Saturday, September 13, 2014

My Amazon Review of T.G. Otte's, July Crisis: The World's Descent into War, Summer 1914"

T.G. Otte, a Professor of Diplomatic History at the University of East Anglia, has written an exhaustive and difficult to read study of the diplomatic maneuvers undertaken by the major powers on the eve of World War I. He covers the period from the assassination of the Archduke Ferdinand on June 28, 1914 to Britain’s entry into the war the following August 4th on a day-by-day basis. The problem for the lay reader is that there are way too many characters and you have to continually update your score card to understand what is going on.

Otte is not interested in the broad historical forces that caused World War I, but rather he focuses in on the flesh and blood human beings who by their actions precipitated the war. His theme is similar to Margaret Macmillan’s “The War that Ended Peace…..” which discusses how the major powers increasingly narrowed their options making war more or less inevitable. Instead of taking 24 years to narrow options, the diplomats in his story take less than six weeks as peaceful option after peaceful option is foreclosed upon.

Otte has a set of clear villains. They are the Austria-Hungary leadership, mainly Foreign Minister Berchtold, who are so narrowly focused on Serbia; they fail to understand the European consequences of their actions. They are the “Sleepwalkers” Christopher Clark writes about. Next are the Germans, Kaiser Wilhelm, Chancellor Hollweg and Foreign Minister Jagow, who issue the “blank check” to Austria on July 5th thereby surrendering their foreign policy to that narrowly focused dying empire.

Other diplomats singled out for blame include Maurice Paleologue, the French Ambassador to Russia, who conveys far more hawkish sentiments than that of his government to his Russian counter-party Foreign Minister Sazanov. Had Paleologue been more discreet and Sazanov less aggressive, the Russian mobilization of July 29th might have been delayed giving more time for diplomacy.

Britain’s Sir Edward Grey comes off the best as he frantically tried to come up with diplomatic solutions to the crisis. This is a different take because many historians blame Grey for not forcefully signaling Germany that Britain would enter the war on the side of France thereby acting a major deterrent. Here Grey is the neutral mediator. I am not sure what to believe. One last point when Otte discusses the role of Eyre Crow an Assistant Under-Secretary in the foreign office rather than being an above the fray civil servant, he fails to disclose that he was the long time anti-German hawk in British foreign policy circles.  

Friday, September 12, 2014

UCLA Anderson Forecast, September 2014

Executive Summary

Growth Ramping to a 3% Economy from a 2% Economy

After declining by 2.1% in first quarter and growing at 4.2% in the second quarter we forecast that real GDP growth will now run at about a 3% over the next few years. Specifically we are forecast growth of 3.2% in the current quarter and 2.9% in the fourth quarter. On annual basis GDP growth will rebound from 2014’s 2.1% to 3.1% and 3.4% in 2015 and 2016, respectively. Payroll job growth should average 230,000/month and by the end of 2016 the unemployment rate will drop to 5.3%.

Instead of Contracting Defense Spending will be on the Rise

In a major change from prior forecasts, we now anticipate that defense spending will increase rather than decline. The rise of ISIL in Syria and Iraq along with the presence of Russian troops in Ukraine will cause a rethinking of the U.S.’s defense posture. We have modeled in an additional $24 billion in defense spending by 2016. For those with a long memory we would note that the Reagan defense build-up started under President Carter in 1979 after the Iranian Revolution and the Soviet invasion of Afghanistan.

Inflation on the Rise

As we discussed in prior forecast we believe that inflation as measured by the headline and core consumer price indices at 2% or higher over the next two years. The main drivers of the inflation will come from rising residential rents and increasing healthcare costs. Thus the core CPI will be rising by about a ½% higher than the overall index.

Fed to Raise Rates in March 2015

In response to declining unemployment and rising inflation we forecast that the Fed will increase interest rates at its March 2015 meeting. Thereafter we expect a gradual increase in the Federal Funds rate to about 3% by the end of 2016.

Growth Leaders to be Housing, Nonresidential Construction and Investment in Equipment and Software

Despite the housing recovery being slower than we anticipated we forecast that housing starts will rise from this year’s estimated 1.025 million units to 1.32 million and 1.47 million units in 2015 and 2016 respectively.  Because of continuing investment in energy production and a revival in commercial construction, non-residential construction will start to increase rapidly in mid-2015. In 2016 investment in nonresidential construction is forecast to expand at a robust 8.2%. Continued strength in equipment and software spending will continue to buoy the economy.

Monday, September 1, 2014

From No Drama Obama to No Strategy Obama

“We don’t have a strategy yet.”
President Obama, Press Conference, August 28, 2014

From Bagdad on the Tigris to Kiev on the Dnieper U.S. foreign policy is in disarray. At his press conference President Obama noted that he was awaiting a strategy from the Pentagon to deal with ISIL. Wrong!! It is the civilian leadership who makes strategy. Therefore it is up to the Pentagon to come up the appropriate military response to achieve the political ends dictated by the strategy. Simply put the President has it backwards.
Secretary of Defense Chuck Hagel, hardly a hawk, referred to ISIL “as sophisticated and well- funded as any group that we have seen…beyond anything we have seen.” If that is anywhere close to being the case then a clear and present danger exists to the national security of the United States. Up to now the President has authorized air strikes in Iraq, but not in the ISIL heartland of Syria. I fear that will not be nearly enough and that both air strikes in Syria and ground combat troops will be necessary as well. ISIL is too well entrenched to be handled by air power alone.

