What’s News 3/30

Just a few news stories from today that were not really reported on but I thought were interesting…

PETA responsible for 2124 animal deaths…CNN falls to 3^rd place behind FOX News and MS-NBC…Tensions raise between the US and China from this report…U.S. can't do anything about the North Korean missile test…Pundits write that Obama's European goodwill is beginning to fade…Russia to build 6 nuclear subs with capabilities to fire cruise missiles…April 1 begins one of Russia's biggest peacetime draft in history, one that hopes to enlist 305,000 new soldiers…Russia and China are coordinating proposals on a new global currency that could replace the US dollar as a reserve currency…A fan of Obama's spending…

Californication

This is an excerpt from an article in The Economist. February 28 - March 6 2009 issue, page 37.

The 2008 election did not just put a new president in the White House. It also completed one of the biggest shifts in the regional balance of power in America's recent history, draining influence away from the once-mighty South and redistributing it to the coasts...Equally striking is the social difference between the Californians and the southerners. Mrs. Pelosi, Mrs. Feinstein and Mrs. Harman are all married to wealthy businessmen - extremely wealthy in Mrs. Harman's case. Mrs. Pelosi's district, San Francisco, is a combination of a playground for the ultra-rich and a sewer for the underclass, with the middle classes priced out of the market. Mr. Waxman's district, West Los Angeles, is the glitziest concentration of wealth on the planet. The southerners, by contrast, were mostly men of modest means who represented middle-class suburbs, a world away from Pacific Heights, where Mrs. Pelosi lives, and Rodeo Drive, in the heart of Mr. Waxman's district.

The Californian Democrats’ agenda is the polar opposite of the southern Republicans’: pro-green and pro-union, anti-business and anti-war. Mr. Waxman and Mrs. Boxer have long outdone most of their party in supporting tougher environmental standards. As the architect of much of the anti-tobacco legislation of the 1990s, Mr. Waxman is casting around for new monsters to slay. (High on his list are energy companies.)

The Californication of the Democratic Party carries all sorts of risks. The most obvious is that California has the most dysfunctional politics in the country. The Golden State has one of the highest unemployment rates in America, at 9.3%, thanks to its high taxes, its unions, its anti-business climate and its gigantic housing bubble.

Californication

This is an excerpt from an article in The Economist. February 28 - March 6 2009 issue, page 37.

"The 2008 election did not just put a new president in the White House. It also completed one of the biggest shifts in the regional balance of power in America's recent history, draining influence away from the once-mighty South and redistributing it to the coasts...Equally striking is the social difference between the Californians and the southerners. Mrs. Pelosi, Mrs. Feinstein and Mrs. Harman are all married to wealthy businessmen - extremely wealthy in Mrs. Harman's case. Mrs. Pelosi's district, San Francisco, is a combination of a playground for the ultra-rich and a sewer for the underclass, with the middle classes priced out of the market. Mr. Waxman's district, West Los Angeles, is the glitziest concentration of wealth on the planet. The southerners, by contrast, were mostly men of modest means who represented middle-class suburbs, a world away from Pacific Heights, where Mrs. Pelosi lives, and Rodeo Drive, in the heart of Mr. Waxman's district.

Check, Please

Good news: Bailout, TARP, and Stimulus Package money are coming to your town. Bad news: By the time it gets there, it might be worthless.

Ok, maybe that is a bit of an exaggeration, but maybe not by much.

Doing a little research, I came across an interesting report. Apparently Moody's, the credit rating agency, in January 2008 said that the United States risked having its credit rating lowered if it did not curb back its spending – specifically its healthcare and social security spending.

And since then, our former Republican President helped fix this by allocating an additional $700 billion dollars into the TARP plan – and its great oversight abilities – and our fearless Democratic government has decided to spend an additional $800 billion dollars more for a stimulus package. All this while running a budget deficit. Seems that credit rating might need to stay at AAA.

Even worse, in January markets pegged the probability of a U.S. default at 6 percent over the next 10 years, compared with just 1 percent a year ago and there are some economic reports estimating that in the next 5 years, the United States has a 6% chance of defaulting on its sovereign debt. Even Senator Tom Coburn said, on January 11, 2009:

"I believe we are at the ultimate tipping point in this country. I believe if we don't make drastic changes over the next year and a half, that 2012 will see the default of the U.S. Government on its bills. I honestly believe that. There are a lot of economists who agree with me on that point."

Just take a second to think about that.

With all of this talk of spending billions for this and hundreds of millions for that, I dare ask this question: Who will give us the money today and who are we going to be obliged to repay in the future?

Well, apparently we owe a certain country over $1 trillion. China's president Wen Jiabao admits he's "definitely worried" that the United States will default on its debt. And if one of our biggest investors is worried now, is it important to question whether they will continue buying our debt 3 years from now?

Oh, and by the way, we've committed over $9 trillion so far into this financial fiasco, regardless of what our Savior says.

Check, please…

Concerned Citizen or National Security Threat?

An interesting article from the Kansas City Star was brought to my attention recently. Apparently, Missouri law enforcement was given a new report entitled "The Modern Militia Movement" on February 20.

Some interesting things from that report – which helps to identify traits and signs of militia members – are as follows:

Christian Identity – more of a ultra-right wing Christian identity though

Sovereign Citizen – states rights supporters and feel the government has shifted away from the Constitution

Militant Abortion – anti-abortion believers

Anti-Immigration – as defined in this report, not anti-immigration, but anti illegal immigration

Political Paraphernalia – associate with 3^rd party political groups, including Constitutional and Libertarian Parties. Usually supporters of former presidential candidates of Ron Paul, Chuck Baldwin, and Bob Barr.

So, apparently if you grew up a Christian, and/or have a belief in states rights, and/or are pro-life, and/or against illegal immigration, and/or voted for Ron Paul (or have a bumper sticker of his on your car), DO NOT TRAVEL OR LIVE IN MISSOURI. You would be considered a possible militia member.

Read it yourself then decided: Are you a threat to national security?

Bumper Sticker

Democrats Need Extra Credit for the Bonus Problem

So apparently our fearless Democratic Party leaders have such a short memory – and such high morals – that they can't remember saying it was ok to pay out taxpayer money to the executive team of a company – AIG – that helped run the company into the ground.

But that's not quite how it's being spun in the news. No, it's more of a "mob mentality" towards AIG - until Chris Dodd said that both he and the Obama administration knew about the bonus payouts and OK'ed them. Now it's moved from "hang them by the balls" to a more "let's move on and make sure it doesn't happen again."

And we all thought Bush was stupid. But apparently the media, the Obama administration, and others think WE are stupid.

Let's set the stage for what happened:

AIG says that it will pay out to executives $165 worth of bonuses. This is followed up with the Obama administration officials and Republicans nearly universal in condemning the $165 million in bonuses.

On March 16, Obama asked "How do they justify this outrage to the taxpayers who are keeping this company afloat?" Treasury Secretary Tim Geithner, who had known about the bonuses, was also trotted out to express his "outrage" and declare that Treasury would somehow try to claw back the bonuses.

Later that night, Chris Dodd comes up with the brilliant – and may I add possibly unconstitutional and illegal – post-payout special tax on the bonuses. Within hours, most all Democrats and with a split Republican party, the idea spread to both houses of Congress, with lawmakers proposing an AIG bonus tax.

Soon, it became apparent that maybe these payments were known to the Democratic party leaders. The provision, now called "the Dodd Amendment" by the Obama Administration provides an "exception for contractually obligated bonuses agreed on before Feb. 11, 2009" - which exempts the very AIG bonuses Dodd and others were seeking to tax.

Dodd's original amendment did not include that exemption, and the Connecticut Senator denied inserting the provision, saying: "I can't point a finger at someone who was responsible for putting those dates in. I can tell you this much, when my language left the senate, it did not include it. When it came back, it did."

So he didn't know that something like that would be in the bill that he was writing? Surely, that was a pretty important fact not to be missed…then forgotten about when the word leaked out about this one specific bonus. (As a side point – how many other bonuses will be paid out under this framework? And at what cost to me and you?)

But one other thing. I'm not making any accusations, but merely noting this for the future…in case a trend appears to show up: Sen. Dodd was AIG's largest single recipient of campaign donations during the 2008 election cycle with $103,100. Also, one of AIG Financial Products' largest offices is based in Connecticut.

So apparently some people, but obviously not Dodd, knew about the OK to pay out bonuses to companies that received bailout money. Bailout money approved under the Obama administration. So forgive me for beating this subject to death, but wouldn't have someone had told someone that they put this clause into the bailout plan? It seems nobody seemed to tell Dodd or the President – and by assumption his chief advisor, the Vice President, his cabinet members, or his wife –Obama went on to express outrage at the use of federal bailout money to pay $165 million in bonuses to AIG employees and ordered the Treasury Secretary to use all legal means to prevent the payments.

Maybe I should also add a link to a previous blog post of mine, entitled "Incompetent, or Just Plain Stupid?"

But now with the apparent revelation that this was actually approved by the Democratic leadership has the Democratic leaders now saying "let's move on and make sure it doesn't happen again."

Joe Biden's economic adviser warned that a congressional plan to tax AIG executives' bonuses may go too far in using the tax code as a tool for retribution. Currently, President Obama has not said whether he would veto some version of a House-backed plan to heavily tax the $165 million in bonuses. And now many Democratic and some Republican leaders are saying things along the lines as no one disputes that paying out those bonuses given the country's current predicament was inappropriate and distasteful, contract or no. But the legislative proposals on the table to rectify the situation may end up doing more harm than good in the broader scheme of things.

Last week's angry-mob-with-pitchforks approach to bonuses
paid by AIG may give way to a more pragmatic approach this week as lawmakers and investors weigh the potential risks of the proposals before them.

At least Democrats haven't told us to eat cake yet.

Yet.

Protectionisms Threat – Pt. 6

What is needed right now is stability in free-trade. Without, this crisis will force America to take on a lesser role in the world. The fact is, to maintain a worldwide presence militarily, America needs a strong economy in order to pay for this influence. With countries such as Japan and China buying a large portion of our government backed debt, and our country running decades long deficits – with a few notable exceptions – if other countries take on a protectionist view and say that they need to encourage spending at home at the expense of foreign direct investment our deficit spending will be immediately halted by those countries not buying our bonds and the United States will be forced back into an equilibrium.

Capitalism has currently run into a problem, but as earlier stated, this isn't the first – nor will it be the last time that an economic crisis will raise its head. The problem isn't that the system is imperfect. The problem is that governments, pop culture, and citizens are blindly calling for a return to economic nationalism to try to fix the maladjustments to the economy while not taking the time to consider the implications to not only their wallets, but to the peace and security of their homes and countries if protectionism wins out. Boris Fyodorov, the late Russian economist, has the understanding of what needs to be done to correct the problem. He said, "Without a moral basis, capitalism would just become the means by which the powerful would concentrate their wealth." The solution isn't to destroy capitalism and free-trade, but to make sure that the mistakes that were made prior to World War I and II are not repeated:

The answer is found at the domestic level: the economic and political Open Doors – in other words, America's liberal (Wilsonian) ideology – caused the United States to seek hegemony. The Open Door is a complex set of linkages among economic and political (ideological) openness abroad, America's prosperity, and the security of its core values domestically…international economic openness and the spread of American ideology abroad create peace and security for the United States, and the U.S. military presence in Europe, East Asia, and the Middle East creates the conditions that allow for international economic openness and the spread of American ideology. By the same token, the Open Door posits that closure abroad – either economic or ideological – would endanger the safety of America's core values at home by forcing the United States to adopt regimented economic policies and to become a garrison state. (Layne, The Peace of Illusions: American Grand Strategy from 1940 to the Present, 2006)

And:

Drawing on the experience of two world wars, postwar U.S. officials believed there could be no stability on the Continent – the sine qua non for the United States to realize its economic Open Door goals – if the Europeans reverted to their bad old ways of nationalism and power politics. Washington therefore promoted integration and supranational institutions in Western Europe precisely to de-nationalize interstate relations among the Western Europeans. (Layne, The Peace of Illusions: American Grand Strategy from 1940 to the Present, 2006)

The fear is that with the United States entering a period a definite economic decline and policies being enacted by both European and American governments supporting protectionist measures, the next several years for the United States and its national security need to be reevaluated and reappraised with the possible contingency of closure of overseas markets, re-armament and nationalism in Europe and Asia, and the implications that our role in the free-trade Liberalism that has been the standard for the past 6 decades could be coming to an end.

