Some straight talking: but is anyone in America listening?
By Niall Ferguson, Sunday Telegraph
It is a theme of nearly all the great post-Vietnam movies. In Taxi Driver and The Deer Hunter, Robert De Niro plays a veteran who is dismayed, if not unhinged, by homecoming. From the mean streets of New York in the former, to the Pennsylvanian steel town in the latter, the folks back home just don't get it about the war.
I imagine that some American soldiers returning from tours of duty in Iraq might get an even stronger feeling of alienation if they were to visit, as I have in the last seven days, those quintessential American playgrounds, Las Vegas and Palm Beach. From the casinos of Nevada to the condos of Florida, the good times are rolling, regardless of events in the Middle East.
It is hard to believe, as you walk past the thronged roulette tables and inanely burbling fruit machines of Vegas, that this is a country at war. As for that eye-catching billboard "For The Injured" on Interstate 95, I'm afraid it has nothing to do with the war wounded of Operation Iraqi Freedom. It's just another ambulance-chasing attorney, brazenly advertising his readiness to sue someone if you trip on the sidewalk.
At least vets who came back in the Seventies found that home was pretty messed up too. By contrast, those returning home today must feel like latecomers to a gold rush.
On Wednesday, fuelled by seemingly limitless liquidity and reports of strong corporate earnings, the Dow Jones Industrial Average hit a record high of 13,000. The financial markets seem to have shrugged off their recent anxieties about sub-prime mortgages, focusing instead on the megabucks being made at the other end of the income distribution scale. A survey by Alpha magazine revealed that three American hedge fund managers earned more than a billion dollars last year. That's billion with a 'b', as in nine zeroes.
But it is not just Wall Street and hedgie HQ Greenwich, Connecticut, that are booming. Nor is it exclusively the money men who are putting smiles on the faces of the high-end hoteliers in Vegas and Palm Beach. Ever since President Bush began touting the wonders of ethanol as an alternative source of fuel to oil from the Middle East, American corn farmers have been enjoying a bonanza. The price of a bushel of corn has soared from around $1.80 in late 2005 to $3.75 today. With farmers switching from soybean and other crops, these too have jumped in price. And now the hedge fund managers, who follow commodity prices the way other people follow soap operas, are chasing up the price of arable land. States they used to fly over, they now want to take over.
Sure, the nasty story of the housing slowdown is far from finished. There is also a certain amount of nail-biting at the Federal Reserve about inflation. Nor has anyone yet figured out how to pay for the mind-boggling unfunded liabilities of the Medicare and Social Security systems. But somehow these problems seem strangely abstract and remote, whereas you can almost smell the money to be made from corn futures.
Meanwhile, on the other side of the world, Iraq burns. More than 3,000 Americans have died there, the equivalent of a hundred Virginia Techs. Nearly 25,000 have been wounded in action, many of them gravely. And that is nothing compared with the number of Iraqis who have been killed as the country has slid into civil war.
Fatalities among the civilian population are running at about 3,000 a month. The Brookings Institution's latest Iraq Survey carried one statistic that froze my blood: according to a recent poll, one in four Iraqis has personally experienced or witnessed the murder of a family member as a result of violence since the US-led invasion. Dow 13,000, meet Iraq 13,000. That's approximately the number of Iraqis killed so far this year.
Last week, General David Petraeus, the US commander in Iraq, tried to explain to his fellow Americans that stabilising Iraq will require "an enormous commitment". "This effort may get harder before it gets easier," he told reporters at a Pentagon briefing. Real stability might be "years down the road".
Unfortunately, this is not what anyone wants to hear these days, least of all Democratic lawmakers. Even before Petraeus returned to his unenviable post in Baghdad, both houses of Congress narrowly passed a bill that would require the administration to start withdrawing troops this coming October 1, and to end all combat operations by March of next year.
No doubt, President Bush will veto the bill. But it is significant that only one presidential candidate is now sticking by the president's policy of a "surge" to bring Baghdad under control as a first step towards stabilisation. Although I am one of those advising John McCain on foreign policy, I had nothing to do with the speech he made in the Senate a month ago, which spelt out with unflinching clarity the three likely consequences of a premature American exit:
1. A "real prospect" of genocide in Iraq if sectarian violence spirals out of control
2. "Massive humanitarian displacement, growing Iranian influence and wider bloodshed" throughout the region
3. The degeneration of Iraq into a new "failed state", ideally situated to provide a haven for terrorist organisations like Somalia and Afghanistan in the Nineties.
McCain is surely right about this. At the very least, we need to contemplate such a worst-case scenario, rather than blithely assuming that an American withdrawal will somehow improve matters - a far less likely scenario. What's more, McCain argues on the basis of unmatched experience, including real military experience. None of the other candidates has so much as tried on a uniform.
Yet according to the opinion polls, his "Straight-Talk Express" is currently lagging behind their Hot-Air Balloons. That strikes me as yet another sign that Americans don't want to face the reality that they are at war - and about to admit defeat.
Let's remind ourselves that there is a precedent for this myopia. It took a long time for American investors to acknowledge that there might be an economic as well as a strategic downside to failure in Vietnam. The Dow hit a record high of 1,051 on January 11, 1973. By December 6 the following year it had fallen by nearly half. It did not regain the heights of January 1973 until November 1982.
What went wrong in the Seventies? Clearly, it was more than just the loss of South Vietnam, which turned out not to matter much (to the United States, that is). More significant were the economic consequences of Lyndon Johnson's attempt to have both guns and butter: war in Vietnam plus the "Great Society" welfare programme.
What were, by our standards, quite modest deficits and quite minor balance of payments problems translated into a creeping inflationary pressure, not least because of the strength of organised labour and the weakness of the Federal Reserve. When the Middle East blew up in 1973, sending oil prices sky-rocketing, the United States was swept into an inflationary spiral that neither Richard Nixon nor Gerald Ford nor Jimmy Carter was able to halt.
Sometimes I wonder if the Seventies might be making a surreptitious comeback. At the hedge fund conference that brought me to Las Vegas, a clear majority of managers said they expected higher inflation in the year ahead. But a majority also didn't expect the Fed to tighten monetary policy further. That makes me nervous. If John McCain is right and the Middle East does blow up some time after an American exit from Iraq, oil could end up at $100 a barrel. Then what?
Well, how about higher inflation, a dollar slide and a stock market sell-off? Pretty soon we could all find ourselves wearing flares, consuming three-martini lunches and disco-dancing to KC and the Sunshine Band.
Let's just hope that - as in the Seventies - there will at least be some good movies to watch.