Coyote Blog

I understand that Afghanistan is falling into what is sure to be a heart-breaking mess as the Taliban quickly rolls up the country in a way that is quite reminiscent of South Vietnam falling to the North in the 1970s.   The rapid collapse of the Afghani government after the exit of most American troops will be used by many as evidence that we shouldn't have left, or that we left too soon.  In my mind, it's the opposite.

We have had 20 years to try to build a sustainable non-Taliban regime in Afghanistan and have clearly totally failed.  Again, we have failed to do so in a way that is surprisingly similar to our failures in South Vietnam (though at least without sustained bombing of population centers).  Holding on in Afghanistan has taken on the aspect of holding down a dead-man's switch on a bomb.  We seem unable to defuse it, but as long as we are willing to sit there, the bomb doesn't go off.  In this context, it should surprise no one that the bomb went off when we got up and left.

The silver lining is that given time and space to find their own way without a million foreign troops on their soil, the Vietnamese have steadily improved their country and the lot of their people.  Vietnam sits above Russia, Greece, and South Africa (and probably California) in the recent economic freedom rankings.

This does not mean that the Afghan people are not going to suffer over the next years and decades.  They will.  I feel for them.  But its clear to me at least the the US occupation is a dead end.  If liberty and prosperity ever come to the Afghani people, it will have to come through a different path.

Update:  Well, maybe not exactly this way.  I wrote this referring to the collapse of the Afghan government we had selected and propped up.  Clearly the ridiculous mistakes made on our exit that left Americans and our vulnerable friends without a clear path or plan for exit were not inevitable.

Apparently the American embargo and blockade of Cuba have worked so well that Trump wants to try the same thing with Venezuela

Axios is calling it President Trump's Venezuela naval blockade "obsession" based on accounts of unnamed administration officials: "President Trump has suggested to national security officials that the U.S. should station Navy ships along the Venezuelan coastline to prevent goods from coming in and out of the country, according to 5 current and former officials who have either directly heard the president discuss the idea or have been briefed on Trump's private comments," according to a new report.

He's said to have repeatedly raised the idea in private as a way to finally deliver regime change in Caracas, after prior attempts - including a short-lived push for military coup - failed earlier this year. Supposedly, the plan would be to station US Navy ships along the coast such that all vessels would be blocked from entering or exiting the South American country.

I am trying to think of an example of an authoritarian regime brought down by a blockade or embargo, and I am struggling to do so.  We have embargoed the Cubans for 60 years and the communists still sit there merrily running that county.  We have embargoed Iran off and on for 40 years and yet essentially the same regime is in power.  And don't even get me started on the 1940 embargo of Japan**.  The closest I can come is the fall of apartheid South Africa, though that was never a full embargo -- it was more of an international public shaming that worked in part for the reason that the people of South African remained engaged with the world in trade and other matters.  Also I think giving too much credit to international players for the changes in South Africa is to reduce the agency, persistence, and bravery of the internal opposition.

I will say that an attempted blockade of Venezuela will definitely have three entirely predictable outcomes

1. It will hurt the citizens who we are trying to help
2. It will give Marxist apologists an excuse for Venezuela's economic disaster (ie "it wasn't socialism, it was the evil American blockade)
3. It will lead to unnecessary confrontations with other countries.  What happens the first time the US Navy puts a shot across the bow of a French or Russian or Chinese merchant ship?

I have a strong bias towards engagement as a palliative for authoritarian regimes.  Let their folks interact with the quasi-free West long enough and pressure will come for change.  You know who agrees with me?  The leaders of North Korea, which is why they would rather live in the Middle Ages than allow their folks any interaction with the West.

** Postscript:  Readers might respond that the wartime embargo of Japan was extremely effective.  Eventually the US Navy was able to strangle the Japanese economy.  This indeed was effective at reducing the Japanese warmaking ability, at the cost of abject misery for much of the Japanese people.  But note that it never even came close to forcing a regime change.  Only the American atomic bombs combined with the Russian declaration of war eventually (barely) led to Japanese surrender.

I find this depressing:

We seem to NEED an enemy.  We hop from one enemy to another -- Soviet Union to Iraq to Al Qaeda to Russia to Iran and now to China (with a certain minority always having Israel as their enemy).   I find this depressing.  As I told a reader in a private email the other day, for whatever cynicism I project here, I am actually a sloppy optimist, a pacifist, and a conflict avoider.  Maybe that is part of the appeal of Canada or New Zealand in surveys -- I mean, its hard to imagine them having enemies.

We had a Chinese exchange student back when my kids were in high school who frequently visits us here in the US.  The first day we saw here in America she looked exactly like Honey in the Doonesbury comics -- Mao jacket and hair and glasses and all.  After four years of college at Michigan, she is as American as my kids.  She and her friends want so much to be like us in so many ways, without rejecting her Chinese cultural heritage.

This country has so much positive soft power -- everyone around the world wants to be here and partake of our culture.  I don't think either Republicans or Democrats really understand the real reasons behind this pull.  Republicans seem to believe folks are lining up at the border for welfare checks while I don't know what Democrats believe any more, as their Presidential candidates all reject many of the great things about this country I would have thought attracted people.  Maybe that is why politicians of both parties so consistently piss away this potential goodwill.

I am not naive about China -- they are an authoritarian state desperately in need of reform.  I just don't think going into cold war tension mode with them is going to help.  I tend to believe in the power of engagement by ordinary people with the rest of the world to drive change, which we should have been trying years ago in Cuba.  Isolating authoritarian regimes is really just doing their work for them.

Not long after China was opened to the US for visitation, actress Shirley MacLaine made a visit to the country.  As part of this visit she went to a rural agricultural commune where she met an ex-professor who had obviously been sent to the countryside during Mao's cultural revolution.  MacLaine thought it was wonderful that the professor expressed himself as so happy to have given up academics to do manual labor on the farm.

I don't know if anyone in the US who had a firmer grasp of China's history ever sought to correct MacLaine's understanding of the conversation.  The academic was very likely sent to the farm unwillingly, as were many other academics, as part of Mao's virulent anti-intellectualism as well as the broader rustication movement that consigned a whole lost generation to dead-end lives in rural China.  In 1979, Deng Xiaoping was visiting the US for the first time and was seated near MacLaine at a dinner party.  She retold her story about this wonderfully happy ex-academic she met on the farm.  In response, Deng provided the honest response to her story that none of MacLaine's American enablers seemed to be able to provide.  Deng responded to her, referring to the ostensibly happy academic, "he was lying."

I originally heard this story from a lecture by Richard Baum.  The best online version of it I can find is here.

Another of the issues I have moved a lot on in life has been trade sanctions.  Back in the day, I was all for sanctioning the cr*p out of any country run by bad people, which is a pretty long list.  Now, I am convinced this approach is totally counter-productive.  First, the story via WSJ:

The U.S. is evaluating whether to impose tougher sanctions against Venezuela’s military and vital oil industry, a senior Trump administration official said Monday, as it seeks to ratchet up pressure on authoritarian leader Nicolás Maduro to hold free and fair elections.

The Trump administration is considering a range of measures including curtailing the flow of Venezuelan oil to the U.S., the official said, in what could be the harshest blow to the country's money supply. No final decision has been made.

The U.S. has already penalized a host of Venezuelan government heads, its gold sector and has blocked investors from renegotiating Caracas’s defaulted debt. The U.S. administration has held off on more draconian efforts like an oil embargo, weighing the humanitarian cost for economically devastated Venezuela, which depends almost entirely on crude exports. The U.S. also has been analyzing any potential harm to American businesses that buy Venezuelan crude.

