Geo-political ‘May madness’?

Alastair Crooke, Comment, 24 March 2018

Ben Caspit, a doyen of Israeli political correspondents, puts Israel’s ‘dilemma’ starkly: “Should it carry out a military strike to push the Iranians back from Israel’s northern border; or, simply swallow the bitter pill and come to terms with the new situation? According to western intelligence assessments, Israel is vacillating on the matter … is [a strike] worth the danger, and the tremendous destruction, that would be caused by initiating a war?”.

“The month of May”, Caspit suggests, “is shaping up to be May madness” with the possibility of an assault (by the US, or Israel, or both) in Syria; a more assertive US return to the “Middle East battlefield”; a new US approach towards North Korea (according to Netanyahu, on his return from DC); Trump’s decision on JCPOA, (to waive or not); the move of the US Embassy to Jerusalem; the approaching end to the Netanyahu era; and key elections in Iraq and Lebanon — all in May.

In a sense, Israel’s ‘dilemma’ is analogous to that facing America and Europe: the reluctance to give up on a key cultural narrative, to which certain élites have clung, even as its underlying validity is shown to be empirically false. The two ‘Key Narratives’ are very different, but the political culture which forbids them being addressed, is similar. And although the narratives are diverse, both instances of cultural denial pose existential risks: One of a war which might be catastrophically lost; and the other, of an economic and political system entering into profound crisis.

In the case of Israel, political culture forbids as an ‘unworthy claim’, any notion that the Palestinian population cannot be adequately ‘managed’, or that Israel’s military dominance over its Arab neighbours might be seriously challenged one day.

In Europe and America, the key political culture is about economic success – of its inherent ability to provide expanding prosperity, (whereas Israel’s is about the continuing success of its military deterrence).

“For, far too long”, Jeffrey Snider tells us, “the [western] global population has been told uniformly that there is nothing wrong with their economy. What might have been unsatisfactory at any given moment, was immediately dismissed as an unworthy claim, or if valid enough to engender some mainstream response, then written off as something that was in the process of being fixed…”.

Conservative commentator Mark Steyn once wrote that, “If the political culture forbids respectable politicians from raising certain topics, then the electorate will turn to unrespectable ones”. This, (turning to dissident voices), has, for some time now, for Israelis, not been a real option.

But now, Israel precisely does face an existential dilemma, as outlined by Ben Caspit above. The security echelon, at least, does understand that Israel may have lost some, or most, of its former unchallenged aerial dominance, and that the home base might well be the unaccustomed new locus for future conflict. But this is culturally difficult territory (especially as the F16 has become symbol and icon of Israeli and western claims of technological superiority over ‘less technological’ peoples).

The temptation therefore, is always there to court popularity by giving evidence to a politico-cultural narrative through enacting that narrative into ‘fact’ i.e. demonstrating Israel’s techno-military dominance. In brief, does Israel risk an existential war because its inhabitants believe in the narrative of inexorable victory, or does it try to come to terms with the new reality of uncertain outcomes?

Israeli politicians have to go along with the notion that there is nothing wrong (or vulnerable) in Israel’s situation in the Middle East, when, in fact, its situation has substantially changed from that of 2006. Similarly, the western technocratic refusal to acknowledge the reality (or the societal consequences) of two, distinct, and increasingly diverging economic spheres – of decades of monetary ‘experiment’ - poses analagous difficulties for mainstream western politicians: Inequality of income, surging asset class valuations and retirement ‘pauperism’ is just not a place that mainstream politicians wish ‘to go’. So, western politicians simply go along with the narrative that recovery will arrive, at any moment (despite all the evidence that debt accumulation beyond a certain point snuffs out growth).

Why is this? (as Jeffrey Snider of Alhambra Investments notes, in the West “economists have been sitting on their pedestal too long. Their views have gone wholly unopposed for what seems to have been several lifetimes, leaving many to believe that economics is the part of politics that is done right.” Indeed, this represents the basis to the notion (in the West) that it somehow has moved beyond politics to managerial governance by experts who simply understand economics and know markets. For its advocates, such as Paul Krugman, what the Fed has done has been a huge ‘success’ by saving jobs.

But “to most people, Krugman’s ideas and assertions are nonsense. They don’t have to know anything about QE’s effect on the TBA market and dollar rolls … [but, rather] people know the Fed did a bunch of stuff hat didn’t work, because they can tell there is something very wrong with the economy”, Snider notes. This is the cultural denial that is responsible for Trump, Brexit, the Italian election outcome – and its unforeseen consequences extend even to China.

The consequences are serious because China is crucial to our global synchronised growth meme. And what Jeffrey Snider is saying in respect to China, is that Greenspan’s monetary ‘experiment’ has brought China to the brink, where its leadership now fears social disorder:

For a very long time, they tried it “our” way [i.e. the Greenspan stimulus way]. It isn’t working out so well for them any longer, so in one sense you can’t blame them for seeking answers elsewhere. It was a good run while it lasted.

The big problem is that what “it” was wasn’t ever ‘our way’. Not really. The Chinese for decades followed, not a free market paradigm, but an orthodox Economics one. This is no trivial difference, as the latter is far more easily accomplished in a place like China.

