Oct 8, 2007 
Yesterday in the Washington Post, Bill Kristol expressed frustration that the U.S. didn’t do more to help Burma.
What about using our national power to help the Burmese people against their tyrannical rulers? Burma’s regime lost what little legitimacy it had with its bloody crackdown. Parts of the ruling elite must be nervous. Couldn’t we give at least some of Burma’s generals and soldiers reason to doubt the wisdom of slaughtering political opponents? Couldn’t we turn our intelligence-gathering capabilities on Burma to monitor, document and publicize what is happening? Couldn’t we tell the generals who are ordering and the soldiers who are carrying out this crackdown that they are being watched, that their names are being recorded — and that the day will come when there will be plenty of evidence to hold them personally accountable for their deeds?
I believe that day comes for us all, Bill, but let me address your questions anyway.
As I explained last week, a critical fact about Burma is that it shares a 2,000 kilometer border with China. Burma also supplies natural gas and other vital resources to China. Therefore, any messing around with Burma by a western power is likely to be of keen interest to China.
And there are two key facts to keep in mind about China:
1. China has the largest standing army in the world.
2. China is holding a big honking chunk of U.S. debt.
Niall Ferguson, of all people, has noticed this second fact, and it bothers him. He writes in today’s Los Angeles Times:
France, Britain, America: They each have had their era of hegemony. Now, however, they all belong to the club of developed debtors, with combined current account deficits of $970 billion last year. Other members of this club are Australia, Greece, Iceland, Ireland, Italy, New Zealand, Portugal and Spain. Apart from Iceland, it reads like a list of ex-empires, with the former members of the British Empire (energy-rich Canada excepted) in the lead.
Collectively, the developed debtors had to borrow about $1.3 trillion last year. On the other side of this great global equation is the club of emerging exporters. According to the International Monetary Fund, more than 40% of the developed debtors’ funding requirement last year was met by China, Russia and the Middle East.
The problem for the deficit countries is essentially that their people think the world owes them a living. Their politicians pander to this assumption by making a series of more or less incompatible promises: that expenditure on healthcare and education will always go up; that direct taxation will never go up; and that the assets against which voters borrow will never go down. The only way to fulfill these promises is to pump out ever more printed paper: bank notes, bills, bonds, stocks and the rest. The emerging exporters buy these. The net result must be a creeping transfer of financial ownership from West to East.
This process is about to enter a new phase as China establishes its own sovereign wealth fund to join those operated by the likes of Kuwait, Abu Dhabi and Singapore. According to Morgan Stanley, these funds manage about $2.6 trillion. In 15 years, their assets could reach $27 trillion, giving them control of nearly 10% of total global financial assets.
Bottom line, the more in debt we become to China, Russia, and the Middle East, the less power we have to influence anything they do. Ferguson thinks this is bad. Frankly, so do I. So let’s talk about why this is happening.
Furguson writes, The problem for the deficit countries is essentially that their people think the world owes them a living. Their politicians pander to this assumption by making a series of more or less incompatible promises: that expenditure on healthcare and education will always go up; that direct taxation will never go up; and that the assets against which voters borrow will never go down. Oh, those greedy people who want education and health care!
Ferguson didn’t mention the tab we’re running on the war in Iraq, currently estimated at $600 billion and climbing. The Congressional Budget Office says Bush’s long-term plans in Iraq will cost trillions. Even better, appropriations for the war in Iraq are supplemental rather than regular, which means that our military costs in Iraq are off-budget. That makes it easier for the Bush Administration to lie to the American people about the effect of the war on our national debt.
And for the most part it’s not American citizens who dissolve into twitches of apoplexy at the mention of raising taxes. It’s the Bush Administration. And why is that, you ask? Paul Krugman dropped a hint in his column today:
Here’s how Irving Kristol, then the editor of The Public Interest, explained his embrace of supply-side economics in the 1970s: He had a “rather cavalier attitude toward the budget deficit and other monetary or fiscal problems” because “the task, as I saw it, was to create a new majority, which evidently would mean a conservative majority, which came to mean, in turn, a Republican majority — so political effectiveness was the priority, not the accounting deficiencies of government.”
So Bill Kristol’s daddy, Irving, helped to sell voodoo economics to a gullible public in order to buy power — a conservative majority; a Republican majority. And now after 30 years of right-wing propaganda it has become political suicide — conventional wisdom says — for any politician to even think about raising taxes. So, we raise debt. Meanwhile, our military and intelligence resources are being depleted in Iraq, so that we are hurting to cover our real national security needs, never mind mess around with Burma.
And now Bill Kristol — a major supporter of the Iraq War, as is Niall Ferguson — wonders why the Bush Administration has no way to apply pressure to help Burma. Maybe he should ask his daddy.
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