Yes the American people are war weary. But it is up to the President to make the case. Great leaders don’t follow polls they change them and the sooner the President lays the groundwork for action the sooner it will happen. He has to remember he is President first and party leader second.

He has to spend the time to do the hard work of coalition building that will be necessary to dislodge and ultimately neuter ISIL.  President Bush ’41 was successful at it, but it took real work internationally to create it and he also had to overcome real opposition in Congress. In order to this the President will have to spend less time on the golf course and schmoozing political contributors and more time with foreign leaders and members of Congress.

Meantime Russia has all but formally invaded Ukraine and is now talking about a creating and independent state in the eastern part of the country. Such an open act of aggression must not go unpunished. It is now time for very real and very hard sanctions on Russia that would end all technology transfers and their access to the western banking system. Further NATO should send advanced weaponry to the Ukraine so that the can defend their homeland against the onslaught of Russian tanks and artillery. Hopefully there will be the will at the upcoming NATO meeting in Wales.

The White House has become a theme park of strategic indecision. The President has to snap out of it quickly because we do not have the luxury of waiting more than two years for a new president. The locomotive of history waits for no one. Just as reminder 75 years ago today, after several years of watching Britain and France vacillate, the German army crossed into Poland starting World War II.

Friday, August 22, 2014

My Amazon Review of Rick Pearlstein's, "The Invisible Bridge: The Fall of Nixon and the Rise of Reagan"

Rick Pearlstein has written a long book, perhaps too long. “The Invisible Bridge…” is really three books: a biography of Ronald Reagan, a political history with an emphasis on the continued rise of the Republican Right and a social history of the mid-1970s. This book follows his two prior books, “Before the Storm…” and “Nixonland…” on the emergence of the Republican Right. Pearlstein is a man of the Left, but he tries to understand the motivations behind the success of the Right. In some respects he succeeds, but in others he doesn’t fully emphasize that the period he discusses was one of retreat abroad and recession at home. With the latter along with virulent inflation ends the Keynesian consensus that ruled economics in the postwar period up to that time. Thus the way was open for a politician who offered hope to a nation where it seemed there was only despair. That politician was Ronald Reagan.

Pearlstein enabled me to relive the period that I remember all too well. It seemed that the wheels were falling off the train of history. For example the 1973-76 period encompassed the following:
   * Defeat in Vietnam
   * CIA scandals
   * The rise of OPEC which triples gasoline prices
   * Assassination attempts on Jerry Ford
   * Patty Hearst and the Symbionese Liberation Army
   * The widespread distribution of porn
   * The bankruptcy of New York City
   * The growth of weird self-improvement groups like est.

Into this milieu comes the former actor and former governor of California who offers what appears to be simplistic solutions to the liberal elite, but to a yearning public he offers hope and a return to the greatness of America that as Pearlstein notes resonates with the 1976 Bi-Centennial. Always under-rated by the pundits Ronald Reagan was far smarter and cannier a politician than his critics realized. And boy did he know how to give a speech.

Pearlstein spends a great deal of time on the 1976 Republican convention where Reagan almost rests the nomination from Jerry Ford. Much of this ground was covered by Craig Shirley’s very pro-Reagan, “Reagan’s Revolution.” In fact Shirley has sued Pearlstein for infringing on his material. Shirley’s book is a good read and I recommend it.

What Pearlstein gets wrong is his treatment of Reagan’s failed attempt to pass Proposition 1 his tax and spending limitation initiative in 1973. He highlights what he perceives to be its radical nature. In my opinion had Proposition 1 passed the far more “radical” Proposition 13 of 1978 might never have seen the light of day. Pearlstein also get wrong the notion that California coastal development was banned in 1973; not true. What actually happened was new permitting regime under Proposition 20.

Although he opens his book the the return of the Vietnam POWs, he doesn't really deal with the moral crisis associated with the treatment of the returning veterans. To the Right they were drug crazed losers and to the Left they were war criminals. The resentment that this engenders adds fodder to the growth of the Right later in the decade.

One last point Pearlstein should remember Eric Ambler’s maxim in “A Coffin for Demitrios,”  “In a dying (although I would use “threatened”) civilization political prestige is the reward goes not to the shrewdest diagnostician, but to the man with the best bedside manner.” Most dour liberals fail to understand this while an optimistic liberal like Bill Clinton knows this in his guts.

All told for readers who have the time for this very long book, it very well worth the read.