At the 17th Communist Party Congress way back in 2007, the idea of the “harmonious society” …was [intended] to strike some balance between growth - and ‘living with growth’. Rapacious transformation had uglied, for a great many, the simple basics of human life. [But] the Chinese understandably did not want to give up the economy for it however…

For a very long time, starting in the eighties and early nineties, there was an embrace of markets as if that would define China’s ideological difference [as a communist party from other such parties]. After the massacre at Tiananmen Square, as well as the fall of Soviet Russia, a more Western embrace seemed almost easy by comparison. That included total dollarization in money as well as in the economy. China opened a bit, and the “dollars” flowed in.

The 18th Communist Party Congress [in 2012]...installed Xi Jinping, on the basis of the same “harmonious society.” What was at odds then, was the economy, it was sputtering somewhat - contrary to all mainstream predictions of full and complete recovery from the global Great “Recession.”

That particular Congress assured the world that China was still committed to growth. The world in response breathed a collective sigh of relief because without the Chinese on board the global economy would (could) not get anywhere. The Western Economic playbook of “stimulus” still guided Chinese Communism; the recovery was delayed, they reasoned, so monetary and fiscal “stimulus” would be deployed a second time (2009 the first) to cushion the deficiency as well as assure its eventual arrival.

Something changed, however, by the 19th Party Congress held last Fall. The idea of Chinese communism still officially revolves around the “harmonious society”, only now ten years later that harmony is to be defined more so by “quality” of economic growth, without much of the “quantity.”

As early as May 2016, a strange article had appeared on the front pages of the People’s Daily…the article was, it appeared, a total rebuke of what the government was doing at that very moment; the “stimulus”…The world had been counting on and waiting for China’s eventual “V” shaped recovery from the “rising dollar.” The figure in the People’s Daily warned it wasn’t the correct letter:

“I need to stress, that the L-shape will last for a certain period of time, and it’s certainly longer than one or two years”, the anonymous author wrote…And there is every reason [now] to suspect that Chinese officials are increasingly accepting of a no-growth paradigm, and therefore it would be prudent (from the Communist perspective) to get ahead of any potential fault-lines that may develop in response to a China without any [prospective growth] “miracle(s).”

To forbid political challenge to the country’s leadership is one (potential) method for at least raising the costs of turning grave economic dissatisfaction into something more substantial. It seems more and more that authorities over there are battening down the hatches, not opening themselves up in a way that a more optimistic and bright future would lead.

Globally synchronized growth continues to be the baseline expectation in the West. Western economists are still looking for leadership from China’s economy to achieve it. They shouldn’t be, nor should they have been.”

If Snider is right (and he probably is), this has grave implications for an America trying to tip the terms of trade in its favour. World trade slipping and China deliberately going for slower growth, is not a promising moment to enter into a trade war, especially with a CCP leadership that explicitly separates itself from the era of China’s Great Humiliation (at western hands).

Trump, Brexit, the Italian elections: all are differing responses to this problem of political culture forbidding Steyn’s ‘respectable politicians’ from raising certain topics, and their insisting on the ‘extend and pretend’ formula that arose out of the 2008 Great Financial Crisis. The electorate is fissiparous, and looks everywhere for answers, but there are no easy answers available.

The West’s ‘pretend’ has only worsened. The lies are getting out of hand -- and so is the polarisation. The rhetoric smacks of growing desperation and -- of war. Will we have Ben Caspit’s 'May madness'? Will Israel use Syria as the gateway for coaxing America into some military action aimed at Iran?

China, which is afflicted with its particular, but generically related, problems, is taking precautions to limit political challenge to the CCP leadership, as a result of slowing growth (China needs to create 20 million new jobs a year, just to stand still). Mr Putin outlined some social answers to Russia’s economic situation in his State of the Nation address earlier this year – and tried to close-off the path to war by exposing Russian deterrence, perhaps with some success.

But what of America? Trump is the (reviled) outsider. And, it seems, he is tiring of the efforts by the Deep State to contain him.

He is fond – Mr Tillerson told us - of creating action-forcing events, when he judges issues to be stuck, and not to be moving. It looks as though he is about to force events, in the context of Robert Mueller’s investigation (perhaps by investigating the investigators). This however, may entail an US constitutional and political crisis (if it is not the case that America is already in one – albeit at a shallower level).

Trump is creating ‘forcing events’ by pursuing à outrance supply-side stimulus. This may either make, or break the dollar.

It seems Ben Caspit’s prediction of a geo-political ‘May madness’ may prove to be correct. President Trump lately seems to feel empowered to be himself: ‘to do things his way’. We will see ‘action-forcing’ rhetoric (and perhaps events) in respect to Israel, Iran and North Korea. Why else marry together a team of Pompeo, Bolton and Haley, except to scare the wits out of us all – and make us more ready to negotiate, on his terms – to avoid some threatened Armageddon?

But whatever happens over North Korea and Iran, the most significant thing is that Trump is doubling-down on stimulus. Mr Xi needs to have a word (except it is too late, now). Did China try it? Wow - and how. It didn’t work, and now the Chinese are embarking on a political ‘lockdown’ to inoculate themselves from its consequences.

We, living in the West, do not have that option. Trump is doubling down on the ‘endless prosperity’ narrative. Will it fare better than in China? Will Israel do the same with its techno-dominant military narrative? 'Mad May', indeed.