As January 20 nears, Barack Obama’s ambitions for spending on the likes of roads, bridges and jobless benefits keep growing. The latest leak puts the “stimulus” at $1 trillion over a couple of years, and the political class is embracing it as a miracle cure.
Not to spoil the party, but this is not a new idea. Keynesian “pump-priming” in a recession has often been tried, and as an economic stimulus it is overrated. The money that the government spends has to come from somewhere, which means from the private economy in higher taxes or borrowing. The public works are usually less productive than the foregone private investment.
In the Age of Obama, we seem fated to re-explain these eternal lessons. So for today we thought we’d recount the history of the last major country that tried to spend its way to “stimulus” — Japan during its “lost decade” of the 1990s. In 1992, Japanese Prime Minister Kiichi Miyazawa faced falling property prices and a stock market that had sunk 60% in three years. Mr. Miyazawa’s Liberal Democratic Party won re-election promising that Japan would spend its way to becoming a “lifestyle superpower.” The country embarked on a great Keynesian experiment:
August 1992: 10.7 trillion yen ($85 billion). Japan passed its largest-ever stimulus package to that time, with 8.6 trillion yen earmarked for public works, 1.2 trillion to expand loan quotas for small- and medium-sized businesses and 900 billion for the Japan Development Bank. The package passed in December, but investment kept falling and unemployment rose. By the end of the year, Japan’s debt-to-GDP ratio was 68.6%.
April 1993: 13.2 trillion yen. At exchange rates of the day, this was a whopping $117 billion giveaway, again mostly for public works and small businesses. Tokyo erupted into domestic politicking over election practices, the economy went sideways, and the government fell. New Prime Minister Morihiro Hosokawa floated tax cuts, deregulation and decentralization to spur growth. But as the economy worsened — inflation-adjusted GNP shrank 0.5% in the April to June quarter — the political drumbeat for handouts increased.
September 1993: 6.2 trillion yen. Mr. Hosokawa announced a compromise “smaller” stimulus of $59 billion, along with minor deregulation. He dropped plans for an income-tax cut. The stimulus included 2.9 trillion yen in low-interest home financing, one trillion yen for “social infrastructure,” and another trillion for business. The economy didn’t respond. By the end of the year, Japan’s debt-to-GDP reached 74.7%.
Is any of this beginning to sound familiar? There’s more.
February 1994: 15.3 trillion yen. This stimulus included 5.8 trillion in income-tax cuts, 7.2 trillion in public investment, 1.5 trillion for small business and employment-support, 500 billion for land purchases and 230 billion for agricultural modernization. The income tax cut was temporary, effective only for 1994. The economy stagnated and Prime Minister Hosokawa resigned amid a corruption scandal. By the end of the year, debt-to-GDP was 80.2%.
September 1995: 14.2 trillion yen. The Socialist government of Tomiichi Murayama, with a wobbly coalition, rolled out a $137 billion whopper, with 4.6 trillion in public works, 3.2 trillion for government land purchases, 1.3 trillion in business loans, and more. Mr. Murayama resigned in early 1996, and in June Prime Minister Ryutaro Hashimoto agreed to raise consumption taxes to 5% from 3%, starting in April 1997, to reduce the fiscal deficit.
In 1994 and 1995, Japan spent 3.1% and 2.9% of its annual GDP, and (helped by central bank easing) the economy did respond with modest growth for about two years. Debt-to-GDP hit 87.6%.
April 1998: 16.7 trillion yen. When growth starting slowing again, the re-elected LDP turned to old medicine: 7.7 trillion yen for public works. The $128 billion grab-bag also included 2.3 trillion for the disposal of bad loans. The government announced four trillion yen in (again) temporary income-tax cuts, spread over two years. Mr. Hashimoto resigned in July after voters registered their discontent at the polls.
