A Question for the 4GW Community

by Michael Finley

Is the global financial crisis a “bear market rally” in the decline of the state, or its resurgence?

I have this question for 4GW theorists.  I haven’t seen it adequately addressed anywhere, and it is of the greatest urgency.  Our understanding of the basic elements available to inform grand strategy turns on the answer to the question, and our knowledge of how to make grand strategy and strategy turns on the supporting analysis.

4GW detractors now trumpet the global crisis as the definitive stopper to facile talk of the demise of the state. Easy case to make, with the state nationalizing the upper tier of the American financial system and swaths of its industrial, commercial, and consumer economy, and similar actions by other OECD governments. The IMF and World Bank, discredited for years, are enjoying a resurgence of “relevance” to help protect or rescue emerging and frontier markets from the [also] reasserted contagion. The anti-4GW crowd take all this as proof that the democratic capitalist states and their multilateral institutions have become stronger than ever, and the only possible source of the strength to rescue the global economy.

On the other side of the argument from the OECD/Western establishment’s gloating, I sat this fall in a room with an African cabinet and heard one of its senior ministers state flatly that the crisis was proof of the demise of the global “Washington consensus” and any credibility for democratic capitalist systems, and clearly meant that developing nations must instead look to China and emulate its “one state, two systems” model. While, as the only American in the room, I felt obliged to point out that no man had ever made money selling America short over the long run, I can admit here that I did so with a nagging uncertainty that I might have been something like a publicist for Justinian and Theodora’s diminishing legions….

Someone with greater experience and capacity than mine should deal more thoroughly than I can with these criticisms, which come from both ends of the spectrum in advocacy for character and conduct of the polity.

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Filed in Uncategorized | 15 responses so far

15 Responses to “A Question for the 4GW Community”

  1. Jason Lefkowitzon 05 Jan 2009 at 9:45 am 1

    Well, I’m no expert, but my response to this question would be that it’s too soon to tell.

    The act of nationalizing industries doesn’t by itself prove the relevance of the state one way or the other. What will provide that proof are the results of the nationalizations.

    In other words, if the nationalizations prove successful and long-lasting, they will mark a resurgence of the relevance of the nation-state; if they are abject failures, they will be a demonstration of how hollow the nation-state has become.

    The proof of the pudding is in the tasting, as they say…

  2. Sven Ortmannon 05 Jan 2009 at 10:08 am 2

    “Washington consensus”
    Right, economists and politicians (out) of the USA prescribed some harsh reform requirements to developing states in trouble through IMF and World Bank – but the USA did the opposite once it had similar problems itself.
    This hypocrisy was revealed and the “Washington consensus” is indeed dead – till maybe the path chosen by most Western governments in this crisis (bailouts & stimulus packages) fails.

    That’s the second issue; maybe this recent activity fails to solve the problems and isn’t really helpful for the recovery after the crisis as well. Japan hadn’t much success with stimulus packages in the 90’s. Maybe, maybe – a definitive answer will be available in about ten years.

    I am neither a fan of the concept that states are in decline nor do I see much evidence to the contrary in this crisis.

    Remember the extreme mobilization of power during WW2, just a decade after the biggest economic crisis so far. Government institutions became more relevant after the past global economic crisis and states more powerful, not less.

    The current crisis is a somewhat (not in all details) predictable result of wrong developments – wrong allocation of resources mostly. That was visible in unhealthy balances on private, corporation, government and national levels.

    The Western world is de-leveraging and unsustainable imbalances in trade/capital transfer will be changed.

    Some states will be strengthened while others will lose (financial) power.

    [CR: Sven — thanks. While it’s certainly true that the state system is weak (in the sense of fist claim on its citizens’ loyalties) in some areas, these tend to be the same areas in which it was never very strong. As Jason, above, notes, we are probably too close to events to see the long-term trends.]

  3. JJon 05 Jan 2009 at 1:58 pm 3

    The Chinese curse is that you may live in interesting times.

    Lind has alluded to the destruction of the American, or Western soul in some of his more profound and less overtly military pieces.