Protectionisms Threat – Pt. 5

At the current time, American and European leaders are considering legislation, loans, and measures that would support and encourage this type of thinking. In France, President Nicolas Sarkozy, has hinted that billions of euros in aid for the French car industry should be made conditional on keeping production in France. George Provopoulos, the governor of Greece's central bank publicly "advised" banks to be "more prudent" about transferring bail-out funds to Balkan subsidiaries. A nasty industrial dispute sparked when Italian and Portuguese workers were posted to an English oil refinery. This led one British minister to urge changes to EU law to stop foreigners from undercutting British. (The Economist, 2009) The American Recovery and Reinvestment Act of 2009, or the "stimulus package", passed in February includes a "Buy American" clause that allows for only the use of U.S. iron, steel and manufactured goods in public works projects funded by the bill.

Subsidies may indeed become the new protectionist battleground. Nicolas Sarkozy said in early February that "We want to stop moving factories abroad, and perhaps we will bring them back. If we are to give financial assistance to the auto industry, we don't want to see another factory being moved to the Czech Republic." Sarkozy has also said "It is justifiable if a Renault factory is built in India so that Renault cars may be sold to the Indians. But it is not justifiable if a factory of a certain producer is built in the Czech Republic and its cars are sold in France." The fundamental problem of massive French subsidies for the automobile sector remains in place. This will adversely affect other European carmakers. By sharply discounting their prices, Renault, Peugeot and Citroën will be able to gain market share -- and not just in France. This comes at the direct expense of other companies. Sarkozy is seeking to keep car manufacturing at home in France and he has said that companies receiving state aid should think about moving their plants back home. What is being undone with these types of measure is the European Single Market system.

Open protectionism quickly leads to escalation and this would not be a favorable development. American Paul Krugman, the freshly minted winner of the Nobel Prize in Economics, announced, to his colleagues' dismay, that protectionism is justified to some extent. His argument is as follows: If stimulus packages are not coordinated, we have a problem, namely that national measures, such as tax cuts, primarily benefit foreign producers. (Münchau, Opinion: Europe and the Protectionist Trap, 2009)

This year's Berlin Film Festival provided a veritable showcase for films that criticize globalization and free market ideology with films such as Michael Winterbottom's "The Shock Doctrine". Many films portrayed big business and the ideology of so-called neo-liberalism as the world's new baddies, suggesting that the free market ideology pushed by Nobel Prize winning economist Milton Friedman and his disciples was based on taking advantage of crises to impose the shock treatment of deregulation and privatization. And according to Michael Winterbottom, "This is how we see the world now. Free markets are good. Governments are bad. It's always more efficient to have private corporations providing services than it is government. And free markets go hand in hand with free societies." The intention his film is to present an alternative history of the past three decades that argues that the opposite is true. (Dowling, 2009)

This year at the World Social Forum the culprit of the current economic crisis was the whole present design of the world economy, promoting competition. Free trade and free movement of capital needed to be re-thought, participants insisted. At the far edge was the idea that money and finance are public goods and should be shared out accordingly, through democracy. (The Economist, 2009)

Data from the Bank of England show that in the fourth quarter of 2008 local banks sharply cut lending to foreign customers. British borrowers are themselves suffering from the withdrawal of Icelandic, Irish and other foreign lenders. Projections from the Institute of International Finance (IIF), an industry group, show that net inflows of private capital will slow to $165 billion this year, down from a peak of $929 billion in 2007. Banks are shrinking their balance sheets everywhere as they concentrate on their home markets. State support is increasingly accompanied by explicit obligations to lend at home.

The Obama administration has signaled that it will require American banks that benefit from its forthcoming rescue package to lend more. This is economic nationalism, but of an insidious type. Western governments are not trying to keep foreign banks out of their markets: indeed, foreign credit would be welcome. Now the purpose is to steer banks towards supporting businesses and jobs at home, not abroad. That has the whiff of protectionism about it. (The Economist, 2009)

Concisely, if a few major nations favor their own industries at the expense of foreigners, invariably so will others, producing rounds of retaliation. That could choke off trade further – the International Monetary Fund already predicts a 2.8% decline in trade in 2009 – and clog a global engine for growth. (Neil King, 2009)

Protectionisms Threat – Pt. 4

But what makes this the largest threat to the United States foreign policy? What makes the prevention of protectionism and the survival and progression of international trade more important than that of terrorist threats, rising regional and world powers, global warming, the need for alternative fuels and other pressing problems?

