Streetwise Professor

December 4, 2016

A Mad Dog, Not a Caesar

Filed under: History,Military,Politics — The Professor @ 10:15 pm

Ever since Gen. James Mattis (USMC Ret.) had been suggested as a possible candidate for Trump’s Secretary of Defense, I was fervently hoping that he would be chosen, and that hope was realized. Mattis has a long and storied career as a warrior–a true warrior–and is widely acknowledged as a thoughtful, scholarly man who thinks deeply on strategic issues. He also has a long history of blunt outspokenness, which is sorely needed in these PC times–and in particular, is sorely needed in a Pentagon in which PC rot spread deeply during the Obama administration.

Mattis is a throwback in many ways, not least in that he has the kind of background and biography more typical of 19th or early-20th century figures. No over-credentialed Ivy Leaguer he. He grew up in the wheat fields of Washington state, enlisted in the Marines at 19, and attended Central Washington University. He then worked his way up through the Marine Corps, earning promotion to four star rank on the basis of performance.

Mattis’ appointment has drawn almost universal praise in DC and the media centers, including from the New York Times. Truth be told, this is the only thing that makes me temper my enthusiasm for him.

The one possible objection that has been raised by the usual array of chin-pullers is that he only retired from the USMC a little over three years ago, thereby requiring Congress to pass a waiver to circumvent a 1947 law that requires seven years between the time an officer retires and he (or she) can become SecDef. Mattis’ appointment, the chin-pullers intone, threatens to undermine civilian control of the military.

Really? Dwight Eisenhower retired from the Army on May 31, 1952, and assumed the presidency in January, 1953. Ulysses S. Grant remained as Commanding General of the US Army while running for president in 1868, and only resigned shortly before assuming office in 1869. Neither turned into Caesars. (By the way, did you know that in 1789 Congress passed a law that prevented those who had been engaged in commerce from becoming Secretary of the Treasury?)

Further, I would note that the principle of civilian control of the military is drilled into US military officers from day one of their service–as I experienced personally at the Naval Academy. What’s more, any officer whose commitment to that principle comes into question is never going to make it to flag rank. Nor would Donald “You’re Fired!” Trump–of all people–brook mutiny at the Pentagon.

But it is best to hear Mattis out on this in person. In this 2015 interview–recorded before his appointment was even a remote possibility, and indeed, would have been reckoned to be a zero probability event, not least of all by him–his commitment to the principle comes through loud and clear. He states forthrightly that an officer’s duty is to give his civilian superiors his honest opinion, but that it is also his duty to defer to the authority of those civilian superiors. This was clearly not a calculated statement intended to help secure an appointment (which was hardly imaginable, let alone on offer), but a reflection of his beliefs.

In sum, the thought that James Mattis is a threat to civilian control of the military is inane.

The entire interview is worth watching, because it shows Mattis to be an articulate and thoughtful man who speaks frankly, with an almost world-weary mien. He speaks with authority on a variety of strategic, military and geopolitical issues, is persuasive, and has Trump’s respect and ear. He gave evidence of this even before being nominated, when he convinced Trump to backtrack on the torture issue. This is exactly the kind of man we need in office. The fact that he will be an articulate advocate and explainer of administration policy is also invaluable. (Mattis is far more articulate than General Flynn, in particular.)

Some have also questioned Mattis’ ability to handle the challenges of managing the vast Pentagon bureaucracy. Here the interview is also instructive, because it shows that Mattis has observed the closely managerial and process dysfunction in Defense, and in particular how the mega-contractors have warped the system. No babe in the woods he. Fixing the Pentagon is a Herculean task, and I doubt that Mattis can do it, but he can probably make more progress than anyone with a more conventional resume for the job could.

As commenter aaa noted, one blot on Mattis’ record is his role as a director at Theranos, which has proved to be a colossal con. In his defense it can be said that he was hardly alone: the list of directors and big money investors who were taken by Elizabeth Holmes’ shtick is a who’s who of American business and politics (e.g., George Schultz). This endeavor was outside of Mattis’ expertise, and the main criticism he deserves is for taking a position for which his training and experience did not particular suit him. That’s not the issue at Secretary of Defense.

In sum, “Mad Dog” Mattis is exactly the kind of figure the US needs at the Pentagon right now, and poses no threat to the institutions of the Republic. To the contrary, he is uniquely qualified to serve as an intermediary between the citizenry and the uniformed military, particularly given that he knows the uniformed military, and those in the military know and respect him. The country will be stronger with him serving in a civilian role so close in time to the end of his 44 years of active service.

 

December 3, 2016

The Trumpharrumphers’ Latest Freakout

Filed under: China,Economics,History,Military,Politics — The Professor @ 2:30 pm

In the nearly 4 weeks since Trump’s election, we’ve seen a daily freakout on this issue or that. Every day, we hear about another statement or appointment or Tweet that is apparently going to result in the impending arrival of the end times. For those thinking about career moves, becoming a Pfizer manufacturer’s rep in a blue state is a sure winner, because Xanax sales are certain to skyrocket.

Yesterday’s Freak Out by the Trumpharrumphers–which is spilling over into today–is that their bête noire took a phone call from the president of Taiwan. How this call came about is somewhat obscure. CNN reported that a former Cheney advisor now working the Trump transition, Stephen Yates, arranged it. Yates denies it.

That’s really neither here nor there. The issue is whether this is some grave blunder on Trump’s part. The immediate reaction by many is that this was thoughtless and rash, but I wouldn’t be so sure. It could very well be calculated to send a message to China that Trump does not accept the status quo that has developed over the past decades. China has challenged this status quo, particularly through its construction of artificial islands in the South China Sea. This could be Trump’s way of pushing back. Sending a message to the revisionist power that revisions can be a two way street.

It is a low cost way of sending that message. Unlike some alternatives, it is not latent with potential for an immediate confrontation. China would have to make an aggressive countermove. Consider an alternative way of sending a signal: sending US ships or aircraft to challenge Chinese claims in the South China Sea. That presents the potential of immediate conflict, due either to the decision of the leadership in Beijing, or a hotheaded commander on the spot. Recall that soon after Bush II took over that the Chinese forced down a US EP-3 aircraft off Hainan.

Not to say that Trump will not order freedom of navigation missions after becoming Commander in Chief. Just pointing out that taking the phone call certainly gets China’s attention, and gets it to think about what the new administration’s posture will be, without putting US and Chinese military forces in close contact in a way that could result in a disastrous incident.

One thing that is very striking about the hysterical reaction to The Call is that many of those responding most hysterically that it raises the risk of World War III have also favored a much more confrontational approach with Russia, especially in Syria. Gee, you’d think that declaring a no fly zone over Syria would create a far greater risk of an armed confrontation between nuclear superpowers than taking a phone call from the Taiwanese president.

This asymmetric approach to Russia and China makes no sense. Yes, Putin has a zero sum view of the world; wants to revise the post-Cold War settlement; nurses historical grievances; and believes that the United States is hell-bent on denying Russia its proper place in the world (or worse yet, overthrowing its government). But the Chinese have a zero sum view of the world; want to revise the balance of power in Asia; nurse historical grievances; and believe that the United States is hell-bent on denying China its proper place in the world. Russia hacks. China hacks. Indeed, if anything, Chinese hacks have been far more threatening to US national security than the alleged Russian hacks that have generated the greatest outrage, namely the DNC and Podesta email lacks. For instance, the Chinese hack of the Office of Personnel Management database likely caused grievous harm to US security: the DNC and Podesta hacks only embarrassed, well, political hacks. (Which probably explains the intensity of the outrage.) Insofar as Russian propaganda is concerned, if RT (which does not even register on the Nielsen ratings) and fringe internet sites gravely threaten US democracy, we have bigger problems to worry about: we will have met the enemy, and he is us.