The Amazon review appears at the following url:

Wednesday, August 6, 2014

Reliving the 1930s - Part 2

On May 7 I blogged that we were reliving the 1930s with the Great Recession being the analog to the Great Depression and the appeasement of Vladimir Putin in the Ukraine being an analog to the appeasement of Hitler. Unfortunately we also are reliving the virulent anti-Semitism the 1930s as well.

There is no question that if Hamas had the power there wouldn't be a Jew alive in Israel today. If you are skeptical all you have to do is to read Hamas’ charter and listen to the statements of their leadership. The Gaza War was not about a two state solution for Palestine, but rather it was an attempt to kill as many Jews as possible and to make martyrs out of innocent Palestinian children. The killers of those children do not reside in Tel Aviv, but rather they sit comfortably in Hamas headquarters in Gaza and places far away from the battlefield.

Of course to much of the European Left and to some extent the American Left along with a few on the far Right, the right of Israel to defend itself from rocket attack and an invasion from underground tunnels metastasized itself into a most virulent anti-Semitism. There is a straight line from the Hamas killers to the street demonstrators in Paris to the anti-Israel marches in the United States. For those who argue that the marchers and demonstrators were concerned about human rights rather than bashing Israel in particular and Jews in general, all I have to say is where are the protests against the carnage in Syria, ISIS terror in Iraq and Libya? I guess for them it is OK for Arabs to kill other Arabs.

Monday, July 28, 2014

Geopolitics and the Stock Market: A Lesson from the Start of the Great War

World War 1 started 100 years ago today and to the stock market it seemed to come from totally out of the blue. Simply put the stock market failed miserably as a discounting mechanism. Why? The markets were unduly complacent about international affairs where from 1900 – 1914 there were two Moroccan crises and two Balkan Wars that many thought that any one of them would lead to a general war. Those crises were settled diplomatically and thus when the Austrian Archduke Franz Ferdinand was assassinated in Sarajevo by a Bosnian terrorist in the pay of Serbia, the markets thought nothing of it.

Although the U.S. was far away from the enveloping European Crisis as an emerging market, it was unduly dependent upon the inflow of foreign capital. As the crisis came to a boil European investors liquidated their U.S. holdings and the Treasury feared a run on gold. The stock exchange closing along with other measures short circuited the run and enabled the U.S. to remain on the gold standard.

The July 1914 complacency is eerily reminiscent of the world today. We are now in the midst of the second Ukrainian crisis of the year, from Libya to Iraq the Middle East is in flames, and China is making serious naval probes in Southeast Asia. In all likelihood the world will muddle through, but the lesson of 1914 is disquieting.

Here is a thumbnail history of the Dow Jones Industrial Average matched with the events of 1914. A casual reader will note that the stock market did not respond to the events in Europe until war was imminent.

Date           DJIA       Event

January 2 –  57.6       Year Opens

March 20 -   61.1       Year High

June 27    -    58.7       Day before Assassination

June 29   -     58.6       Day After Assassination (Market closed on June 28)

July 22     -    59.2       Day Before Austrian Ultimatum

July 23     -     59.0      Austria Delivers Ultimatum to Serbia

July 28     -     55.9      Austria Declares War on Serbia – WW 1 Begins

July 29    -      56.2       Relief Rally

July 30    -      52.3       Russia Mobilizes

July 31    -                    Stock Exchange Closes

Aug  3     -                   Germany Invades Belgium

Dec 12    -       54.6        Market Reopens

Wednesday, July 23, 2014

My Amazon Review of Frederick Lewis Allen's, "The Lords of Creation"

This is far from Frederick Lewis Allen’s best books. “Only Yesterday,” his social history of the 1920s was his best and “Since Yesterday,” his history of the 1930s and “The Big Change,” his social history of the first half of the 20th Century come pretty close. Nevertheless if readers want to get a real flavor of the big business and high finance milieu in America from 1900-1930, “The Lords of Creation” does a credible, if biased, job. You see the House of Morgan, the other New York bankers, the railroad magnates and the new Wall Street men of the 1920s in full flower. They were “the 1%” of that era. He vividly illustrates the stock manipulation that was almost taken for granted and the way commercial banking was integrated with investment banking though affiliated organizations. Those abuses led to the Securities Acts of 1933 and 1934 and the Glass-Steagall Act of 1933.

Remember Allen wrote his book from the vantage point of 1935. In the popular imagination big business and big finance were the leading players in causing the depression the nation was then experiencing. To him and President Roosevelt the causes of the depression were domestic in origin. We have since learned as President Hoover thought at the time, that the depression had its origins in the dislocations caused by World War I and the transmission of deflation through the workings of the gold standard.

My criticism of the book is that Allen only pays lip service to the very real improvements in the living standard of the average American from 1900-1929. Unlike today real wages were consistently rising and we saw in the 1920s the glimmers of the kind of prosperity that occurred in the 1950s.

One last point, I would avoid the very snarky introduction to this edition written by New York Times columnist Gretchen Morgenson. 

The Amazon URL is: