In 2008 America, after going through the shock of September 2001 -- memorialized as “9/11” and signaling the launching of a new phase in the emerging war of survival between militant Islam and the West, was hit in 2008 with three more 9/11s, within three months: (1) soaring oil prices that topped $4 per gallon, thus swelling the coffers of countries whose national interests substantially differ from those of the United States; (2) Russia’s sneak invasion of Georgia, invoking a justification -- protection of ethnic kin under foreign rule, extending Russian control over energy supplies from the Caspian Basin, en route to Europe, that transit south of Russia; and (3) the credit freeze that triggered calamitous collapse in financial markets and threatened total global financial meltdown.
Absorbing any of these blows is a daunting challenge. Coping with a trifecta, on top of a continuing set of conflicts stemming from the first 9/11 and its aftermath, strains the resources even of a superpower. And all these challenges come at the very time we have a new administration taking power come January, facing a trillion-dollar federal budget deficit.
And if four 9/11s aren’t enough, in sight as real prospects are four “super 9/11s”: (1) WMD terror launched by Islamic terrorists, or a Mideast nuclear arms race ignited by Iran, as Gulf states trade oil and petrodollars for nuclear weapons; (2) Mideast countries investing in American firms under rules of “Sharia finance” and thus skewing investment priorities towards their strategic aims; (3) petrodollar-funded advances by Russia into the Baltic countries, coupled with energy blackmail of Europe, which if unchecked would end NATO for good; (4) worldwide depression, if a series of very hard calls are badly made, and errors not corrected quickly.
Which leaves us with Lenin’s famous query: “What is to be done?”
Stopping Iran’s nuclear program is essential. Any negotiation with Iran will yield what 30 years of dealings have consistently yielded: a strategic pause, during which Iran will seek to exploit a false peace. The mullahs do not regard America as the great Satan for nothing.
The risks posed by a nuclear Iran exceed those posed by an Iran forcibly defanged, if sanctions fail. Before trying military strikes, let us impose sanctions on refined oil. Iran exports crude and imports refined, and subsidizes low gas prices to the tune of 15 percent of GDP and 38 percent of its budget. This will require stepping outside the UN Security Council, within which any sanctions regime faces Russian and Chinese vetoes.
We must beware of unilateral disarmament in the form of suicide-pact legalism that ties our hands and binds our feet, blindfolds and deafens and even silences us, in the face of an enemy determined to destroy us. Lawyers and judges can lose a war, but they cannot win one.
Infrastructure and energy intersect. Even more than oil, America today runs on electricity: over 60 percent of GDP is derived from electricity, and over 85 percent of GDP growth since 1980 has been powered by electricity.
Our current national grid is divided into three geographic islands, with scattered mini-bridge links. They operate in different time zones. Each island generates peak load power inefficiently. Over a year, about half our electric capacity stands idle, and 20 percent of our electricity is generated by very expensive fuel. A $75 billion, 21,000-mile high-voltage “backbone” fully linking these islands would accomplish two vital energy objectives, while quickly paying for itself.
First, it would enable ultra-efficient shifting of spare peak-load power to regions needing peak load, adding only perhaps 0.3 cents to the typical 9 cents per kilowatt-hour cost consumers bear. Second, it would maximize utilization of alternative energy resources, by enabling siting of wind farms, solar farms, geothermal plants in remote areas where land is abundant and cheap, and people scarce.
Baseload power can be shifted to nuclear, away from fossil fuels. Follow the French: build plants that recycle nearly 100 percent of nuclear waste, in forms not susceptible to terrorist diversion for bombs. France stores all unused waste from 40 years of zero-fatality operations in a single sealed room the size of a gymnasium. America’s 104 nuclear plants, which provide 20 percent of all our electricity, derive half their fuel from Russian weapons-grade material de-enriched and processed in France. As author William Tucker notes, the market, not the UN, converts swords into plowshares.
The ability of militant greens to stall projects -- especially, nuclear -- must be limited to a rule of reason, to contain costs and attract private investment. Substituting electric power for oil in transportation requires a robust grid that can easily shift peak load power so as to enable overnight recharging of plug-in “flex-fuel” hybrids. An Open Fuel Standard” that requires new cars to be able to run on alternative fuels, would enable electric cars to use all viable fuels as back-up.
If necessary, a price floor must be provided so that low oil prices do not undercut our drive for energy independence. Thus, a national backbone electric grid is a “win-win-win” proposition: far cheaper electricity, far cleaner power plants, far less money sent to petrostates whose interests diverge sharply from ours. Private financing can work if federal regulation establishes a unitary regime that provides predictability of regulation. Electricity everywhere beats bridges to nowhere.
Russia must be warned that it will be shut out of world financial markets and international economic institutions, if it does not vacate Georgia and keep within its borders. And Vladimir Putin must be told that an attack on any NATO country will bring a military response.
Estonia, targeted by Russia in 2007 with the first known major cyberwar attack ever, and closest to the Russian border, is the most likely candidate. Were Putin to annex even part of one Baltic state, NATO would either respond with force if necessary, or the alliance would formally become a dead letter and ignominiously exit the world stage.
Global financial markets must be nursed through massive de-leveraging. We must create new clearinghouses that enable discovery of the value of complex instruments via market transactions. For banks, the Fed can do a better job if relieved of its directive to promote employment. It should stick to defending the integrity of our monetary unit, and properly supervising bank operations. In place of a monetary rule set by mandarins, a price rule set by commodity markets would better calibrate monetary policy for complex, massive global markets.
Instead of “bailouts” that some advocate, we must use ”workouts”: allow delinquent borrowers to stretch out obligations without being completely let off. To simply bail them out is unfair to those who scrimped to pay up, and entails what insurers call “moral hazard”: to subsidize risky behavior invites more of the same. Conversely, we must allow sufficient risk-taking or risk socialist stagnation.
All this brings us to the one overarching principle that should guide strategy and thus public policy, especially in times of great danger: avoid apocalypse. In strategic policy the primary goal is to see that at all times those making policy have options other than the “apocalyptic trinity”: suicide, surrender or genocide. For economic policy the comparable trinity is deflationary depression, hyperinflation and socialist stagnation. If only apocalyptic options exist, you have already failed. Only the magnitude and gravity of the cataclysm are yet to come.
Trade-offs will require putting low-cost energy second to energy independence. Global warming concerns must not scare us into an economic abyss. We are entering an environment of historic geopolitical challenges and economic systemic risk, facing enemies eager to take advantage of our distress. We are not finished. But we face grave dangers with vanishing margins for error.