The key issue is capability. With the exception of nuclear weapons, Russian capabilities are declining and limited, whereas Chinese capabilities are increasingly robust. The Soviets were big on “the correlation of forces.” The correlation of forces is strongly against the Russians at present. They have limited ability to project power beyond their immediate borders, and then only (in a persistent way) against ramshackle places like the Donbas and Abkhazia. The Russian Navy is a shambles: its current deployment off Syria would make Potemkin blush. The Navy faces the same problem that it has faced since the time of Peter I: it is split between inhospitable ports located at vast distances from one another. The submarine force has made something of a comeback, but its surface units are old and decrepit, and fielded in insufficient numbers. The potential for expansion is sharply constrained by the near collapse of Russian shipbuilding: even frigate construction is hamstrung because of the loss of Ukrainian gas turbine engines.

Russia is also in an acute demographic situation: during his recent speech, Putin crowed that fertility had increased from 1.70 live births/woman to 1.78–still well below replacement. This problem manifests itself in the form of increasing difficulties of manning the Russian military. It still relies on conscription for about 1/2 of its troops, and those serve for an absurd 12 months. After 8 years of reform efforts, 50 percent of the personnel are now kontraktniki, but the Defense Ministry’s refusal to release information on the number of contract soldiers who leave each year (while touting the number of new volunteers) suggests that there is considerable turnover in these forces as well. There is still no long-term cadre of non-commissioned officers, and the force structure is still very top heavy.

Moreover, this military rests on a very shaky economic foundation. In particular, Russian military manufacturing is a shadow of what it once was, and the fiscal capacity of the state is sharply limited by a moribund economy. This makes a dramatic expansion in Russian military capability impossibly expensive: even the modest rearmament that has occurred in the past several years has forced the government to make many hard tradeoffs.

In contrast, Chinese military power is increasing dramatically. This is perhaps most evident at sea, where the Chinese navy has increased in size, sophistication, and operational expertise. Submarines are still a weak spot, but increasing numbers of more capable ships, combined with a strong geographic position (a long coastline with many good ports, now augmented by the man-made islands in the South China Sea) and dramatically improved air forces, long range surface-to-surface missiles, and an improving air defense system make the Chinese a formidable force in the Asian littoral. They certainly pose an anti-access/area denial threat that makes the US military deeply uneasy.

In contrast to Russia, China is actually in the position of having a surfeit of military manpower, and is looking to cut force numbers while increasing the skill and training of the smaller number of troops that will be in the ranks after the reforms are completed.

Policy should emphasize capability over intentions. Intentions are hard to divine, especially where the Russians and Chinese are involved: further, the United States’ record in analyzing intentions has been abysmal (another argument for gutting the CIA and starting over). Moreover, intentions change. It must also be recognized that capabilities shape intentions: a nation with greater power will entertain actions that a weaker power would never consider.

Taking all this into consideration, I would rate Russia as a pain in the ass, but a pain that can be managed, and far less of a challenge to US interests than China. Putin has played a very weak hand very well. Indeed, as I have written several times, we have actually fed his vanity and encouraged his truculence by overreacting to some of his ventures (Syria most notably). But the fact remains that his is a weak hand, whereas China’s power is greater, and increasing.

I am not advocating a Cold War: East Asia Edition. But when evaluating and responding to capabilities of potential adversaries, China should receive far greater attention than Russia. Certainly there is no reason to risk a confrontation over Syria, and pique over embarrassing disclosures of corrupt chicanery that the perpetrators should damn well be embarrassed about is no reason for a confrontation either. A longer term focus on China, and managing its ambitions, are far more important. That is a relationship that truly needs a revision–a Reset, if you will. And methinks that Trump’s taking the phone call from the Taiwanese president was carefully arranged to tell the Chinese that a Reset was coming. A little chin music to send a message, if you will.

A more provocative thought to close. Realpolitik would suggest trying to find ways to split China and Russia, rather than engage in policies like those which currently are driving them together. A reverse Nixon, if you will. I am by no means clear on how that would look, or how to get there. But it seems a far more promising approach than perpetuating and escalating a confrontation with a declining power.

PS. This is fitting in many ways:

December 2, 2016

Lucy Putin?