    To make accurate observations it requires that one put aside personal preferences and parochial attitudes.

    One must be as an observer of a play or a mathematical problem.

    Some groups are better able to see real politik than others. These groups do better than those whose minds are less reality based.

    What we WANT to be, what we HOPE to be should play NO ROLE in analysis. It can in strategies and tactics but not in the observer role.

    Rather odd fellow, but quite bright, the late Philip K. Dick observed, REALITY IS THAT WHICH REMAINS WHEN YOU STOP BELIEVING IN IT.

    Historically one sees, readily enough, that tribalism is the way humans perceive and act in the world.

    Now this may not be what is taught in schools in America but it is one of those inconvenient facts that keep getting in the way of not just the Utopia that is always just one social program or experiment away, but also that of analysis.

    One point that is critical for any observer is to reject the common flaw of the incredulity response.

    It is vital to admit that what you see before your eyes is in fact there and this despite what the government, the schools, the churches(or faith tradition of your choice), et al tell you differently.

    Denial is as likely to happen in the Pentagon as it is in some civilian occupation or circumstance.

    Sometimes the house really is on fire and yet telling people that fact can bring unwelcome responses.

    What we face in the United States, but not just the U.S., is something that is not, per se, a military strategy situation. There is no way to bomb or shoot one’s way out of this decline.

    Money is not the sole issue, nor really the major one, although it may seem so.

    One is surely free to continue to accept what the forces of society tell one. It may be then safe for you, or it may not.

    As one fellow asked:
    “Does anyone have any idea what will be in store for us?”

  4. Duncan C Kinderon 05 Jan 2009 at 4:13 pm 4

    With all due respects, this really isn’t very difficult.

    When a state nationalizes an industry that is profitable and promising, the state thereby itself becomes more profitable and promising.

    When a state nationalizes an industry that is unprofitable and loosing, the state thereby itself becomes more unprofitable and loosing.

    It is not unusual for institutions to invest in huge white elephants just before their collapse. Rather, it’s typical.

    Paulson has been spinning like a top; Bernake is bailing away; and Obama has already, by adding massive tax cuts to his “stimulus” package, blinked. But read The End of the Financial World as We Know It.

    This is what governments are rushing into. And if you think this demonstrates their strength, may I suggest you read or reread Don Quixote.

  5. Fabius Maximuson 05 Jan 2009 at 8:24 pm 5

    You are conflating very different things.

    The “Washington Consensus” (http://en.wikipedia.org/wiki/Washington_consensus) is a fragment of the global economic system, which evolved from the preceding system (IMO, Bretton Woods), lasted for a generation or two (definitions of it vary), and now evolves into something else.

    For more on this see:
    http://fabiusmaximus.wordpress.com/financial-crisis/

    It is part of the larger post-WWII geopolitical regime. After 60 years, I believe (opinions differ) it too is evolving into something else — and that is the essence of the current turbulence.

    For more see:
    http://fabiusmaximus.wordpress.com/economy-archive/

    The nation-state “system” has dominated Europe (and then the world) for 4 centuries, while political and economic systems have changed again and again. It grew over many generations, and its fading into something else might take as long. It might be too slow for us to even notice the change without great effort.

  6. zanegreyon 06 Jan 2009 at 10:13 am 6

    Thank you, all. For the record, I am conflating nothing, only noting two strong geopolitical movements which, judging from their actions, intend to use the crisis to either establish a resurgence of consolidating strong central state power in the Western “democratic capitalism” framework, or oppose that initiative with the Chinese “capitalism with socialist characteristics” framework. Neither appear attractive from a patriotic American Constitutionalist viewpoint, but I would put aside my personal belief systems and go with JJ’s Dick quote above, and recognize that this tussle is a significant new realpolitik problem that 4GW theory must deal with to be of value at world scale.

    As actors ourselves, we need to understand this new landscape better so we can observe, orient, decide, and act. The dogs in the yard don’t serve themselves best by just watching the elephants dance.

