Does the global economic crisis have security implications for the United States? You bet. But the Obama Administration's approach is strange: declaring economics more dangerous than terrorists and driving the Intelligence Community to generate a second, special daily brief to the President focusing exclusively on economic issues. What exactly can this new intelligence report tell the White House? These kinds of products are designed to alert the President to the most pressing issues and developments that threaten American lives and interests NOW. Intelligence nuggets about al Qaeda's capabilities or Iran's latest nuclear enrichment activities clearly fall into that category. Today's value of the Chinese Renminbi does not.

I am exaggerating to make a point: the economic crisis has strategic implications that demand longer-range thinking, not CNN-style updates. The President should be asking for intelligence collection and analysis to help him peer over the horizon. What is the likelihood that current trends continue? How will the economic crisis affect regime stability in key countries? What are the cascading effect scenarios? What are the early warning indicators that can alert us to emerging political and security crises before it's too late?

There's a fallacy in thinking that the way to make something a priority is to have someone talking to you about it every day. The intelligence bureaucracy is spinning all right, but the new daily brief takes time and talent away from other vital intelligence activities. And ironically, the very frequency of economic reporting may desensitize the President to big changes by providing information in gradual, bite-sized, daily pieces. As the old saying goes, a frog dropped into boiling water knows to hop out. But if you put him in a pot of cold water and gradually turn up the heat, the frog doesn't know what hit him.

The Obama campaign showed a stunning mastery of strategy and tactics. It's time to apply that knowledge to national security affairs

The economic downturn that took root in the second half of 2008 is having wide-ranging impacts on our Nation. As the overall economy shrinks, pinching the maritime shipping industry, it has the potential to restrict the flow of goods coursing through the Nation’s Marine Transportation System (MTS) and that can compound our consumer woes. Rather than fostering violent extremism, the choking of the MTS is analogous to limiting blood flow to your heart.

First, we must understand the importance of maritime trade. America’s modern MTS - an interconnected system of public and private seaports, waterways, terminals, intermodal transshipment points, vessels and people - is the lifeblood of our national economy and the fuel for the global marketplace. Over 90% of the world’s trade is carried on the water. In the United States, the MTS carries nearly 78% of all our international trade by volume; that's a lot of cell phones, I-Pods, and flat-screen TVs. As goods enter our ports, intermodal connections direct them to all points of the country – from the heartland to the coasts and everywhere in between. The numbers are staggering. Last year over 27 million containers entered the country – if you were to place these containers end-to-end, they would circle the globe four times.

Our inland waterway navigation system and the Great Lakes are also vital to the Nation’s economic well being. These inland and intracoastal waterways - our marine highways - move commerce to and from 38 states ranging from the Canadian border to the Gulf and Atlantic coasts and the Pacific Northwest too. The inland and intracoastal systems handle over 630 million tons of cargo annually – or nearly 18% of all intercity freight by volume.

As consumers tighten their fiscal belts, fewer goods are needed for just-in-time delivery driving down the demand for shipping. This comes at a time when new shipping capacity (new container vessels, freighters etc) is coming on-line based upon previous orders. The surplus capacity may force shippers to raise their rates eventually impacting the prices consumers pay at their local stores. When shippers look for internal cost-savings, it may result in unsafe practices and deferred maintenance or repairs. The downward spiral could continue with substandard construction practices at more than the 8,000 shipyards world-wide resulting in a global shipping fleet with declining safety and quality standards. Insurance rates could then increase to cover the risk of operating substandard vessels. At some point, such price increases could limit product availability and diversity on store shelves across the country.

The security of the MTS is also a major concern. The potential of a small vessel attacking a container vessel, oil tanker or military vessel in one of our ports would have major ramifications on the global economy. Considering there are thousands of small vessels (defined as under 300 gross tons) working or recreating on our waterways every day, finding a threat among them is similar to finding a needle in a haystack. The stakes are extremely high. After the 2002 small vessel attack on the French tanker LIMBURG in Yemen, that country experienced a 50% decrease in shipping and a 300% increase in premiums for inbound vessels. We are working with our federal, state, and local partners as well as with the private sector and the international community to gain greater awareness of small vessel movements in our ports. Cooperation between all of the involved stakeholders is critical to mitigating this potential threat.

While the maritime industry is just one segment of the national economy, it fills a critical need. Recognizing its importance, the Coast Guard is reaching out to all segments of the maritime industry to understand the private sector’s concerns. Based on their input, we are addressing the cumulative impact of regulations, facilitating an efficient credentialing process for merchant mariners, protecting seafarers against illegal abandonment by a few irresponsible shipping companies, and balancing federal safety and security requirements to facilitate maritime commerce. Through our regulatory and law enforcement roles within the MTS, the Coast Guard has a direct impact on the Nation’s fiscal health. That is our responsibility to the maritime community and to the Nation.

Admiral Thad Allen
Commandant, U.S. Coast Guard

Note: Admiral Allen delivered his third State of the Coast Guard Address on 03 March. The video and transcript can be found here www.uscg.mil/comdt/.

In Sydney Freedberg’s summary of the discussion so far he suggested that “conservatives” Kit Bond and Dov Zakheim took opposite sides regarding my concern over the over proliferation of “national security” as an excuse to address everything from bad actors to bad breath.

I beg to differ.

Certainly, I think Senator Bond is spot on when he argues national security ought to focus on the people who are actively trying to kill us and destroy our way of life. These are living, thinking, breathing foes engaged in a contest of action and counteraction—when we try to do something to deliberately keep Americans and their allies free, safe, and prosperous—the bad guys try to proactively do something to thwart that. They demand constant attention—or one morning you wake up to 9/11.

Dov, on the other hand, is certainly on target as well when he points out there are lots of problems that have serious “implications” for national security and we should not ignore them. He is, for example, dead on when he focuses on the tendency to cut corners on security spending in tough economic times.

Case in point—the president’s address to Congress and his recent broadside against contractors seem primed to justify serious cuts in defense spending. Cutting defense dollars—even during the current troubles—makes no sense.

First of all, defense is a bargain. It took about 46 percent of our GDP to fight World War II. Today, we protect out interests around the world on just four percent of GDP.

Second, it is nonsensical to argue defense spending and the costs of the war are the root of our economic predicament. We averaged about 8 percent of GDP on defense during the Cold War in an economy half as large and never faced the downturn we do now. Today, we spend half as much on defense (as a percentage of GDP) in an economy over twice as big.

Finally, it makes no sense to cut a defense budget which supports lots of perfectly respectable middle class and union jobs (not to mention that one quarter of Pentagon contracts go to small and minority-owned businesses) in order spend money to “create” jobs to pave roads and pour sidewalks.

Blockhead economic thinking, as Dov suggests, can indeed have serious implications for the security of the nation, but unless we want to label the White House a “national security” threat we should be more circumspect in how we use that label.

Jay Carafano hit on an excellent point in an earlier blog. The universal access to information in an immediate fashion has focused the national security community too much on the short term -- and by that I mean the last 24 hours or less.

No one who is sensible would argue that the economic impact of the last year (and year going forward) will have some kind of an effect on the international "situation." However, I think there is an unfortunate tendency to translate the losses of 401k's and daily economic tracking numbers into long term trends effecting the nation state balances of power.

What the American national security community must force itself to do now is put current facts into overall context. One of those facts, that is being ignored in Washington, is the United States is far out in front of its problems versus the rest of the world. Small comfort to those who are suffering here, but it also means we are likely to be the first out of this mess.

The second fact is America's always amazing ability to throw overboard any economic ideology that no longer works. For those who missed it, the Reagan Revolution is over. We are heading back big time into deep government involvement to solve this crisis. Is it going to do it competently or without major mistake -- damned unlikely. But, it is the only entity large enough to do the job.

The third fact is we aren't leaving our dominance on the world stage. We are too big and too interconnected to the world for that too happen. Paraphrasing Mark Twain, the rumors of our death are premature.

The current economic meltdown is generating a series of cascading effects on our national security, none of which are positive. First, the crisis is diverting the attention of our leaders and those abroad away from core security concerns. Second, the general populace is understandably more concerned with the very real threat of a foreclosure or layoff than the remote concern about a foreign hot spot or terrorist attack. Third, the budget for secuirty (both direct and indirect through regulation) is going to face medium-term stresses once the short-term stimulus measures wash through the system. Fourth, all of the good work to build international trade and government capacity is at risk as governments face the need to respond to political cries to look inward. None of this means traditional security concerns should be ignored but it does suggest that a very broad view of national security policy is appropriate for the times in which we live.

I too am an economist. And I am convinced that the global economic crisis poses a major threat to our security. In the first place,as a result of the American financial crisis, the defense budget is already being squeezed, particularly, if not solely, in the procurement and research and development accounts. While the Administration is pouring hundreds of billions into the civilian sector, it is purportedly "saving" money by reducing the growth of those defense expenditures that will preserve our military superiority over the long term. In other words, the opportunity cost of our budget choices is exceedingly high. Adversary nations no doubt will take notice, as they did in the 1970s.

In fact, because the Administration is ratcheting up the national debt so severely, once the economic turnaround does occur, interest rates on government paper will rise, as will the cost of servicing that debt. Budget deficits will grow well beyond the ability of the "rich" to cover them with more taxes, and discretionary programs will be cut. Because defense dominates the discretionary budget, it inevitably will be the place where the Administration will seek more and steeper cuts, in order to "manage" the ballooning deficit.

In addition, the economic crisis has already begun to constrain the already modest defense expenditures of our allies. In many cases that constraint is real; in some, it is an excuse for not doing more. The net result, whatever the reason, is the same: the United States will have to bear an even greater military burden while protecting the freedom of all Western nations, and, as I already indicated, Washington will have fewer resources with which to bear that burden.

There are other consequences as well. China has already begun to move its dollar holdings to shorter maturity Treasuries, to give it maximum flexibility in response to a further deterioration in America's economic position. It could also use its surplus dollars to buy American companies on the cheap. Russia and Iran may not be as constrained by their economic ills as some have projected; on the contrary, they may follow the Soviet, or for that matter, the North Korean model by starving their domestic programs to fund military growth, in effect a following path exactly opposite that of the United States. Indeed, if they wish to economize on their defense spending, they might further emphasize nuclear programs rather than conventional ones, as North Korea has done.

Economics was never a compartment that was somehow separate from national security. But now it has asserted itself in the national security sphere with a vengeance. We ignore its consequences at our peril.

I wrote on this subject earlier this week on my blog: Sic Semper Tyrannis.

Don’t get me wrong – the global economic crisis is a major problem, which is why earlier this week I laid out my American Credit Cleanup plan. We must tackle the root of our economic crisis to protect Main Street families, workers, and businesses.

I also agree that this global crisis has national security implications, as has been noted by several contributors already. But, it is disturbing that some in our intelligence community are pointing to the global economic crisis as America’s primary national security threat.

The threat from the economic crisis has been described by Intelligence Community leadership as possibly resulting in regime instability, refugee flows, and economic nationalism. Now, I’m as concerned about protectionist trade policies and Caribbean refugees as the next guy, but how can the intelligence community possibly assess that these potential challenges are a greater “near-term security concern” than the threat from terrorism, the wars in Afghanistan and Iraq, the threat posed by Iran’s pursuit of a nuclear capability, and the Middle East crisis?

Even if we add to that list those concerns outlined by other contributors, such as that al-Qa’ida will try to take advantage of our economic mess—which I agree al-Qa’ida will try to do—the real threat is al-Qa’ida, not the economy. Al-Qa’ida has also taken advantage of our support for Israel and the War in Iraq, but no one would claim those policies were “national security threats.”

Unfortunately, the intelligence community’s enthusiasm for embracing the crisis du jour as a national security threat is not new. Last year it was global warming, before that it was global pandemics. Certainly these issues have national security implications, but they are not “threats.” Moreover, not every issue that affects our national security is well suited to analysis by the Intelligence Community. On the contrary, it can be dangerous when policymakers believe they can trust judgments from intelligence analysts on issues about which those analysts have little expertise. The global economy is one of those issues.

The world’s best economists are trying, with difficulty, to understand and solve our economic problems and those of other economies around the globe. It seems unlikely that intelligence analysts who have little to no economic expertise could do better. The new administration’s belief that they can, suggests a profound lack of understanding of the Intelligence Community’s capabilities.