First, let's take a look at terrorism. The fact is, whether the year is 1783 or 2083, "terrorism" – by whatever definition it will take on – will be a possibility and a fear for everyone in every country. Whether terrorism takes on the form or definition of Native American raids on settlements, Irish ultra-nationalists, Islamic fundamentalists, or mercenaries paid to detonate WMD's, they will always be a threat to United States national security. But being that they are a constant in our world – although the form and definition of "terrorist" may change over time – it is hard to say that "terrorism" is the most important issue that our foreign policy makers should put into consideration for the next half-decade for the reason that its definition – and hence its security risk - could evolve and change overnight. But can the idea of radicalized, religious zealots who act according to what they have been taught be offset by a more free-trade world? According to Thomas Friedman, a plausible way to combat our current understanding of terrorism could be to encourage their entrance into a free-trade world:

Religions are the smelters and founders of imagination. The more any religion's imagination – Hindu, Christian, Jewish, Muslim, Buddhist – is shaped in an isolated bubble, or in a dark cave, the more its imagination is likely to sail off in dangerous directions. People who are connected to the world and exposed to different cultures and perspectives are far more likely to develop the imagination of 11/9 [post Berlin-wall world]. People who are feeling disconnected, for whom personal freedom and fulfillment are a utopian fantasy, are more likely to develop the imagination of 9/11 (Freidman, 2006).

    Terrorism can be fought not only on the battlefield, but in the economic connectivity of people from all over the world. The idea is that the wealthier the country – and the higher the standard of living of the people of that country – the less likely they are to go to war with another country because of the high economical cost of a conflict.

    Another possible threat the United States could face in the next five years is a new regional or even world superpower. Why would the survival of Liberalism be more important than the risk, as stated earlier, that multipolarity "is inherently destabilizing – and hence inimical to economic openness"? It is precisely the fact that if the United States maintains a strong free-trade Open Door policy then the likeliness of a regional or world superpower is greatly decreased:

Washington's ability to provide other major states with collective goods – in both the security and economic spheres – is a wasting asset…other major states experience growing doubts about whether they can count on the United States to protect them, they…acquire military capabilities so that, if necessary, they can defend themselves without U.S. assistance…Precisely because multipolarity is antithetical to the Open Door world that the United States seeks, the aim of American grand strategy is to prevent the other major powers – even U.S. allies – from gaining autonomy in the realm of security… As America's relative economic power wanes, others will have decreasing incentives to bandwagon with the United States. The ongoing redistribution of global power is bringing forward the day when eligible states will be strong enough economically to challenge U.S. preponderance militarily… It is a truism that economic strength is the foundation of hegemonic power. A strong economy provides the resources that can be converted into military power and generates the wealth to pay for the extensive military apparatus necessary to maintain the hegemon's dominant position… At some point, the relative decline of U.S. economic power that is in the offing will bring American hegemony to an end. (Layne, The Peace of Illusions: American Grand Strategy from 1940 to the Present, 2006)

    If the United States loses its hold on international, free-market trade, other nation's belief that the United States will be able to back up its commitments to them – in terms both defense and economic – will be reduced which then will encourage them to begin building their own defenses, reducing U.S. power and influence. The cause-effect relationship is not that a new regional or global superpower will adversely affect United States Liberalism, but the inability of the United States to promote and backup its free trade policies will result in an international uncertainty and rearmament.

    An outside problem facing the United States' national security could be the role it takes – or doesn't take – on the issue of global warming. Certain parties believe that the risks that the United States could face if it keeps on its track of "dirty energy" – such as coal and oil – could become loss of prestige internationally, falling behind the curve in manufacturing, and a heavy burden on its citizens in both the inefficiencies of outdated energy grids and the derivative effect of poorer health care due to "dirty energy".

    But according to Fareed Zakaria:

Between 2006 and 2012, China and India will build eight hundred new coal-fired power plants – with combined CO2 emissions five times the total savings of the Kyoto accords. (Zakaria, 2008)

    The rising regional and world powers of China and India are propelling their growth by the use of this same "dirty energy" that some Green movement proponents are claiming will bring American industry down. But American still is pushing ahead in this area of renewable energy, even if it is slower than some people would like. Last year, wind-powered energy gave out the same amount of power as five nuclear power plants. Solar energy and hybrid technology is on the rise and getting special attention for tax breaks and subsidies for their research and development by the United States government. This year, the Obama administration has helped pass $150 billion dollars over 10 years into the development of clean energy.