  7. Fabius Maximuson 06 Jan 2009 at 12:33 pm 7

    My apologies. You are correct, “conflating” was the wrong word.

    You asked “Is the global financial crisis a “bear market rally” in the decline of the State, or its resurgence?”

    What I was attempting to say (and did so poorly) was that these events are on a different scale (much smaller) than the “decline of the State”, and that their relationship to this larger trend is difficult to discern at this time.

    Evolution from “democratic capitalism” to “socialist capitalism” can occur easily within the State framework, and might just be another cycle during the larger “Era of the Nation-State” — as have similar transitions during the past 4 centuries.

  8. Maxon 06 Jan 2009 at 1:08 pm 8

    Duncan C Kinder on 05 Jan 2009 at 4:13 pm 4

    “With all due respects, this really isn’t very difficult.”

    I agree with DK’s concise analysis.

    Moreover we’ve seen this time and time again out of the current
    status quo and regiem, in trying to paint what has traspired to the benefit of a select few, but what is actually continual abject compounded failure on the public’s backs.

    zanegreyon 06 Jan 2009 at 10:13 am 6

    “Thank you, all. For the record, I am conflating nothing,”

    To be honest I have little time for such arguments, being prefaced on half truths and out right lies from the get go.

    Be reminded one and all, a tenant of 4gw that goes something
    like this, “weakness can be turned into strength, and strength into weakness.”

    M

    http://tinyurl.com/7nexjh

    http://tinyurl.com/7o2trn

  9. Maxon 07 Jan 2009 at 7:18 pm 9

    “judging from their actions, intend to use the crisis to either establish a resurgence of consolidating strong central state power in the Western “democratic capitalism” framework,”

    Ahh yes, strong central state power, yeah.

    *”Every day, and in every way we are getting better and better.”

    *Herbert Lom (Dec) in the hollywood masterpeice comedic farse,
    “Return Of The Pink Panther.”

    M

    http://tinyurl.com/9knmkz

    “After meeting with his economic team earlier today, President-elect Barak Obama predicted this afternoon that the United States would have trillion-dollar budget deficits “for years to come.”

    Obama said that Peter Orszag, Obama’s choice to head the Office of Management and Budget, forcasted that the United States would have a budget deficit of $1 trillion “even before we start the next budget.”

    “We have already, that we are already looking, at a trillion dollar budget deficit or close to a trillion dollar budget deficit,” Obama said. “And that potentially we’ve got trillion dollar deficits for years to come even with the economic recovery that we are working on at this point.”

    SNIP

    “The national debt — which now stands at $10.6 trillion — is the sum of all federal deficits since the founding of the United States.”

    “Currently, it is about 73 percent of U.S. gross domestic product, not an overly worrisome figure, most economists agree.”

    “But some, such as former U.S. comptroller David Walker, have argued that without significant reform of Social Security and medical entitlement programs as the Baby Boomers move on to the federal dole, the national debt could be as much as 200 times GDP in a matter of years, which many say could lead to political instability.”

  10. GoldenHordeon 07 Jan 2009 at 9:46 pm 10

    Good question Mike.

    Based on what I’ve been reading on world system as dissipative structure it’s impossible to know if the decline of the state as permanent.

    Dissipative structures theory says that nonlinear fluctuations caused by positive feedback loops will lead the system towards a bifurcation point that forces the system to reorganise to a higher level of complexity or disintegrate into chaos.

    But, it is not possible to determine in advance the direction of the system change.

    I would describe the bailout/nationalization of the financial sector as a bear market rally in the decline of the state. Like all bear market rallies, they peter out and than the markets fall to a lower low.

    To continue the stock market analogy, eventually stocks will become cheap, the economic system will transition from recession to recovery and a new bull market will begin. I’m not really sure how applicable how the idea of a bull market for the nation state is. I guess you would have to look for evidence the nation state is learning/evolving through a OODA loop process.

  11. Maxon 08 Jan 2009 at 2:15 pm 11

    ‘I guess you would have to look for evidence the nation state is learning/evolving through a OODA loop process.’