The economic crisis is a huge foreign policy issue, though I have to agree that it is not necessarily a national security crisis--the fact is, the economic implosion points in too many different directions.

On the up side: Russia, Iran, and Venezuela, puffed up paper tigers that they were, are now less emboldened without huge oil revenues flowing into their coffers. Moreover, given the economic decline around the world, America might end up in a relatively stronger position vis-a-vis former large players. And China's economic bluff to pull its purchases of our treasuries has been called, to some extent: China's leaders now understand, as they did not seem to at the beginning of this crisis, that we are locked in a mutually assured destruction scenario economically. I don't believe that necessarily means China will never call those loans back--but it reduces the odds.

On the down side: America could lose its leadership role in the world if the dollar is no longer the reserve currency (because, for instance, an e-basket of currencies are given that status). That would have huge implications for our ability to finance a broad leadership agenda in the world. We would retreat, as England did before us, and Spain, Portugal, and other previously world-player states before them, into a far less influential role.

In my mind, that would be very unfortunate for the world. China is next in line to take the role of world power, and between the ills of the American system, and the ills of the Chinese, I heartily prefer ours. With all its faults and caveats, Americans are a generous people, and as a nation and a government, we care about human rights and mass atrocities in some countries, where it does not harm our national interests to do so. That is a far sight better than most other countries. As a progressive, I deeply believe in the importance of America maintaining its global leadership, and that means rebuilding economically.

The economic crisis also creates real national security needs that our coffers may not be ready for. Pakistan is the most volatile: Musharraf lost elections in large part due to the food crisis last year; an economic criis could throw the country into complete governance failure. A Chinese implosion and internal riots and upheaval would not only yield turmoil, but would thrust millions back into poverty. And the human devastation across the rest of the developing world would be immense, creating refugee flows and fueling pillage and war that would call on our heartstrings for intervention: while our pursestrings might need to remain tied. Meanwhile, a divided, squabbling Europe, already meager in its defense contributions to its common security institutions, would likely cut back further to NATO and EU reaction forces. This would leave America as the only global power with the capacity to respond to human need and instability that the economic crisis would wreak.

It doesn't look good, folks. But this old world has been through worse before, and surely, will survive these times: if perhaps leaner, humbled, and with much misery first.

It is interesting to hear Admiral Blair hive off America’s security problems into apparently hermetically sealed compartments. Our current economic mess is very concerning, although you could not tell that from Obama’s determination to install his party’s traditional anti-American agenda in terms of vastly expensive and federally controlled education and health care systems. By spending on these programs now, the world is surely seeing a new version of ideological fiddling while Rome burns.

One problem with Admiral Blair’s assertion is that it does not seem to think that our various enemies will seek to take advantage of this economy. This is a common failure of our governing class; to a man and a woman they believe the enemy will sit tight and wait until we can get our house in order and can come to kill them. It is a fundamentally racist and arrogant view: “Those Islamists are just turban-wearing mountain dwellers and we can take care of them any time we want to.” Recklessly endangering the lives of 17,000 of our military men and women in an Afghan “surge” that all rational analysis suggests can do nothing but string out the time line for our inevitable defeat, is a good example of our policymakers’ arrogance and racist disdain for our enemy’s determination, creativity, and flexibility. For al-Qaeda and other Islamist leaders, at least, they cannot conceive of America’s economic trouble as anything other than a gift from Allah, and that they would be ungrateful not to take advantage of it.

When looking at the threat to national security posed by the economic disaster, Washington ought to be factoring in a number of possibilities that might hurdle us even more quickly into economic collapse:

--Our resupply lines into Afghanistan are either controlled by our enemies (Russia) or being attacked by Islamist groups (Pakistan). If one or the other set of supply lines is closed, an extraordinarily expensive airlift would be about our only resupply option.

--Mexico’s stability and security does seem to be ebbing . If a failed state results -- and some experts say it could happen quickly -- how much will it cost America to close its southern border to stop a flood of violence-fleeing refugees and field a military intervention force to secure Mexico’s oil production facilities to ensure energy continues to flow to America?

--What if Israel attacks Iran and thereby deliberately drags us into a new phase of its war on Islam against a country that we could have easily contained?