    This now brings us to the present. The case that there is a current re-birth of nationalism will rest chiefly on deduction from current events. The basis for economic nationalism rests on the view that in order to stabilize current economic conditions, countries should urge companies to keep jobs and capital at home. That goes contrary to free-trade economics which states that trade encourages specialization, which brings prosperity. That the global capital markets allocate money more efficiently than local ones, and economic co-operation encourages confidence and enhances security. (The Economist, 2009).

    Charles Wheelan writes a good analogy that proponents of economic nationalism need to consider:

To understand the costs of trade barriers, let's ponder a strange question: Would the United States be better off if we were to forbid trade across the Mississippi River? The logic of protectionism suggests that we would. For those of us on the east side of the Mississippi, new jobs would be created, since we would no longer have access to things like Boeing airplanes or Northern California wines. But nearly every skilled worker east of the Mississippi is already working, and we are doing things that we are better at than making airplanes or wine. Meanwhile, workers in the West, who are now very good at making airplanes or wine, would have to quit their jobs in order to make the goods normally produced in the East. They would not be as good at those jobs as the people who are doing them now. Preventing trade across the Mississippi would turn the specialization clock backward. We would be denied superior products and forced to do jobs that we're not particular good at. In short, we would be poorer because we would be collectively less productive. This is why economists favor trade not just across the Mississippi, but also across the Atlantic and the Pacific. Global trade turns the specialization clock forwards; protectionism stops that from happening. (Wheelan, 2002)

Protectionisms Threat – Pt. 3

With financial fallout and embargoes, which resulted in economic nationalism, to blame for the radicalization and birth of W.W. II in Europe and Asia, and the European and Asian economies and markets completely nonfunctional by the end of the war, the United States economy began emerging as the dominant player. The table was set for the United States to begin rebuilding Europe and Asia in its interest:

The reparations deal we make with Russia and the money and materials we invest in Germany will set new trade patterns for Europe. The old pattern was fear, hate, nationalism. Said Danton, "One destroys only what one replaces." Europe's old pattern must be replaced, and it is within the power of American leadership to do it (Life, 1947).

The United States would need to replace nationalism - and the protectionism that comes with it - with something new, or the risk was what wasn't replaced would come back. America answered the challenge:

The onlookers now fear that the No. 1 nation may relapse into her old place in the old pattern, thus dooming them to do the same. For example, they fear (especially many Britons) that callow, ungovernable America is heading for another depression. But the State Department has for years been committing itself to a policy which would remove the known international causes of the great prewar depression and which if successful would so change the prewar pattern of nationalism and poverty as to make these apprehensions irrelevant. This policy is freer world trade…For the whole hope of new U.S. prosperity depends on a much broader trading area (Life, 1947).

The United States had declared that the way to peace was freer world trade. What needed to be replaced was protectionism and its many dangers and it would be replaced by free-trade. But weren't capitalist systems in place in Europe prior to WW II?

One big mistake of international capitalism was its failure to share – not its products, which went everywhere – but its systems. The ownership of capital plant was too confined to a few countries, while the so-called backward countries supplied only raw materials, like so many captive farms (Life, 1947).

This was the evolution of modern capitalism. It was undergoing a transformation in Europe from partial openness to the system the United States would model after its own ideologies and interests: A free-trade, democratic economy. This new system would need several things.

First:

An open international economic system requires an absence of geopolitical turbulence in vital core regions; the existence of stable governments that will keep domestic economies open to foreign trade and investment; secure trade routes; and access to – and stability in – the peripheries. (Layne, The Peace of Illusions: American Grand Strategy from 1940 to the Present, 2006)

Second, as Walt Rostow and Max Milliken put it:

"We have, in short, a major and persistent stake in a world environment predominantly made up of open societies; for with modern communications it is difficult to envisage the survival of a democratic American society as an island in a totalitarian sea." (Layne, The Peace of Illusions: American Grand Strategy from 1940 to the Present, 2006)

Third:

U.S. policy makers are concerned especially about preventing the consequences of re-nationalizations…U.S. forces are in Europe and East Asia to prevent the kind of "security vacuums" that could lead to re-nationalization…In plain English, U.S. policymakers fear that key regions will lapse back into multipolar instability that could affect U.S. Open Door economic interests…Re-nationalization is the code word U.S. strategists use to denote a reversion to multipolarity. Because they believe multipolarity is inherently destabilizing – and hence inimical to economic openness"… And a "re-nationalized" Western Europe – one beset with political rivalries and security competitions – would have been an inhospitable environment for the economic Open Door…As Deputy Secretary of State Strobe Talbott declared, "The well-being of the United States depends in large measure on what happens in Europe – the U.S. will not prosper without an economically vibrant Europe; the U.S. will not be safe without a secure and peaceful Europe." (Layne, The Peace of Illusions: American Grand Strategy from 1940 to the Present, 2006)

And finally:

America's liberal ideology holds that political and economic Open Doors cause peace and stability. (Layne, The Peace of Illusions: American Grand Strategy from 1940 to the Present, 2006)

So to sum up, the economic system the United States would attempt to form and try to maintain was to keep geopolitical turbulence out of core regions, maintain governments friendly to free-trade, an absolute necessity that Liberalism friendly states succeed, prevention of re-nationalization and multipolarity in Europe and Asia. The belief was if this ideology is followed, it will cause peace and stability.

So how does this tie into national security?

Liberal ideology postulates that to be secure the United States must continue to expand until it has established an Open Door world by replicating its liberal institutions and values abroad. Thanks to liberalism, there is "a potentially limitless dimension" to the American conception of "national" security. (Layne, 2006)

In short, any threat to the stability of free-trade, any government that is closed to trade or interdependency, states that begin taking on more nationalistic and protectionist tones, any rising military powers that would create re-armament in European and Asian countries will cause instability and could lead to war – and that is not in the interest of the United States or its national security.

Protectionisms Threat – Part 2

There are some historians who state that trade has no effect on whether two nations go to war with one another. An example that is often cited is the fact that the United States, prior to World War II, was Japan's biggest trading partner. (Gaddis) From 1920 – 1938, the United States and Japan were one of the worlds leading trading partners (see table 1). For those years, American imports from Japan ranged from 2^nd – 9^th highest and Japanese imports from America ranged from 3^rd – 10^th highest in the world between two countries (see figure 1) (Barbieri, 2008).

Then beginning in 1937, Japan and China officially began a full scale war – with the battle of Marco Polo Bridge near Beijing. With this, United States sentiment began to shift away from Japan and towards China and by 1940 the United States government slowly began to tighten restrictions on Japan. At that time, the United States was the main supplier of the oil, steel, iron, and other commodities needed by the Japanese military. When Japan made it clear that they were intending to become involved militarily in Southeast Asia, where the United States had more strategic interests, the United States responded to this growing threat by instituting a full embargo on exports to Japan, freezing Japanese assets in U.S. banks, and sending supplies into China. Faced with serious shortages as a result of the embargo, unable to retreat, and convinced that the U.S. officials opposed further negotiations, Japan's leaders came to the conclusion that they had to act swiftly. Japanese planes bombed the U.S. fleet at Pearl Harbor on December 7, 1941 (US Department of State).

The fact was that during the 1920's and 30's, the United States was Japan's main - and strategic - trading partner. But when Japan started an offensive war in China, the United States sanctioned, and eventually embargoed, trade with Japan. By the time Pearl Harbor was bombed, trade was nearly non-existent between the two countries.

The next example is of French and German trade relations from 1920 – 1938 (see figure 2). These dates will be separated from 1920 – 1932 and 1933 – 1938. The first sample is French-German trade before Hitler's rise to power. During this time period, Germany and France were both trading with each other at a positive, growing rate. After Hitler's rise to power – in which he preached a strongly nationalistic agenda which became very populist on account of the financial fallout of 1929, in July 1932, trade dropped off between the two nations into amounts seen only in 1923 (see table 2), and maintained very low levels through 1938. By the fall of 1939, Germany and France were at war with one another.

The results of a financial fallout can be, and has been historically, blamed for the primary reason behind the radicalization of politics in Europe. As William Manchester wrote:

No one who has gazed on such a scene could doubt that this financial disaster, huge as it is, cruel as it is to thousands, is only a passing episode in the march of a valiant and serviceable people who by fierce experiment are hewing new paths for man, and showing to all nations much that they should attempt and much that they should avoid"…"Economical Blizzard," as he [Winston Churchill] came to call it, was responsible for turning all England into "one vast soup kitchen," driving the country back off the gold standard, doubling the number of British unemployed, and radicalizing politics throughout Europe, especially Germany (Manchester).

Some will argue that it is in the best national security interest to keep as much industry – whether manufacturing or high tech – in the United States. Their argument is that if we export out all of our industry, we are boring a hole in our economy by having fewer middle class jobs, thus raising the standard of living abroad while lowering our standard of living. Not only that, but if we export out all of our manufacturing capabilities overseas, if we are faced with an international threat – such as we faced in W.W. II – we might not be able to respond in the scale and decisiveness as we did during past crises'.

The record of the past six decades says different though. With the standard of living increasing dramatically in countries that have embraced Liberalism, the motivations and costs to go to war seem to have increased to a level where major power conflict may be a thing of the past.

The risk to this stability though is when protectionism is enacted, production is brought back home and trade is lowered. When jobs are lost, stability is compromised (ex. Germany 1929, Russia 1913, Venezuela, Spain)

As will be discussed later, globalization needs stability in international markets in order to thrive. If this stability is lowered, economies will be affected by protectionist measures and the risk of political radicalization is increased. Additionally, if tariffs or embargos are enacted in response to protectionist measures, markets are lost which means the demand for items shrinks. Less demand causes the industry to shrink. Industry shrinkage leads to job cuts. Job cuts can lead to instability. Far from being a national security risk is globalization.

Conversely, if international trade is promoted, other countries standards rise. As their wages increase and the competitive advantage to use them as cheap labor decreases, their economy will stabilize and mature. With this evolution and raised wages, disposable income increases. As disposable income increases, demand for products will increase which creates new markets. With new markets, there is an opportunity for growth which leads to jobs being created.

As an example, if I saw that the demand for golf balls in China was more than the supply, I could create a small factory and hire 4 people to make golf balls. I could sell the golf balls just to the Chinese market and in so doing this, 5 jobs would be created. If it were not for international trade, this market would not be open and 5 people would not have jobs.

America is not just an outsourcing country either. Manufacturing from other countries has increased in recent years as the dollar devalues relative to the Euro and Pound. Airbus has built factories in Wichita, Kansas and Mobile, Alabama, for parts for their airplanes. BMW has built a car manufacturing plant in South Carolina. Toyota has a manufacturing plant in Hebron, Kentucky and Honda has also sent manufacturing factories to Indiana, Ohio and Alabama in recent years.

Figure 1

Table 1

Year	Importer 1	Importer 2	US Imports from Japan (in millions)	Japanese Imports from US (in millions)
1920	USA	Japan	414.57	439.89
1921	USA	Japan	251.26	277.08
1922	USA	Japan	354.29	284.97
1923	USA	Japan	346.94	248.77
1924	USA	Japan	340.06	253
1925	USA	Japan	386.86	255.72
1926	USA	Japan	405.64	320.5
1927	USA	Japan	402.1	328.83
1928	USA	Japan	384.34	293.36
1929	USA	Japan	432	301.54
1931	USA	Japan	206	168.94
1932	USA	Japan	134	143.37
1933	USA	Japan	128	159.27
1934	USA	Japan	119	228.52
1935	USA	Japan	153	240
1936	USA	Japan	172	245.79
1937	USA	Japan	204	365.67
1938	USA	Japan	127	267

Figure 2

Table 2

Year	Importer 1	Importer 2	French Imports from Germany (in millions)	German Imports from France (in millions)
1920	France	Germany	158.1	50.99
1921	France	Germany	155.05	111.3
1922	France	Germany	112.21	152.85
1923	France	Germany	84.46	1.66
1924	France	Germany	105.38	51.82
1925	France	Germany	111.38	86.08
1926	France	Germany	158.88	143.46
1927	France	Germany	165.14	145.88
1928	France	Germany	194.98	137.41
1929	France	Germany	258.57	152.79
1931	France	Germany	240.76	107.76
1932	France	Germany	141.99	44.83
1933	France	Germany	118.71	43.79
1934	France	Germany	136.23	66.05
1935	France	Germany	116	72
1936	France	Germany	117.08	39.81
1937	France	Germany	151.63	62.75
1938	France	Germany	90	58