    Sure, but how many iterations (experiments, among repeted grevous mistakes) can a nation, even one that used to be as wealthy and dominant as the USA, and remain intact ?

    The US seems determined to test those boundries, as surely
    as the Soviets did.

    http://tinyurl.com/6szyl6

    “President Obama is walking into a fiscal disaster of stunning proportion, coupled with an economic downturn of unknown duration and depth,” Conrad said, characterizing the slump as the worst since the 1930s Great Depression.

    “Our nation is building a wall of debt that is certainly sobering and I think should give us all pause,” Conrad said, before hearing testimony from Robert Sunshine, acting director of the Congressional Budget Office (CBO).”

    Meanwhile, So much apparently available and ear marked to persue expensive hobbies,

    http://tinyurl.com/7bmz6g

    “WASHINGTON — Defense Secretary Robert Gates says military operations in Iraq and Afghanistan will cost almost $136 billion for the 2009 budget year that began Oct. 1 if they continue at their current pace.”

    SNIP

    “Gates also said the estimate doesn’t account for a proposed increase in the tempo of operations in Afghanistan.”

  12. Maxon 09 Jan 2009 at 9:18 am 12

    Critical Analysis of the Afganistan campain and escallation.

    http://www.lewrockwell.com/shirtz/shirtz12.html

    “I predict this year that the US will suffer a significant military defeat in Afghanistan. It will result in the loss or near destruction of a US company size unit; perhaps even up to battalion strength, by local insurgents.”

    ” Our nation will be shocked and amazed that a ragged band of native guerrillas will have soundly defeated the best-trained and modern-equipped soldiers of the most powerful nation on earth. Worse, the defeat will only result with the US committing more troops, more air strikes (resulting in collateral damage to civilians), and more treasure poured into a stone-age environment that can absorb everything we can throw at it, and ask for more.”

    ” All in the name of national “honor.” The fallen will be hailed by the government as latter-day Spartans, who fell while holding at bay the terrorist hordes that threaten our freedom.”

    “I hope I’m wrong. I would take no pleasure being right, at the expense of US casualties. But historical precedents all point to it, like blazing neon lights at midnight in Vegas.”

  13. Jeffrey Ron 14 Jan 2009 at 6:45 am 13

    1. Max is probably right that there will be some sort of “defeat” in Afghanistan requiring a “National Honor” response which will result in more money being spent and more lives both military and civilian wasted. Obama is a very intelligent person and perhaps he won’t fall into this mistake but, so far – “more troops for Afghanistan” sounds pretty much like business as usual.

    However, the economic crisis may force the U.S. to cut back on it’s military adventures abroad and I think Iraq will be the first to go and hopefully, Afghanistan not far behind.

    2. One of the very important factors all the commentors on the economic crisis fail to mention is “what happens when you increase your “money” supply and not the goods/services that back it up? It is called inflation and at the rate of trillions of book entry money we are being promised, we might realistically be looking at a hyper-inflation. Will that end the nation-state? Not likely. Germany had a hyper-inflation in the late 1920s and within 10 years it was starting World War II. While this analogy might not fit too well in today’s global economy, it still looks like we are going to face a change in the greenback in the next few years.
    I think it safe to say that no matter what you think is going to happen we will be living in “interesting times.”

  14. Fabius Maximuson 15 Jan 2009 at 7:46 pm 14

    I have sketched out some thougts on this at the FM site:
    “Does this economic crisis make the State stronger – or is it another step in the decline of the state?”
    URL:
    http://fabiusmaximus.wordpress.com/2009/01/16/mishkin/

  15. Maxon 16 Jan 2009 at 2:51 pm 15

    “Does this economic crisis make the State stronger ?”

    Only IF you believe that the USA will even exist as we currently recognise it, five to ten years from now.

    Many no longer do.

    Do you honestly beleive this “Man” will change things, undo the dammage, and rescue the status quo as we know it ?
    Even IF we got out of BOTH wars, starting tomorow ?

    http://tinyurl.com/86tn6x
    http://tinyurl.com/87oyt3
    http://tinyurl.com/9lxbkb
    M