--If Nigerian insurgents cut oil production, how much will it cost -- in money and blood -- to field a U.S. military expedition force to restore oil production in the Niger Delta, from where we will import 20-percent of our crude by 2012.

There are certainly other foreign-affairs problems that could greatly deepen our economic problems, but the four above ought to serve as food for thought. The late Samuel Huntington once suggested that those men and women who work to defend America owe their countrymen not only their industry and honesty, but also a bit of pessimism. Admiral Blair, I think, would be well advised to tell the president that the economy provides a nearly irresistible target for our enemies -- especially the Islamists -- and that he best attend to the nation’s defense now, and leave his sure-to-fail and expensive socialist delusions for discussion in his memoirs.

The most important impact of the economic crisis is on the US itself. Without a strong recovery, you can forget about US leadership in the world--we won't have the resources, and the world won't want to follow. That would have a dramatic impact on our security.

I am not convinced that the impact of the economic crisis abroad is as uniformly negative as some would suggest. Look first at oil prices, which are down largely because growth has crashed. A number of US adversaries are finding their treasuries empty and their trouble-making capacities limited. Venezuela, Iran, Russia--none of them are tweaking Uncle Sam's nose too hard under current oil market conditions.

Very poor countries may suffer, but not as much as one might imagine. Many of them are not big borrowers (because no one will lend to them). Their banks, of necessity, are very conservative, even stodgy by our recent standards. Subsistence farmers can continue to subsist, up to a point.

I would look for the real trouble among the newly prosperous exporters and heavy borrowers, as Loren Thompson suggests. Hungary is the obvious example, but there are many more. They've been feeding off demand in the US and other rich countries, which has collapsed, using borrowed funds, which are ever harder to find. The new middle classes are not going to be happy to see their recent prosperity evaporate in a puff. It certainly could get ugly, and ugly in China is a big deal.

Fifty years ago the American Sociological Review published a seminal essay explaining the social consequences of economic frustration in developing countries. The essay advanced a thesis that came to be known as the "Gap Hypothesis." It argued that people living in abject poverty seldom revolt because they can't imagine things getting better. Once economic progress occurs, though, expectations for the future improve -- sometimes so fast that the economy can't keep up. When the gap between rising expectations and economic reality grows too great, violence is likely.

That dynamic is probably at work today in places like China and Indonesia, where recent gains are being erased by the global economic downturn. With trade contracting at a 24% annualized rate, billions of people in the developing world will see their dreams deferred, and many of them will blame the disappointment on political leaders. So political violence will become more prevalent in places that previously seemed stable and prosperous. Terrorism and insurgency will not be common, but street riots and demonstrations will be very common, and some governments will be turned out of office. If the economic crisis lasts for years, the new governments that come to power may prove quite extreme in their political views -- hyper-nationalist, neo-socialist, etc.

It would be nice to believe that such developments only occur in other places, but we know that economic setbacks can unhinge people even in the most advanced and democratic societies. In depression-era America, Nazis held rallies in Madison Square Garden and communists came to control some union locals. So ask not for whom the bell tolls: with many Americans in danger of losing their jobs, their savings and their homes, a surge in political extremism is quite possible here. You can already hear the distant echoes of strident nationalism and incipent socialism in the overheated rhetoric about the Obama Administration's domestic agenda. I hope the downturn ends before these voices grow loud enough to attract young men in brown shirts.

Security Gone Wild

Sure the economic troubles have “implications” for national security. After all, the world gets less not more safe in troubled times. Right before World War I, tariffs were sky-high and open trade was under assault on every front. The economic woes of the 1930s precipitated and accelerated the political developments that led to World War II.

On the other hand, and it’s a big hand, labeling everything from a bad day at the stock market to bad mortgages a “national security” issue…let alone a crisis, is a really, really bad idea.

Making every global challenge a security issue trumps free markets and limits personal freedoms. The concept of national security needs to be put back in the box, reserved for moments of peril in dealing with people (either states or non-states) who threaten through the use of violence to take away the political freedoms that governments are supposed to protect. We need to put an end to national-security proliferation.

Not to mention national security proliferation becomes a first class excuse to divert resources from national security instruments, like defense, to politician’s pet projects. For example, not sure what the logic is when the White House pushes for multi-billion dollar stimulus package to “create jobs” and then guts the Pentagon’s buying budget (eliminating well-paying jobs for make work in the process).