November 1998: 23.9 trillion yen. Desperate to get the economy moving, Prime Minister Keizo Obuchi rolled out the country’s largest-ever stimulus, valued at $195 billion. The giveaway included 8.1 trillion yen in social public works, 5.9 trillion for business loans, one trillion for job-creation programs, 700 billion in cash handouts to 35 million households, and more. By the end of the year, debt-to-GDP hit 114.3%.
November 1999: 18 trillion yen. In a “last push,” Mr. Obuchi’s government spent 7.4 trillion yen to prop up businesses, 6.8 trillion yen for social infrastructure projects like telecommunications and environmental projects, and two trillion yen for housing loans, among other things. Debt-to-GDP reached 128.3%.
Japan’s economy grow anemically over that decade, but as the nearby chart shows, its national debt exploded. Only in this decade, with a monetary reflation and Prime Minister Junichiro Koizumi’s decision to privatize state assets and force banks to acknowledge their bad debts, did the economy recover. Yet recent governments have rolled back Mr. Koizumi’s reforms and returned to their spending habits. But Japan does have better roads.
Now we’re told that a similar spending program — a new New Deal — will revive the U.S. economy. How do you say “good luck” in Japanese?
Let’s Buy Pakistan’s Nukes
Every visitor to Pakistan has seen them: 20-foot tall roadside replicas of a remote mountain where, a decade ago, Pakistan conducted its first overt nuclear tests. This is what the country’s leaders — military, secular, Islamist — consider their greatest achievement.
So here’s a modest proposal: Let’s buy their arsenal.
A.Q. Khan, father of Pakistan’s nuclear program (and midwife to a few others), likes to point out what a feat it was that a country “where we can’t even make a bicycle chain” could succeed at such an immense technological task. He exaggerates somewhat: Pakistan got its bomb largely through a combination of industrial theft, systematic violation of Western export controls, and a blueprint of a weapon courtesy of Beijing.
Still, give Mr. Khan this: Thanks partly to his efforts, a country that has impoverished the great mass of its own people, corruptly enriched a tiny handful of elites, served as a base of terrorism against its neighbors, lost control of its intelligence services, radicalized untold numbers of Muslims in its madrassas, handed the presidency to a man known as Mr. 10%, and proliferated nuclear technology to Libya and Iran (among others) has, nevertheless, made itself a power to be reckoned with. Congratulations.
But if Pakistanis thought a bomb would be a net national asset, they miscalculated. Yes, Islamabad gained parity with its adversaries in New Delhi, gained prestige in the Muslim world, and gained a day of national pride, celebrated every May 28.
What Pakistan didn’t gain was greater security. “The most significant reality was that the bomb promoted a culture of violence which . . . acquired the form of a monster with innumerable heads of terror,” wrote Pakistani nuclear physicist Pervez Hoodbhoy earlier this year. “Because of this bomb, we can definitely destroy India and be destroyed in its response. But its function is limited to this.”
In 2007, some 1,500 Pakistani civilians were killed in terrorist attacks. None of those attacks were perpetrated by India or any other country against which Pakistan’s warheads could be targeted, unless it aimed at itself. But Pakistan’s nuclear arsenal has made it an inviting target for the jihadists who blew up Islamabad’s Marriott hotel in September and would gladly blow up the rest of the capital as a prelude to taking it over.
The day that happens may not be so very far off. President Asif Ali Zardari was recently in the U.S. asking for $100 billion to stave off economic collapse. So far, the international community has ponied up about $15 billion. That puts Mr. Zardari $85 billion shy of his fund-raising target. Meantime, the average Taliban foot soldier brings home monthly wages that are 30% higher than uniformed Pakistani security personnel.
Preventing the disintegration of Pakistan, perhaps in the wake of a war with India (how much restraint will New Delhi show after the next Mumbai-style atrocity?), will be the Obama administration’s most urgent foreign-policy challenge. Since Mr. Obama has already committed a trillion or so in new domestic spending, what’s $100 billion in the cause of saving the world?
This is the deal I have in mind. The government of Pakistan would verifiably eliminate its entire nuclear stockpile and the industrial base that sustains it. In exchange, the U.S. and other Western donors would agree to a $100 billion economic package, administered by an independent authority and disbursed over 10 years, on condition that Pakistan remain a democratic and secular state (no military rulers; no Sharia law). It would supplement that package with military aid similar to what the U.S. provides Israel: F-35 fighters, M-1 tanks, Apache helicopters. The U.S. would also extend its nuclear umbrella to Pakistan, just as Hillary Clinton now proposes to do for Israel.
A pipe dream? Not necessarily. People forget that the world has subtracted more nuclear powers over the past two decades than it has added: Kazakhstan, Belarus, Ukraine and South Africa all voluntarily relinquished their stockpiles in the 1990s. Libya did away with its program in 2003 when Moammar Gadhafi concluded that a bomb would be a net liability, and that he had more to gain by coming to terms with the West.
There’s no compelling reason Mr. Zardari and his military brass shouldn’t reach the same conclusion, assuming excellent terms and desperate circumstances. Sure, a large segment of Pakistanis will never agree. Others, who have subsisted on a diet of leaves and grass so Pakistan could have its bomb, might take a more pragmatic view.
The tragedy of Pakistan is that it remains a country that can’t do the basics, like make a bicycle chain. If what its leaders want is prestige, prosperity and lasting security, they could start by creating an economy that can make one — while unlearning how to make the bomb.
The Return of Realpolitik in Arabia
Bush’s ‘diplomacy of freedom’ gives way to Obama’s caution and reticence. The Middle East may test our fatigue.
President Bush assumed office promising a “humble foreign policy.” But it was his luck, or fate, to have much of his presidency consumed by adventures in the Greater Middle East. It is clear from the passion of his valedictory tour that he has caught the bug of that region, that it has worked its way on him as he himself worked his will, and the power available to him, on its settled and ruinous ways.
President-elect Barack Obama has signaled that the foreign world will not be his primary concern, that the repair of the American economy will trump all other pursuits and temptations. On the lands and the peoples of the Middle East, Mr. Obama has been largely silent, if not detached. He was in the Illinois Senate when a huge storm blew over the Islamic world. He was lucky, as his secretary of state designate endlessly reminded us, to have given a solitary speech on Iraq when the challenge came calling.
There is a detached tone to Mr. Obama’s utterances on the Islamic world, a kind of knowingness. In part, it is no doubt an intended contrast to the heat and fervor of George W. Bush. If Mr. Bush believed he could remake that old and broken and wily region, Mr. Obama signals a fatigue with it, an acceptance of its order of power. If Mr. Bush believed that he could insert himself into the internal affairs of distant Islamic lands, Mr. Obama and his foreign-policy advisers portend a return to realpolitik and to a resigned acceptance of the ways of foreign autocracies. We have erred, the Obama worldview preaches, and overreached. We have overread the verdict of 9/11, and it is time to make our peace with regimes we have offended in the Bush years. It is the Scowcroftian way — other lands, other ways.
Then, too, the Obama reticence about those burning grounds of the Islamic world is, in part, a matter of biography. The Islamic faith was the faith of his father. A candidate with the middle name of Hussein could not afford soaring rhetoric about the ability of freedom to survive on Islamic soil.
In contrast, George W. Bush had been free and confident enough to take up the cause of reform and drastic change in the Islamic world. True, he did not know much about the ways of those lands, but neither did Woodrow Wilson. His doctrine of self-determination in the aftermath of the Great War, and the dissolution of the Ottoman empire, endures as the most consequential and revolutionary American message taken to the lands of old empires.
Wilson himself, it should be recalled, had been chastened by the radical sweep and impact of his own doctrine; he had preached the gospel of self-determination, he said, “without the knowledge that nationalities existed, which are coming to us day after day.” Detailed “knowledge” can be overrated in the choices that history opens up. The post-Ottoman world was never the same after that American president who had known so little about it. A circle was closed between that Wilsonian policy and the massive American push into Arab and Islamic lands by George W. Bush.
One thing is sure to go with Mr. Bush when he departs to Crawford, Texas: his “diplomacy of freedom.” That diplomacy — which propelled the wars in Afghanistan and Iraq, which drove the Syrians out of Lebanon after they had all but destroyed the sovereignty of that country, and had challenged pro-American allies in Egypt and the Arabian Peninsula — is gone for good.
It was an odd spectacle, the time behind us: a conservative American president preaching the gospel of liberty for lands beyond, his liberal detractors at home giving voice to a deep skepticism about liberty’s chances in inhospitable settings. No one was more revealing of the liberal temper — and of things to come — than Vice President-elect Joe Biden (then the point man for foreign policy among the Democrats) speaking in December 2006 about the hazards of believing in liberty’s appeal to Muslim lands. Of President Bush, he said: “He has this wholesome but naive view that Westerners’ notions of liberty are easily transported to that area of the world.” Mr. Biden knew better: He warned the president, he said, that Grand Ayatollah Ali Sistani’s view of liberty differed from “our view of liberty . . . I think the president thinks there’s a Thomas Jefferson or Madison behind every sand dune waiting to jump up. And there are none.”
The course of history can shred the most detailed of briefing books. On the face of it, the new team tells us that there shall be no attachment to the gains we made in Iraq. This is not Mr. Obama’s cause, or call. That country can fend for itself, it is implied. The new cause shall be a return to the struggle for Afghanistan. This is the liberal narrative: the bad, unilateral “war of choice” in Iraq, the good, multilateral “war of necessity” in Afghanistan. The doves on Iraq can thus be hawks on the Afghan-Pakistan frontier. The strategic gurus who preached that Iraq is a hopeless, artificial state put together by Gertrude Bell and Winston Churchill and T.E. Lawrence can try for victory and nation building in the unforgiving tribal lands of Afghanistan and Pakistan. If there is an artificial state in our world of nations, Afghanistan must be its closest approximation. If there is a false national boundary — mocked by ethnicity and historical allegiance — it is the Durand Line, drawn up by British power in the 1890s, between Afghanistan and Pakistan, through the lands of the Pashtuns. Afghanistan could yet thwart President Bush’s successors, frustrate them in the way Iraq frustrated him.
Our country will be forgiving toward the new foreign-policy team, it is fair to assume. The hubris and self-confidence needed for expeditions into foreign lands have been devastated by the economic meltdown in our midst.
Of the good manners and pliability of foreign regimes, we can be less certain. Nature abhors a vacuum, and challengers are sure to step forth. To its surprise, the new administration could yet discover that our adversaries do not wish to see our withdrawal from their midst. The Iranians thrive on the American presence in the Persian Gulf and feed off it. They are the quintessential oppositional force. They are not good at generating policies of their own. Their work consists of subversive attacks on Pax Americana in the region. The call by President Bush’s critics for a dialogue with Iran will be exposed for the pathetic fraud it has been all along. The American drama swirling around the rise of Mr. Obama is of no interest to the theocrats in Tehran. For them, it is business as usual in the Persian Gulf.
We have witnessed the gains and the heartbreak of American activism and ambition on foreign shores. Around the corner lurk the risks of caution and reticence, of enemies who could see through, and test, our fatigue. The world is under no obligation to accommodate us.
Mr. Ajami is professor of Middle East Studies at The Johns Hopkins University, School of Advanced International Studies. He is also an adjunct research fellow at Stanford University’s Hoover Institution.
A new report warns Obama about our aging nuclear weapons.
Iraq, Afghanistan and Guantanamo get more press, but among the most urgent national security challenges facing President-elect Obama is what to do about America’s stockpile of aging nuclear weapons. No less an authority than Secretary of Defense Robert Gates calls the situation “bleak” and is urging immediate modernization.