Now, however, the Trump administration aims to up the ante after Mr. Maduro last week defied international calls to resign and was sworn in for a new six-year term following a May re-election that some 60 countries deemed fraudulent.

“Until now, we have been going around the edges,“ the official told The Wall Street Journal. “Now it’s a new dynamic. We are no longer going to be tinkering along the edges. Nowadays, everything will be put on the table.”

In a serious and worrying article on the Chinese government inserting tiny chips into high-end video processing servers in order to hack into 3rd party systems, Bloombergs Jordan Robertson and Michael Riley write

Elemental servers sold for as much as $100,000 each, at profit margins of as high as 70 percent, according to a former adviser to the company. Two of Elemental’s biggest early clients were the Mormon church, which used the technology to beam sermons to congregations around the world, and the adult film industry, which did not.

I love that.

The whole article is well worth a read.  I am not one to fall for anti-China paranoia but if I was an electronics or computing company, I would be seriously reevaluating my sourcing practices right about now.

In general, the whole Russia Facebook ad purchase story has been a huge yawner.  In an election where Hillary Clinton and her supporting PACs spent $1.2 billion and Trump spent about half that, are we really concerned about the impact of $100,000 in ad spend on Facebook?  Has there been anyone other than Russia and the Koch Brothers who the media could seriously write stories about manipulating an election by spending 0.0055% of the total advertising in the election? If that 0.0055% really turned the election, please send me the name of their ad agency.

The really interesting part of this story is that absolutely no one has said anything about that $100,000 actually having been spent on Trump.  People talk about the story as if they obviously were for Trump, but perhaps tellingly no one has actually confirmed this.  Certainly if you had asked me to guess in June of 2016 who Russia would have been making ads for, I would not have assumed Trump rather than Hillary was a sure bet.  And then there is this today from CNN

At least one of the Facebook ads bought by Russians during the 2016 presidential campaign referenced Black Lives Matter and was specifically targeted to reach audiences in Ferguson, Missouri and Baltimore, sources with knowledge of the ads told CNN.

Ferguson and Baltimore had gained widespread attention for the large and violent protests over police shootings of black men. The decision to target the ad in those two cities offers the first look at how accounts linked to the Russian government-affiliated troll farm known as the Internet Research Agency used geographically targeted advertising to sow political chaos in the United States, the sources said.

Hmmm.  I guess the apple does not fall far from the tree.  In the Cold War this is exactly the kind of thing the Soviets would have funded.  Though given how tribalized politics are I am not sure that spending money to target a political tribe to reinforce them in their already strongly-held beliefs is a super-productive way to spend money.  More to follow I am sure.

I just finished re-reading Barbara Tuchman's the Guns of August at almost the same moment I was also reading from Trump's UN speech.  I was struck how much Trump's nationalism flavored with a sense that his country is somehow not getting its due in world affairs seems so similar to Kaiser Wilhelm II, leader of Germany from the late 19th century through the First World War.  And I think the fear many of us have is that Trump's seemingly ham-handed, blustering, confrontational style will mirror Wilhelm's mis-steps that played a large role in the advent of WWI.

It wasn't necessarily that Wilhelm wanted war and conspired to get it -- in fact, his panicky foot-dragging in the crucial late days of late July and early August of 1914 were an interesting part of the story.  He seemed to me like a blowhard in a bar that always talked about throwing down with everyone around him but was surprised on the day he actually found himself being taken out to the parking lot for a real fight (and he was not the only driver of German actions -- the army for one had a beautiful plan and almost couldn't bear not to try it).  But Wilhelm by his bluster and unpredictability and untrustworthiness and at times outright nuttiness spent years making all the options that were not-war less feasible.