The global economic crisis could have drastic effects abroad and at home. A number of failing states could be pushed over the edge. Other states , like China, whose social compact revolves around stability and political order being a reward for rapid economic growth may suffer grave instability. Unelected or otherwise illegitimate leaders everywhere are in jeopardy. All of this suggests the importance of ending this crisis ASAP, first in the USA and then abroad.

Sadly, our efforts to end the crisis have not been all that they might have been. We have passed a massive stimulus bill, much of which is not stimulative, according to economic experts. We are running up debts that are astounding. The President and his supporters are now playing fast and loose with reality, quadrupling 'normal' Bush-level deficits and then vowing to cut the bloated numbers in half by the end of the first term, where they will level off at the "just plain horrible" level for the forseeable future.What happens when our foreign benefactors --- China et al. --- get tired of buying our debt? We will have to scale back our efforts at maintaining world order and stability, just as we need to increase them.

There is one potential rose among all of these thorns for US national security operations. Lacking money to do things in the good old wasteful American way, we will have to get smart and re-learn how to teach fishing, as opposed to providing huge quantities of US fish to our international partners. Advising and training will replace expeditionary force deployments. We may also begin to rationalize our foreign and security assistance programs, eliminating things like the billions of dollars provided yearly to the relatively well-off Israeli government. (Economic disaster? ... there must be a pony in here, somewhere.)

Well, as mom would say, first things first. As someone with a few degrees in economics, I love watching a group of DC political science majors wrestling with the jargon and understanding the deep implications of moves in the international financial and business markets.

That being said, the languages and culture of New York and Washington are separated by more than a gap of two hundred miles. We have few people in either place who can speak the lingo of the other. Fortunately, for us, the Obama Administration has a few in key places (such as the Treasury Secretary) who can translate.

It is said that throughout history, economics is chronic, but rarely fatal. This is likely one of those moments when it could be fatal. The banking system is like the lymph nodes in the human body -- everywhere and taking part in everything. Thanks to a number of years of serious lack of regulation, we allowed a cancer to build in the system. That cancer was literally a shadow banking system of unregulated financial instruments. Whoever is to blame (and there is ample guilt), our worldwide, interconnected modern world has been slammed all at once.

My guess is that overall unrest will not be great for the immediate year or so. If this lasts longer, we will likely have pots boiling over in places like Mexico (very serious for us) and parts of China (very serious for Beijing and us).

The key in all of this will be governmental debt defaults. If governments can't borrow, then they cannot support their unemployment and welfare systems. If that begins to happen on a major scale, then we will sink into a deep depression and all bets are off. This is what happened in the early 1930's

What does make me concerned is the approach to gather intelligence on this issue will take. As Blair is likely well aware, the United States Intelligence Community is not well prepared to deal with economic intelligence. With a few minor exceptions of excellence, such as the Treasury Department and the National Intelligence Council, there are few analytical or collection groups with any true insight into international economics and finance -- and thus predictive insights into the political effects.

The economic crisis is a classic “shock” in a Mature, Late-Stage Globalization Epoch – Its role can help reveal the real global change dynamic

This crisis is an encouragement: of deeper things. It represents a shock to the system, but shock in itself is not the threat or even the thing to fear. Shocks always come, whether self-inflicted or simply force-of-nature-divine. This one, riffing off panics and bubbles and credit runs of yore, is our own doing.

But shocks are also system-tests. A world system will be tested. A strong system shrugs off shocks, or better yet they make the system stronger.

So where does our system stand? The answer is cautionary.

We are living in the later part of the globalization epoch we call modernity. But remember, this is the West’s third late stage globalization: we forget about Late Antiquity (300-700) and the High Middle Ages (1100-1450). Globalization epochs share many things.

But they also share one truth we almost always forget: Globalization integrates, but it also disintegrates. Integration dominates the early phase.

In the late phase however the constant, centuries’ tearing down of old ways of life becomes integration’s entropy. Then forces reverse, where cultural creative destruction unleashes high demand for new identity: coalescing around new movements, new communities, and new ways of life. We can call these the identity-migrations of late modernity.