On the campaign trail, Mr. Gates’s new boss appeared to take a different view. Candidate Obama said he “seeks a world without nuclear weapons” and vowed to make “the goal of eliminating all nuclear weapons a central element in our nuclear policy.” His woolly words have given a boost to the world disarmament movement, including last week’s launch of Global Zero, the effort by Richard Branson and Queen Noor to eliminate nuclear weapons in 25 years. Naturally, they want to start with cuts in the U.S. arsenal.
But the reality of power has a way of focusing those charged with defending the U.S., and Mr. Obama will soon have to decide to modernize America’s nuclear deterrent or let it continue to deteriorate. Every U.S. warhead is more than 20 years old, with some dating to the 1960s. The last test was 1992, when the U.S. adopted a unilateral test moratorium and since relied on computer modeling. Meanwhile, engineers and scientists with experience designing and building nuclear weapons are retiring or dying, and young Ph.D.s have little incentive to enter a field where innovation is taboo. The U.S. has zero production capability, beyond a few weapons in a lab.
- A World Free of Nuclear Weapons (01/04/07)
– George P. Shultz, William J. Perry, Henry A. Kissinger and Sam Nunn
- Toward a Nuclear-Free World (01/15/08)
– George P. Shultz, William J. Perry, Henry A. Kissinger and Sam Nunn
THE WEEKEND INTERVIEW
We’re told Mr. Gates’s alarm will be echoed soon in a report by the Congressionally mandated commission charged with reviewing the role of nuclear weapons and the overall U.S. strategic posture. The commission’s chairman is William Perry, a former Clinton Defense Secretary and a close Obama adviser. Mr. Perry is also one of the “Four Horsemen of the Apocalypse,” the nickname given to him, George Shultz, Henry Kissinger and Sam Nunn for an op-ed published in these pages last year offering a blueprint for ridding the world of nuclear weapons.
The commission’s interim report is due out any day now, and the advance word is that Mr. Perry has come back to Earth. We’re told the report’s central finding is that the U.S. will need a nuclear deterrent for the indefinite future. A deterrent is credible, the report further notes, only if enemies believe it will work. That means modernization.
That logic ought to be obvious, but it escapes many in Congress who have stymied the Bush Administration’s efforts to modernize. Britain, France, Russia and China are all updating their nuclear forces, but Mr. Bush couldn’t even get Congress this year to fund so much as R&D for the Reliable Replacement Warhead (RRW) program. Senator Dianne Feinstein dismissed the RRW, saying “the Bush Administration’s goal was to reopen the nuclear door.”
In the House, similar damage has been done by Ellen Tauscher, chairman of the subcommittee on strategic weapons. Ms. Tauscher, whose California district includes the Lawrence Livermore National Laboratory, likes to talk about a strong nuclear deterrent while bragging about killing the RRW. She also wants to revive the unenforceable Comprehensive Test Ban Treaty, which the Senate rejected in 1999. Let’s hope the Perry report helps with her nuclear re-education.
If Congress isn’t paying attention, U.S. allies are. The U.S. provides a nuclear umbrella for 30-plus countries, including several — Japan, Germany and South Korea, for example — capable of developing their own nuclear weapons. If they lose confidence in Washington’s ability to protect them, the Perry report notes, they’ll kick off a new nuclear arms race that will spread world-wide.
In a speech this fall, Mr. Gates said “there is no way we can maintain a credible deterrent” without “resorting to testing” or “pursuing a modernization program.” General Kevin Chilton, the four-star in charge of U.S. strategic forces, has also spent the past year making the case for modernization. “The time to act is now,” he told a Washington audience this month.
The aging U.S. nuclear arsenal is an urgent worry. A world free of nuclear weapons is a worthy goal, shared by many Presidents, including Ronald Reagan. Until that day arrives, no U.S. President can afford to let our nuclear deterrent erode.