US military interventions abroad -- at an absolute minimum -- have got to represent some reasonable path to a better future.  It is amazing how even this simple and obvious test is almost never met by our actions.  Instead, I think many folks substitute some test more like "Is the situation really bad?--if so, rev up the troops."  To this end, Assad is clearly a bad guy.  Assad (or someone) using poison gas on civilians is a bad thing.  Russia providing cover for these bad things is also a bad thing.  But what is the alternative?  Obama's support of rebels in Libya is just a fantastic example we should all remember -- the Libyan regime was bad but we supported its overthrow in favor of a situation now which is clearly worse.  Iraq-style regime change is out of favor for good reasons, but at least regime change advocates had a clear explanation of how they wanted to get to a better future with military action -- they were going to take the whole place over with massive military force and stand on it for a couple of decades until, like Germany after 1945, it becomes a responsible citizen of the world.  The costs are high and I don't think it is in our long-term interests to do so, but at least there was a logical story.

What is the story in Syria?  We kill a couple hundred folks with cruise missiles to avenge a few dozen folks killed with poison gasses and, what?  Do the citizens of Syria really need yet another foreign power lobbing explosives into their country?  The only argument I hear is that Assad crossed a line and now we have to show him what for.  But this sounds like an 18th century aristocrat vowing to defend his honor after an insult.  It's sort of emotionally satisfying -- take that, asshole! -- but where does it get us except further mired in yet another foreign conflict we have not hope of making better?  We look back and criticize the major powers in 1914 for getting involved in the constant squabbles in the Balkans but do the same thing in the Middle East, the 21st century's Balkans.

Yesterday at an event called One Day University, I saw a talk by William Burke-White of Penn and formerly of the Obama state department (I think he was one of many consultants, but I can never figure out seniority from people's biographies - his is here).

Mr. Burke-White was discussing the liberal world order created by the US after WWII and recent decline / threats to this world order and American power.  He discussed five trends or forces driving changes, and you probably can predicts many of them.  He discussed the rise of new world powers (e.g. China), the rise of powerful NGO's (e.g. ISIS) and the expansion of the Internet (which can destabilize traditional powers).  All fine, I have no particular comment on that stuff.  He also discussed climate change, with a picture of Manhattan underwater, and though I am tempted, I won't even respond to that.

What caught my attention was his fifth point -- about income inequality.  He showed a slide with the meme that 8 people (Warren Buffet et al) had more wealth than something like half the world's population put together.   His conclusion was that the liberal world order had failed because so much wealth had been concentrated in a few hands.

Well, if American power and influence is declining in the world and Mr. Burke-White is an example of the thinking of the Obama administration over the last 8 years, I now have a better understanding of why.   Sure there are really rich people.   There were probably 8 really rich guys in 1400 (though they would have all been Kings and Emperors rather than private business people).  The really different, world-changing event over the last 50 years has been the emergence from poverty of over a billion people, as facilitated by market capitalism.  Never before in all of the history of the planet have so many people been pulled out of poverty in such a short time.  Never before has such a large percentage of the globe moved beyond pure subsistence farming.  If the leaders of this country find it impossible to communicate this simple good news, then of course the post-WWII liberal world order is going to struggle.

Look, I understand that baby boomers (a group of which I am barely a member) have a hard time figuring out how to cope with this country's many past missteps.  Yes, we have been ham-handed (and that is generous) in exercising our power and we have often failed to live up to our stated values.  But helping to unleash a wave of market capitalism on the world is among our true successes.   And this is the US's one true source of power, this wave of prosperity we have helped to birth.  Other supposed sources of our power -- a big military and atomic bombs -- are horrifying.  Market capitalism is our one source of strength that is genuinely positive.  If we are staffing the state department with people who don't get this, then no wonder we are losing influence in the world.

There has been a lot written about "chaos" in UK government and financial markets since the Brexit vote, so much so there are supposedly folks who voted for Brexit who want a do-over.