To us globalization means economic integration. But globalization also means the proliferation of alternative movements and communities. Moreover a hollowing out of nation-state authority paces the flourishing of the non-state. More menacing even is the supportive, even instrumental role of the United States.

If the worst erosions are still liminal, the warnings they send create high anxiety at the American center. Extravagant in its response, the United States defends its threatened system with heavy blows. We are striking what is already brittle with destructive force.

The United States is now the great creator of failed states. The American energies that shape the world are no longer rooted in our idea but rather in our needy interventions. American demand for drugs is the dynamic tearing down Mesoamerican-to-Andean societies — and US military intervention is in its way accelerating their cultural creative destruction. Our direct interventions in Mesopotamia and Central Asia are likewise having the paradoxical effect of encouraging state decomposition and the emergence of new identities. Our application of force does not suppress the alternative and the resistant — instead it opens up new spaces to inhabit and new opportunities to grow.

This identity migration — in which new movements and communities challenge a defensive Western system — is not being arrested by the full exercise of American power. Rather the opposite attains: we are becoming midwife to the new.

This symbiotic relationship between system leader and emerging identity is at the heart of the dynamic that closed the West’s two earlier globalization epochs.

But it was the shocks that tipped the scales.

Our global system is really a network. We like to champion Net-strengths: how networks degrade gracefully, node by node; how a network can lose many nodes and still function. But networks can also be surprisingly vulnerable: threats race from periphery to center, and can spread quickly to everywhere.

But there is another network fragility. Our civilization of modernity is dependent on a surprisingly small constellation of “creative cities” (Richard Florida), just as was the world of late antiquity (Peter Brown). A global system that depends on the economic and creative exchange between just 40 nodes, or city clusters worldwide, represents a fragile network — especially in the face of what lies ahead.

A mature global system already under stress and visibly ineffective on defense thus can be overstressed by exogenous shock. Shocks lead to both deglobalization and decompression.

Deglobalization means the system cores pull away from each other, look inward, and hunker down. Decompression follows as trade declines and networked relationships attenuate. As deglobalization and decompression gain momentum and become self-reinforcing, there will be more and more abandoned places. It is there — as it is now — that new identities and ideas spread and root.

Thus American energies already opening up new spaces will be amplified and extended throughout the world if the system cores begin to pull apart and away from each other.

The worldwide economic crisis, like climate change, energy crunch, and pandemic, are thus the precipitates of change. The change itself is “waiting in the shadows for the event to call it forth” (Dalton Trumbo). We only just see its dim outline in those shadows now crossing Pakistan and Mexico and Afghanistan and Colombia, and in the “barrios, favelas, gecekondas, chawls, ghettos, and mega-slums” (John Sullivan) of a new world.

The economic crisis certainly has the potential to become the United States's most serious national security threat, either directly or indirectly.  If the world economy descends into a deflationary spiral--accelerating unemployment, diminishing demand, increasing contraction of business activity, falling prices, protectionism, expanding defaults on debt--a number of areas could explode into turmoil:  rioting, mass crime, violent repression, sudden refugee flows, and even the overturning of governments.  Starvation and disease would likely spread as trade and economic activity shrivel and infrastructures break down. 

In such circumstances, my guess is that while disorder might arise in countries like China, Pakistan, Indonesia, and parts of Africa and Latin American, those countries with either stable democratic regimes or effective repressive governments would avoid the chaos.  The nations most vulnerable to upheaval and violent extremism would be the semi or partial democracies like Iran, Pakistan, or the newly independent states in central Asia, and countries where government is already weak or ineffectual, or where ethnic or sectarian divisions are already acute.  The analogy with the 1920s and 1930s does not seem especially apt.  Then the disorder struck most harshly in the developed world where the shock of World War I had unraveled old empires or traditional modes of governance.  Instead of mass movements with transnational appeal like fascism, there might emerge demagogues with autocratic dreams, like Chavez in Venezuela.

The chief dangers to the United States would be threefold:  the further weakening of our own economy, inducing strains on our own unity and cohesion; the possibility of being dragged into conflict should the turmoil engulf areas or countries where existing security agreements or interests require our intervention (the interruption of oil exports is one example); and the expansion of territory that would breed, succor, or increase the current dangers inherent in terrorism and transnational crime.  The turmoil could distract or weaken governments on which we depend for intelligence and other cooperation.

