but made Iran much more confident it can carry on what
it is doing. The entire Israeli government and army leadership was incompetent.
From its very inception there
was a warrior ethic in the Zionist ideology, one it shared with diverse
reactionaries in Europe. Both its left wing as well as the right have
nourished it, and Joseph Trumpeldor, the hero of this militant mentality,
was one of the founders of Zionist socialism - a leader of Hashomer
Hatzair, the far left of this tendency. But the cult of heroism in Israel
has made way for military technocrats who read digital printouts.
Morale in Israel, and especially
in the once-elitist military, has plummeted. The arms industry there
is very large, and like its US equivalents, needs subsidies - computer-based
war is very expensive and greatly helps employment. But Lebanon only
showed Israel what the Americans learned elsewhere. It loses.
There are many dangers, from
fascistic politicians like Avigdor Lieberman becoming even more powerful
to yet greater emigration abroad of those Jews with high skills. The
latter is happening. Israel's ability to flout European opinion with
impunity or to have Washington embark on military adventures from which
Israel gains is increasingly limited.
France has warned Israel
that should it initiate a war with Iran it would create "a total
disaster for the entire world". Oil prices would rise, the entire
Arab world would unite behind the Iranians, and Israel would be targeted,
but so would other nations. Even more important, Israeli strategists
admit that Iranian nuclear weapons would only create a stable deterrent
relationship between the two nations, and are not an "existential
threat".
Repentance or rapture?
Above all, in Iraq the US
government is confronting the failure of its entire Middle East project,
an illusion in which the Israelis have a profound interest. Bush and
gang are in a state of denial, but the US is going the way of its defeat
in Korea and Vietnam, and its military is increasingly overstretched
and demoralized. It has based its foreign policies on fantasies and
non-existent dangers, neo-con dreams and desires, only partially to
meet equally illusory Israeli objectives to transform the entire Middle
East so that it accepts Israel in whatever form the fickle Israeli electorate
presents it.
US foreign policy has been
fraught with dangers since 1945, and I have documented them extensively,
but this is the worst set of incompetents ever to hold power in Washington.
It "shocked and awed", to use the departed secretary of defense
Donald Rumsfeld's phrase, itself. Things are going disastrously for
conservative warriors.
But it is very difficult
to anticipate what this administration will come up with, though disasters
over the past six years have made a number of alternatives far less
probable. In a way, that is a good thing, although the cost in lives
lost and wealth squandered has been immense. The Baker/Hamilton bipartisan
commission is deeply split and if - with emphasis on "if"
- it happens to come up with a clear alternative, the president is free
to ignore it.
The Pentagon has formulated
alternatives, summed up as "go big", "go long" -
both of which would require five to 10 years to "Iraqize"
the war - or "go home", but it is divided also. One thing
certain, however, is that it has neither manpower, materiel, nor political
freedom to make the same mistakes as in Vietnam, as the first two alternatives
would have it do.
There are no options in Iraq
because the US has traumatized the entire nation and created immense
problems for which it has no solutions. No one can predict what it will
do in Iraq because the administration wishes to preserve the illusion
of success and is genuinely confused about how to proceed. It has produced
only chaos. Iraq is very likely to remain a tragedy, one racked by violence,
for years to come. The Bush administration has created a massive disaster
involving the lives of many millions of people.
A great deal depends on the
president, whose policy has utterly failed in Iraq and is failing in
Lebanon, and one of his options is escalation, meaning war with Iran.
Israel might attack Iran to drag the US in, but by itself it can only
be a catalyst. It knows that, at least at certain levels, and Olmert
and Bush approach these issues in a remarkably similar fashion. Either
way, Bush has not ruled out war with Iran despite warnings from many
military men that such a conflict would have vast repercussions, it
would probably last years, and the US would likely lose the war, even
if it used nuclear weapons.
A number of the neo-con theoreticians
have repented the Iraq adventure, and even criticized some the basic
premises that motivated it, but it would be an error to assume that
this administration has some contact with reality and can be educated
- by the electorate or by alienated neo-con intellectuals.
There are still plenty of
people in Washington who advocate going for broke, who still retain
fantastic illusions. There remains the imponderable factor of rapture
- fantasy and illusions mixed with desires. Is victory around the corner
if we escalate with more troops? Will the Iraqi troops the Americans
train attain victory over enemies that eluded US forces? Many much wiser
presidents have pursued such chimera. Why not Bush too? Facts on the
ground, which are much greater in constricting US power than they were
six years ago, are a critical factor. They may not be sufficient to
prevent irrational behavior. We simply cannot know.
All of these factors, and
perhaps others not mentioned here, will affect one another. The whole
is very often no stronger than all the parts. All surprises that thwart
the Bush administration's freedom to act are now to be welcomed, and
while the world's financial system is the leading candidate for upsetting
the United States' calculations, it is scarcely the only one. The facts
on the ground, realities rather than decisions, are usually crucial,
and here the US is losing in its megalomaniac ambition to shape the
world. It has been this way for many nations led by men far superior
in intellect to George Bush.
Wishes are not reality and
the US has an endemic ability to hold on to its wishes and fantasies
as long as possible. Desire often leads to its acting despite itself.
But its resources are far more constrained now than they were six years
ago, much less during the Vietnam War, which it lost. The US public
is already deeply alienated, the world financial system is teetering,
the United States' military resources are virtually exhausted.
We shall see.
Gabriel Kolko
is a leading historian of modern warfare. His latest book is The Age
of War.
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