A few thoughts:

• Short term changes in financial asset prices, like bank stock prices or currency futures, are largely irrelevant in the long-term.  The recent supposed "big drop" in US equities markets, for example, took the market all the way back to where it was in... March, barely 3 months ago.  You will see buying in these assets in the coming days and the drop of the last few days will be largely forgotten soon.   Financial markets don't react well to being surprised, but they will get over it.
• I don't see how the UK and the pound are necessarily weaker post-Brexit.  The US is fine.  The Swiss are fine.  Heck, the Swiss have to constantly fight to keep their currency lower.
• Unlike other EU nations, the majority of UK trade is with non-UK nations.  While trade with the EU will likely be on worse terms in the future (though the Swiss and Norwegians have pretty good deals), UK will be unshackled from the EU bureaucracy in negotiating new deals with the rest of the world.  If the US President had any vision whatsoever, he would already have offered the UK a free trade deal, rather than being petty and saying the UK goes to the back of the line for exiting a transnational body the US would never join itself.
• Much of the "chaos" in British government can be traced 100% to the anti-Brexit folks.  The Anti-Brexit folks very explicitly refused to craft any Brexit contingency plans, using threats of post-Brexit chaos to try to up the pressure against the Brexit vote.  President Obama did the exact same thing with Obamacare, refusing to create contingency plans if the SCOTUS overturned key parts of the ACA, hoping to ratchet up pressure against that outcome.  Had their been at least the outlines of a plan, they would be checking down it right now.  Things I would do as PM on the trade front:  1.  Demand the Swiss deal from the EU for Britain.  2.  Approach major trading partners with offers of free trade deals.  A British commonwealth free trade zone is a great idea.

I would propose a free-trade agreement with the UK.    No loss of sovereignty, no stupid EU regulations and bureaucrats, no restrictions on what can be called "sausage" -- just trade.  I would offer a similar deal to anyone else who wanted to leave.

Actually, when Obama visited, I would have been tempted to offer it to Britain at that time.  Why was the US President so hell-bent on encouraging closer ties between Britain and Germany when he should have been working to improve the relationship between the UK and the US.

I will admit that I am not thrilled with the anti-immigration tone of the Brexit vote, but the EU is a package deal, and there is a lot of bad with the good in the package.  Here is a good list of reasons to vote for Brexit (hat tip maggies farm)

I am happy to see prominent members of Congress from both parties starting to question our support of the deeply flawed government in Saudi Arabia.  I don't want to make war on them (repeating the Lybia mistake) but I also have been leery for quite a while about supporting a country that funds so much terrorism and is frankly as socially backwards as any place in the world.

So here is my question:  Had it not been for the shale oil and gas revolution in this country, would the US Congress be willing to question this relationship today?

The idea of opening up Cuba is NOT to somehow reward or even ignore their bad behavior but to open them up to the world.  Google wants to be in the forefront of providing Internet access, but given their history of rolling over on censorship to the Chinese, it would be nice to see someone less evil in the vanguard.

I meant to post this a while back, but Jeff Flake totally gets it on Cuba, and I appreciate his leadership among the Republicans on this.  I absolutely loved this quote:

Flake has long said that Americans should be free to see for themselves the stunted fruit of socialist policy. He tells the story of meeting with Lech Walesa, the great activist who challenged Soviet domination of Poland. "I have no idea," Walesa complained, "why you guys have a museum of socialism 90 miles from your shore and you won't let anybody visit it."

After three generations, I think one can safely call a policy like our embargo "failed" and try something else.

I really don't like the meme that Bush lied about Iraq (on WMD's, possession of yellow cake uranium, whatever).  Here is why:  the implication is that if we just had smarter, more honest politicians, all of our interventionist foreign policy would work great.  But beyond the fact that we never have smarter and more honest politicians, this meme prevents us from learning the right lesson from the Iraq war.

If I were a candidate in the debate asked to comment on Trump's "Bush lied" comment, I would say this:

While politicians lie all the time, I think it is entirely possible that the Bush administration honestly believed Saddam had WMD's at the time of the Iraq war.  In fact, it appears that as a minimum, Hussein was bluffing like hell to make the world think he had such weapons.  But the issue of whether it was a lie or not is all a distraction.  The real issue for me is that we have no idea what we are doing when we intervene in these nations.  Typically in the rush of political sound-bites, we oversimplify ancient, five-sided conflicts as black and white, and even our most well-intentioned efforts to eliminate certain problems (such as Saddam Hussein or Qaddafi) tend to result in unanticipated consequences that might be many times as problematic as the original issues.  In Iraq, in Egypt, in Afghanistan, in Syria, in Libya -- we had hundreds of people in and out of government who act like they know it all but in fact we as a county had no idea what we were doing.  And we simply can't know.

The lesson from the Iraq War is not that our foreign policy would be perfect if only we purge liars from the government (and good luck with that).  The lesson from the Iraq War is that we are never going to have a sensible foreign policy until we adopt some humility -- a lot of humility -- about our ability to understand other countries and manipulate them by force.  Is this really what you expect out of Donald Trump?  More humility?  While there is still a role for America's strength in the world, we need to set a much higher bar for when we use that strength.

Postscript:  They say that a converted Christian is more passionate that those who have been Christian all their lives.  I will confess that I am a convert to foreign policy humility.  I grew up in a Texas conservative Republican family, though I shed a lot of the social conservative baggage, as well as any team allegiance to the Republicans, decades ago.  I did hold on to sort of neo-Conservative forceful foreign policy, though.  I am embarrassed to say that I was a participant in my generation's August madness**, getting all rah-rah about the Iraq invasion.  At least I admit it, unlike a number of other folks *cough* Hillary and Trump *cough* who try to whitewash history.  I will use a famous quote here from Robespierre, though in the end he did not follow his own advice:

The most extravagant idea that can be born in the head of a political thinker is to believe that it suffices for people to enter, weapons in hand, among a foreign people and expect to have its laws and constitution embraced. No one loves armed missionaries; the first lesson of nature and prudence is to repulse them as enemies.

** There are surprisingly few good online sources I can find discussing the August Madness.  It refers to the public celebrations that occurred in the first month of World War I in nearly every combatant country.  The beginning of the war was met by a surprising amount of enthusiasm, even from groups (e.g. the Socialists) who were expected to actively oppose a general war.  Growing nationalism combined with a certain strain of 19th century romanticism and even a certain amount of progressive social Darwinism all came to a head to create general (though not universal) enthusiasm for the war.

OK, it is not just freedom, but rule of law, protection of property rights, eschewing of cronyism and kleptocracy.  But you get the idea.  There is nothing in the Progressive oppressor-oppressed narrative that would predict that an impoverished "victim" of western colonialism would perform like this (via Cato)

Though I will say that, speaking of colonialism, it tends to support my old argument that it sure was better in the long-run to be a British or American rather than a French colony.

...the President and his supporters sure make it hard.  In his speech last week at American University he said:

Just because Iranian hardliners chant “Death to America” does not mean that that’s what all Iranians believe. (Applause.) In fact, it’s those hardliners who are most comfortable with the status quo. It’s those hardliners chanting “Death to America” who have been most opposed to the deal. They’re making common cause with the Republican caucus. (Laughter and applause.)

That last part seems to have gotten the Conservatives in an uproar, and I suppose I can see why, though I am reluctant to join in the usual Internet rush to burn someone over what may have been a ham-handed joke.

It is actually the first sentence that floors me.  Either the President is straight-out being deceptive, or he is a total foreign policy naif.  Iran is not like the US.  People in Iran are not allowed to consistently chant messages with which the rulers do not agree.  As a minimum, they are met with violence and arrest (e.g. in 2009 with the Green movement).  So if anyone is chanting "Death to America" at public events, it is with the tacit approval of the nation's rulers.  It may very well be that the mass of Iranians don't agree with that message, but in Iran, what the mass of Iranians believe is largely irrelevant.

This article on Saudi Arabia, shale oil, and oil prices was interesting throughout

Saudi Arabia is effectively beached. It relies on oil for 90pc of its budget revenues. There is no other industry to speak of, a full fifty years after the oil bonanza began.

Citizens pay no tax on income, interest, or stock dividends. Subsidized petrol costs twelve cents a litre at the pump. Electricity is given away for 1.3 cents a kilowatt-hour. Spending on patronage exploded after the Arab Spring as the kingdom sought to smother dissent.

The International Monetary Fund estimates that the budget deficit will reach 20pc of GDP this year, or roughly $140bn. The 'fiscal break-even price' is $106.

Far from retrenching, King Salman is spraying money around, giving away $32bn in a coronation bonus for all workers and pensioners.

He has launched a costly war against the Houthis in Yemen and is engaged in a massive military build-up - entirely reliant on imported weapons - that will propel Saudi Arabia to fifth place in the world defence ranking.

The Saudi royal family is leading the Sunni cause against a resurgent Iran, battling for dominance in a bitter struggle between Sunni and Shia across the Middle East. "Right now, the Saudis have only one thing on their mind and that is the Iranians. They have a very serious problem. Iranian proxies are running Yemen, Syria, Iraq, and Lebanon," said Jim Woolsey, the former head of the US Central Intelligence Agency.

Money began to leak out of Saudi Arabia after the Arab Spring, with net capital outflows reaching 8pc of GDP annually even before the oil price crash. The country has since been burning through its foreign reserves at a vertiginous pace.

Arnulf Baring in 1997

"They will be subsidizing scroungers, lounging in cafes on the Mediterranean beaches.

Monetary union, in the end, will result in a gigantic blackmailing operation.

When we Germans demand monetray discipline, other countries will blame their financial woes on that same discipline, and by extension, on us. More they will perceive us as a kind of economic policeman.

We risk once again becoming the most hated people in Europe."

I found this quote from an older Finem Respice article about Greek financial problems in the mid-20th-century to be pretty funny:

So hopeless was the state of Greek finances that, even as [the Nazis] routinely hung with piano wire prominent citizens and officials on the thinnest of provocations, and even given three years to do it, the Nazi's were somehow unable to compel what amounted to a totally subservient collaborator government to put its fiscal house in order.

The Axis administration soon realised it would be a waste of effort to get the Greek government to balance its accounts.

Later, in 1945, it was a British problem.  These problems from the late 1940's should sound really familiar:

Fortunately for Germany, by the time the matter came to a head the Germans had RSVP'd to Scobie and Greece was Britain's problem. It wasn't just partisans the British would end up having to fight....

What followed could only be described as a comic progression of populist pandering, the spread to the national economy of a series of parasitic labor unions and cabals, and a confidence on the part of the Allies in their own fiscal administration abilities that was as enduring as it was inflated.

At first [British Treasury Secretary] Waley sold gold to support the drachma, conditioning the sale on a series of fiscal and monetary reforms the Greeks adopted in principle and promised to implement– at some later date when it was somewhat more convenient. It was around this time Waley quipped:

...the Greek government are in effect paying doles to a large part of the population who spend all day parading in the streets in idleness with political demonstrations as their chief occupation.9

Liberation governments, fearing popular backlash were terrified of taxing the Greeks. Instead they continued to look for sources of wealth to redistribute, and were happy to resort to even the most gamey monetary policies to buy time. After raiding "punitively" the only entities with wealth of any kind (businesses) in 1945 in order to buy popular support with cheap food and wage increases, the Greeks were, again, running out of options.

The whole thing is interesting, and depressing.

The Heritage Foundation ranks Greece #130 on its economic freedom list, which puts it in the "mostly unfree" category.   Of course, these rankings depend a lot on the categories and the weighting, but the story here is still telling.  The next worst European country I can find is Slovenia at #88 and the first EU country I see is Italy at #80, not great but a good fifty spots higher.