The shame of it is that our own weakness would hamper our ability to help in restoring order or maintaining stability.  The Reagan Administration rang up debts out of proportion to any in prior American history.  The last Bush Administration effectively doubled the national debt.  To pull ourselves out of the current mess, the Obama Administration must add more deficits.  In a worldwide depression, with disorder infecting or threatening a country like China, the United States might find foreign and domestic lenders unwilling or unable to fund its debt--and our government might teeter on the precipice of default.  Not being an economist, I cannot imagine the consequences.

My imagination does tell me, however, that the string of possibilities described above is unlikely.

The economic crisis has five important risks for the United States: limiting U.S. resources available for national security tasks; U.S. debt sparking a second round of crisis through default fears; calling into question soft power foreign policy; discrediting capitalism; and destabilizing governments, especially new democracies.

First, the exhorbitant debt the Bush and Obama Administrations are shoveling toward stanching the collapse of markets and bailing out preferred industries will dramatically limit the money available for the baseline defense budget, for increasing investment in non-military national security departments (State, Treasury), for foreign and reconstruction assistance, and for fighting wars.  I suspect it is significant that the only cut in government spending identified in the $3.5 trillion dollar Obama budget just submitted is operating funds for Iraq.

Second, the U.S. need for international capital could very well trigger another major crisis if we saturate demand.  The American government will need financiers to buy $1.7 trillion dollars in debt next year just to pay our current expenses.  Not even to service the existing $11 trillion debt. And that's on the basis of the Obama Administration's luridly rosy budget projections of only 2% GDP downturn next year bouncing up to 3% growth in 2010, which are unlikely to be met.  If buyers don't have the money to lend us, or they become skeptical we'll inflate our way out of trouble, the cost of borrowing will have to go way up to attract investors, fueling inflation and placing yet another damper on our economic recovery.  It could even precipitate another global financial crisis if markets get spooked and fear an American default, with a stampede to dump dollars destroying the value of the currency (even if buyers can't be found).

Third, it likely invalidates the Obama Administration's soft power foreign policy.  Because our bonds are relatively safer investment vehicles, we will siphon investors away from developing markets and even other major economies that are likewise trying to buffer their societies through deficit spending, fostering resentment of us for making it harder for them to ride out the crisis.  The Obama Administration is now every bit as unilateralist as the Bush Administration had been, because they have not led the way to a systemic fix for the global crisis our mortgage policies and banking industry precipitated.  Not only have we failed to lead, our bailouts distort the market for everyone else, precipitating them to apply similar stealth tarrifs to remain competitive.  All the talk about a new American foreign policy dominated by soft power will have less credence because we've just used the main lever of soft power -- trade and investment -- to the detriment of other states. 

Fourth, it is discrediting free-market capitalism.  After the economic turmoil of the 1930s large minorities in the U.S. France, Italy, Greece and other countries voted for communist parties because capitalism had failed. Fears about the stampeding forces of globalization -- a force not well understood even before the crisis -- could legitimate ideologies thought to be under gravestones in the Fukuyama cemetery of history.  If this were to occur, it could give rise to hostile, xenophobic governments intent on conquering resources rather than trusting the market to effectively distribute them in mutually beneficial ways through trade.  At a minimum, the financial crisis and our government's response to it is tarnishing the American brand (yet another blow to soft power), which will make more difficult and costly American management of the international order.  It will be harder to persuade others we know what we're doing and share the burden of doing it. We are inseparable from, and totemic for free-market democracy.

Fifth, the economic crisis could very well destabilize governments.  We have already seen government removed from power (Iceland) because of the crisis; we have not yet seen governments overthrown.  No reason to believe we won't, and the governments most vulnerable are those transitioning to democracy.  Central Europe seems especially precarious, as those societies built their transition on the promise of prosperity free markets provide. But democracies everywhere are vulnerable to the easy populism of fear and bad economics. The only up side to the financial crisis is that it's badly cutting into revenues of some of the worst governments: Venezuela, Iran.  We capitalists need to keep reminding ourselves and others that the quickest way to worsen the crisis is to have governments make economic choices rather than shareholders.