Speak Softly and Carry A Big Stick; They’re All Keynsians Now*

Speak Softly and Carry A Big Stick

Big Stick Diplomacy was Theodore Roosevelt’s foreign policy trademark. Roosevelt described his style as “the exercise of intelligent forethought and of decisive action sufficiently far in advance of any likely crisis.” That style served America exceptionally well. Until recently, it accurately described the approaches of Presidents who succeeded Roosevelt and held office during fraught foreign policy times, including Presidents Reagan, Bush I and Bush II. When they talked, they did so calmly and softly, and enemies and allies alike listened attentively. When America’s enemies failed to adjust their actions, out came the Big Stick.

Without risking a nuclear war, Reagan made the policies of the U.S. abundantly clear to both friends and foes. The world believed he would back up his words with action. That belief cemented the position of the U.S. as global hegemon and led to the breakup of the Soviet empire. The one time when a Big Stick was called for, he used it to invade Granada. Some also assert that he used the Big Stick on Nicaragua.

Bush I gave plainly-worded warnings to Saddam Hussein and Manuel Noriega. When those warnings were ignored, the U.S. invaded Iraq and Panama. He said what he would do and then he did it.

Bush II used America’s Big Stick to depose Saddam Hussein and invade Afghanistan, making it clear that challenges to America’s role as global hegemon would trigger a lethal response.

Whatever the pros and cons, as well as the outcomes, of each such action, America gained strength and enhanced its reputation when it spoke softly and carried a Big Stick.

That changed with Presidents Obama and Trump. Each spoke loudly, but the absence of a stick – let alone a Big Stick – has been all too apparent.

President Obama drew a bright red line beyond which any use of chemical weapons by Bashar al-Assad would be met by prompt American military action. When Assad crossed that red line, nothing happened. Obama took no action at all. That led John McCain to caustically note that the red line was “apparently written in disappearing ink.” The failure to take action marked the end of Obama’s foreign policy credibility and, indeed, marked the beginning of the end of American global military leadership. Obama did not seek to recover that mantle. Neither has President Trump.

Immediately after taking office, President Trump stated that President Obama had left him “with a war ready to start [with North Korea].” That was the pretext that Trump used in making denuclearization of North Korea his foreign policy priority, threatening Kin Jong Un with “fire and fury like the world has never seen.” Adding fuel to that threat, he derided the North Korean dictator as “Little Rocket Man.” Far from speaking softly, President Trump loudly proclaimed America’s strength.

But no action followed. To the contrary, as the White House announced on Friday, “President Trump likes Kim Jong Un.”

The same “North Korea pattern” is developing with respect to Venezuela where the Trump administration has made regime change its most recent foreign policy priority. President Trump reportedly had previously asked his advisers about the possibility of invading Venezuela and had been counseled against taking such action. Russia now has foreclosed that possibility by placing Russian aircraft, troops and military supplies on the ground in Venezuela. President Putin has made it clear that Russia’s military stands in defense of President Maduro and against U.S. intervention of any kind. It is President Putin who has spoken softly and actually used a Big Stick. In response, Secretary of State Mike Pompeo on Monday told Russia that the U.S. won’t “stand idly by” as Russia sends military forces to Venezuela.

Really? What can America do? Russia has taken action by sending military forces in aid of its ally. Doing so has left America with no viable means to militarily threaten Venezuela or compel a Russian retreat.

Secretary Pompeo has spoken loudly. Yet, even if the U.S. were willing to consider military options, there is no reason for Russia or anyone else to believe that America will wield a Big Stick. Speaking loudly without any stick whatsoever is not a workable foreign policy.

They’re All Keynsians Now

“They” are the Democrats and the Republicans, and they both are now believers in the Keynsian formula of stimulating America’s economy through deficit spending.

Modern Monetary Theory is the label Democrats are using to justify increased entitlements. That’s all MMT is – a justification for Medicare for All and a Green New Deal, programs intended to help poor Americans and prevent a potential ecological disaster, both of which are harebrained wild brilliant, though unaffordable controversial, programs.

Imagine that your government can satisfy your every want simply by printing more paper dollars.

Imagine no more! MMT is here!

Republicans don’t need to adopt a new philosophy to justify their deficit spending. They’ve made it clear that they’re just going to spend and ignore the deficits entirely, sponsoring tax cuts for the wealthy and no-limit defense budgets, and making incredible fallacious fanciful dazzling economic growth assumptions. The pre-Trump Republican party stood for fiscal prudence. It opposed deficit spending on philosophical grounds: America had to earn what it paid for, whether for defense or security or the space program or entitlement programs. Republicans understood that excessive borrowing is dangerous. That’s why Republicans were lauded as fiscal conservatives. No more. Democrats who believed that the government should increase handouts to the underprivileged often were pilloried as being in the pocket of unions and minorities utopians bleeding heart liberals unrealistic. No more.

Democrats and Republicans are all Keynsians now. Deficits are “in”!

These aren’t tiny deficits either. We’re talking U.S. debt of $22 trillion plus additions of $1 trillion a year.

What happened?

First came the 2008 Financial Crisis. Because the Federal Reserve printed gobs of US Dollars, and because national governments enacted massive Fiscal Stimulus measures, the world avoided a Second Great Depression. Barely. The price it paid for a continuing expansion was ongoing Central Bank money-printing and unprecedented national deficits. That combination worked brilliantly. But growth faltered whenever there was even a hint that the money-printing tap might be turned off down. Money-printing became an addiction. Every time the economy sputtered, the Central Bankers came to the rescue through some combination of Quantitative Easing (which creates money out of thin air), open market operations (moving money into and out of banks), adjusting the discount rate (raising or lowering short-term interest rates), and Forward Guidance (telling the world what the Central Bankers would do) – in short, Central Bankers assured the world that they would “do whatever it takes” (the words used in 2012 by Mario Draghi, the then-President of the European Central Bank, words widely believed to have saved the Euro). And that’s precisely what they did. (In the U.S., such Central Bank assurances have been named after the applicable period’s Federal Reserve Chairman, referred to as the “Greenspan Put,” the “Bernanke Put” and the “Yellin Put.” We soon may learn of the “Powell Put.”)

The second reason for the two-party consensus that unlimited infinite deficits are fine was the recognition by politicians that their constituents don’t care. Deficits apparently are meaningless to voters unless they themselves have to pay the debt. They seem unaware that their children will become the ultimate payors. The road to re-election consequently has become paved with handouts. Fiscal prudence no longer buys votes.

And that’s why members of Congress, whether Democrats or Republicans, are all Keynsians now.

Finally (from a good friend)

*┬® Copyright 2019 by William Natbony. All rights reserved.

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