Which begs the question, asked by Megan McArdle today, of why Europe wants Greece anyway.  In terms of political-economy, it had little in common with the rest of the continent.  Everyone assumes the EU is trying to prevent a domino effect, with the other PIGS nations defecting from the Euro, but I think the Greek capitulation this weekend shows how unlikely this is -- it is clear Greece will do absolutely anything to stay in the Euro, and so it is reasonable to assume Portugal, Spain, and Italy face the same incentives and are thus not ready to leave the Euro on a whim just because Greece does.

People keep talking about reducing Greek debt to a sustainable level, but part of the problem is that there is not such level.  Even at zero.  The problem is that Greece is running a government deficit even before any debt service, so if creditors were to waive all of its debt, it would still need to be borrowing new money tomorrow.  Debt forgiveness is not enough -- what the Greeks need is for Europe to write off all its debt, and then (having lost all their money on the old debt) start lending new money immediately.  Note also that any bailout agreement reached this month will just put everyone back in the exact same place a few months from now.

This situation cannot be expected to change any time soon, for a variety of reasons from demographics (Greece has the oldest population in Europe, and a relatively rich pension system) to ideology (the current pseudo-Marxist government will never implement the reforms needed to turn the economy around, even if they promise to do so under duress).

With structural solutions unlikely, Greece has only the options of charity and inflation. Greece still seems to be hoping for charity, which they make harder by spewing derision at the same folks whom they are begging for alms.  Europe, certainly Germany, is in no mood to be charitable any longer, but may still do so depending on their calculation about which action -- bailout or exit -- has the worse long-term consequences for keeping Portugal, Spain, and Italy both in the Euro and continuing to pay their debts.

Lacking charity, the only thing left is inflation.  Some folks think I am advocating that option.  I am not.  The best possible hope for Greece is to slash its economic regulation, privatize business, and cut back on the public sector -- but that is not going to happen with the current government.  Or maybe any government.

I say inflation is the only option because that is what balances the budget and "solves" debt problems when politicians are unable or unwilling to make any hard choices.  It is sort of the default.  If they can't balance the budget or figure out how to pay off debt, then inflation does it for them by reducing the value of pensions and outstanding debts**.  This is what will happen with a Grexit -- a massive bout of devaluation and inflation what will greatly reduce the value of any IOU, whether it be a pension or a bank deposit.

Eventually, the one good thing that comes from inflation and devaluation is that the country becomes really cheap to outsiders.  Tourists will flock in and olive oil will sell well internationally as the new drachma loses its value, creating value for people holding stronger currencies and potentially forming the basis for some sort of economic revival.  My wife and I decided a few months back to postpone the Greek vacation we wanted this year -- too much turmoil is still possible -- and wait for it to be a bargain in 2016 or 2017.

**Postscript:  This is exactly why the Euro is both immensely seductive and a dangerous trap for countries like Greece.  Seductive, because it could pursue any sort of destructive banana republic fiscal policy it wished and still have a strong currency.  A trap because it can no longer print money and inflate away its debt problems.

China's island bases for expanding its borders.

In an article on an incipient bank run in Greece, Zero Hedge wonders, "What is perhaps more shocking is that anyone still had money in Greek banks at all..."  I agree.  With talk for weeks of capital controls and the example of raids on depositor funds (even supposedly insured deposits) in Cyprus, my money would have been long gone.  Even in the US in 2008-2010, I took our corporate funds out of the main Bank of America account and spread them all over.  It was a pain in the butt to manage but even facing much smaller risks than in Greece, I thought it was worth it.

Kevin Drum featured this really interesting Pew poll.

This is pretty amazing.  Few European citizens support their country fulfilling its NATO treaty obligations to their neighbors, perhaps because most expect the US to do it for them.