Filed under: Commodities,Economics,Energy,Politics,Russia — The Professor @ 12:53 pm

I was somewhat surprised that OPEC came to an agreement. I will be more surprised if they live up to it: that would be not just going against history, but against basic economics. The incentives to cheat are omnipresent (as the Saudi’s ex-Minister of Petroleum of Petroleum Naimi acknowledged in the aftermath of the announcement). Further, what is the enforcement mechanism? Retaliatory output increases/price cuts (i.e., price wars)? Moreover, given that many OPEC nations are facing acute budgetary strains, the present looms and the future looks very, very far away: consequently, getting some additional revenue today at the risk of losing some revenue a year or two from now when a price war breaks out looks pretty attractive.

The breathless TigerBeat-style reporting of the meeting states that Russia’s last-minute intervention rescued the deal. A few things to keep in mind. Russian oil output has surged in the last few months, meaning that its promise to cut 300,000 bbl/day basically puts its output back to where it was in March. This is in fact pretty much true of the OPEC members too: the deal very much as the feel of simply taking two steps back to reverse the two steps forward that major producers took in the past 9 months (and the two steps forward were no doubt driven in large part to improve bargaining positions in anticipation of the November OPEC meeting).

Moreover, the timing of the Russian commitment is rather hazy. Energy Minister Alexander Novak said Russia would cut “gradually.” That can mean almost anything, meaning that the Russians can say “the cuts are coming! Trust us! We said it would be ‘gradual!'” and that there will be no hard evidence to contradict them.

The most amusing part of this to me is that many are interpreting Putin’s personal involvement as proof that the Russians will indeed cut. “If Putin tells Russian oil companies to cut, they’ll ask ‘how deeply’?”

Seriously?

Call me cynical (yeah, I know), but I find this scenario far more plausible: Putin sweet-talked the Saudis and Iranians to overcome their differences to cut output in order to raise prices, all the while planning to sell as much as possible at the (now 10 percent) higher prices. Breezy promises cost nothing, and even if eventually OPEC members wise up to being duped, in the meantime Russia will be able to sell to capacity at these higher prices. Yes, the OPEC members will be less likely to believe him next time, but Putin’s time horizon is also very short, for a variety of reasons. He’s not getting any younger. And more immediately, the Russian recession is dragging into its third year, and budgetary pressures are mounting (especially since he is committed to maintaining a high level of military spending). The Russian Wealth Fund (one of its two sovereign wealth funds) has been declining inexorably: the rainy day fund is almost empty, and the skies still haven’t cleared. And the presidential election looms in 2018. For Putin, the future is now. The future consequences of making and breaking a promise are not of great importance in such circumstances. But more money in the door today is very, very important.

Russia isn’t like other OPEC producers, which have national oil companies that respond to government orders. Although government-controlled Rosneft is the biggest producer in Russia, there are others, and even Rosneft and Gazpromneft have more autonomy than, say, Saudi Aramco. Yes, Putin could, er, persuade them, but a far more effective (and credible) tool would be to adjust taxes (especially export taxes on both crude and fuels) to give Russia’s producers an incentive to cut output (and especially exports, which is what OPEC members really care about). A tax boost would be a very public signal–and reversing it would be too, making it harder to cheat/renege. (Harder, but not impossible. The government could give stealth tax cuts or rebates. This is Russia, after all.) But I have not seen the possibility of a tax rise even be discussed. That makes me all the more skeptical of Putin’s sincerity.

So my belief is that Putin is stepping into the role that Sechin played in 2009, that is, he is being Lucy beckoning Charlie Brown/OPEC with the football. And Charlie Brown is attempting a mighty boot. We know how that works out.

Even if Putin lives up to his pinky-swear to cut output, Russia has cut a much better deal than the Saudis. The promised Russian cut is about 60 percent of the Saudi cut, yet both get the same (roughly 10 percent) higher price, meaning that (roughly speaking) Russian revenues will rise 40 percent more than than Saudi revenues do–assuming that both adhere to the cuts. The disparity will be greater, to the extent that Russia cheats more than the Saudis.

Time will tell, but what I am predicting is that (a) Russia will not cut anything near 300kbbl/d, and (b) cheating by OPEC members will snowball, meaning that next November’s OPEC meeting will likely be another rancorous effort dedicated to repairing a badly tattered deal, rather than a celebration of the anniversary of a successful and enduring bargain.

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