As per my last post, I have been consumed, in the last 24 hours, with the dramatic moves in the US financial system. The Fed's take over of AIG is simply stunning. I think "take over" is a better characterization than "bail out" because the Fed is now in the position to call the shoots at the company and impose some of the costs on previous stock holders. In any event, the larger question raised by all of this is: what impact will it have on the overall power of the US?
And for that kind of question we turn to neither Confucianism nor Taoism but to that great strategic thinker, Sun Tzu. In the first chapter of The Art of War, he mentions five elements that go into any initial assessment of strategy: moral influence ("Way"); weather; terrain; command; doctrine. While all of these (yes, even "weather," if understood as unexpected circumstances) might have some application to the AIG thing, I don't want to invoke any of them just yet. I'm drawn, at this point, to the opening lines of chapter two:
Generally, operations of war require one thousand fast four-horse chariots, one thousand four horse wagons covered in leather, and one hundred thousand mailed troops. (2.1)
Although this may seem rather anachronistic, in fact the main point is relevant: warfare requires certain material resources and capabilities. If you do not have sufficient capabilities you are working from a position of strategic weakness. Material capabilities are not ultimately determinative, as Sun suggests elsewhere: "In war, numbers alone confer no advantage. Do not advance on sheer military power." (9.45). But the initial balance of resources at hand fundamentally shape strategy:
Consequently, the art of using troops is this: When ten to the enemy's one, surround him; When five times his strength, attack him; If double his strength, divide him; If equally matched you may engage him. If weaker numerically, be capable of withdrawing; And if in all respects unequal, be capable of eluding him, for a small force is but booty for one more powerful. (3.12-17)
So, does the US take over of AIG have any effect on its material capabilities to wage war?
Although it is way early to be certain, I can think of two possible ways that all of what has happened in the past six months or so with the US financial system does create a strategic constraint for the US.
1) The financial capacity to maintain the US military and support future uses of military power. The Iraq war has been very expensive for the US. Military operations have cost somewhere in the vicinity of US$ 650 billion. When you add in longer term obligations, such as veterans benefits and the like, estimates range up to US$ 3 Trillion. Let's just say it's a lot. In the best of financial times, paying these costs would impose a burden on the US government, whether through a claim on tax receipts or adding to the national debt. These costs thus create obligations that compete with other demands for US government spending: entitlements, infrastructure, etc. But these are not the best of financial times. Going back to March and the Bear, Stearns deal, adding in the effects of the Fannie and Freddie take overs, and capping things now with the AIG seizure, one estimate suggests that the Fed has taken on a total of US$ 900 Billion in new obligations. That, too, is a big number. How will the US handle both the costs of the Iraq war and absorb the costs - which still may go higher depending upon how the underlying mortgage crisis plays out - of the financial melt-down is not at all clear. At the very least, it should give leaders pause when, in the future, they face a political-military crisis and they ask themselves "do we have the economic resources needed to support a lengthy military campaign?" To put it in modernized Sun Tzu terms: will the US have the money necessary to build and maintain and deploy the contemporary equivalent of "one thousand fast, four-horse chariots" etc.?
2) In the broader global political-economic strategic context, we know that a certain interdependence exists between the US and China. Simply put, we buy their exports, and they hold our debt. But recent events might be shifting this balance in China's favor. As their economy develops, and their domestic consumer markets expand and they cultivate export markets in other parts of the world and they diversify, the role of the US market may decline in importance for them. At the very least, their dependence on the US may decline relative to the US dependence on China to hold American debt. With the exploding obligations the Fed is taking on, the US will now have to rely more than ever on foreigners buying and holding our debt. Again, this may simply be a shift in the relative balance of dependencies (i.e. China will still need access to our markets) but it may be that we now need them more than they need us. And that could matter in any military-strategic conflict between the US and China. Such conflict does not need to be direct (one thinks immediately about Taiwan). Rather, it could be played out in third party conflicts. Can the US bring pressure to bear on China regarding Darfur or Burma or other such situations? If they threaten to unload our debt, do we back down first?
These are simply initial speculations. But the financial burdens and weaknesses of the US at this point should put to rest the neo-con fantasy of the unipolar moment - it has long since passed. The US does not stand as a global hegemon; rather it is searching, hat in hand, for anyone, anywhere to give is some money....