Revolutionary Guards are next, best step in Iran

ARTICLE: Iran's Opposition Extends Olive Branch, Unrequited, By MICHAEL SLACKMAN, New York Times, January 28, 2010

If this is the route sought by the opposition, then I would say that the Revolutionary Guard's putsch is just about complete and Ahmadinejad, by holding fast, emerges far more powerful than before.

And honestly, my gut instinct has been all along that the Guard's creeping takeover of the system was the next, best iteration we could hope for (having stated that years ago when the first analytical stories appeared in the MSM about Ahmadinejad looking to create a more secular, single-party state based around the RG explicitly with the presidency being highly enhanced relative to the Supreme Leader--the loser in this dynamic but still the "revered" figurehead {remember how Mao took to that tactic in the 1960s?}). Why the best? It ends up being a de facto secularization of the system: the mullahs are progressively marginalized and we end up with a Brezhnevian--as in stall--one-party state that dominates the economy and wallows in sad corruption.

That is actually a state we can handle nicely because it's such a familiar presentation--all these many years since the Revolution!

(Via WPR's Media Roundup)

Finally getting some SysAdmin funding

ARTICLE: Draft Defense Department budget avoids weapons cuts, adds aircraft, By Greg Jaffe and Craig Whitlock, Washington Post, January 30, 2010

The opening:

The Obama administration's 2011 defense budget avoids the controversial weapons cuts of last year, according to a draft copy, and continues to shift modest amounts of money to weapons programs such as helicopters, unmanned planes and Special Operations units that are in heavy use Afghanistan and Iraq.

The more than $700 billion budget will be released Monday with a congressionally mandated review of defense spending. That review calls on the Pentagon to focus more attention on wars in which enemy forces hide among the populace and use roadside bombs and hit-and-run ambushes to attack U.S. troops. The Quadrennial Defense review also predicts a future dominated by "hybrid" wars, in which traditional states will fight more like guerrillas and insurgents will arm themselves with increasingly sophisticated technology, such as antitank weapons and missiles.

The bold pronouncements in the review, however, won't drive big changes in the Pentagon budget, which is dominated by massive weapons programs with powerful constituencies in Congress and the defense industry.

So hardly a death match between small wars and large, but a continuing modest shift of funds to SysAdmin-heavy programs.

The Leviathan is doing just fine, thank you very much, with cumulative operations favoring the SysAdmin slightly with each passing year.

The key thing is that the spigot is finally turned on, not how fast the water flows.

Afghan shift

ARTICLE: Afghan tribe signs pact to keep Taliban out, AP, Jan. 27, 2010

Would appear to be the new strategy in action.

(Thanks: Jeff Jennings)

Tin ear on Taiwan

ARTICLE: Clinton Warns China on Iran Sanctions, By MARK LANDLER, New York Times, January 29, 2010

Again, the timing of the arms sales to Taiwan suggests an administration that lacks interagency cohesion.

Clueless would be a simpler term.

Support the Haitian police

ARTICLE: In a turnabout, police are the good guys in post-quake Haiti, By William Booth, Washington Post, January 30, 2010

A hopeful sign: the police seem reborn as "good guys," surprising everyone.

Be nice if the responding world and the local government could build on this show of strength.

Trials of a road warrior

Flying out tonight (Saturday) for Capetown, South Africa and the world's biggest mining conference that I'll kick-off keynote Tuesday morning.

Brutal sked way out due to weather in Dulles: Indy to Dulles tonight, then overnight to Frankfurt, then quickie to London, and then overnight direct to Capetown. Ouch!

Trying Skype seriously on this trip with family. We've got it up and working throughout the house.

I will be doing email off my BB and laptop when connected, but people need to consider me largely out of pocket until next Friday.

Is there a serious disjuncture between DoD and the administration on Afghanistan?

FRONT PAGE: "US advances Taliban role: McChrystal looks to force peace deal; General seeks backing from London summit," by Matthew Green, Financial Times, 25 January 2010.

AFGHAN CONFLICT: "Race against time for Nato strategy: Interview | Stanley McChrystal, Nato commander; Casualty rates add to pressure for a political deal," by Matthew Green, Financial Times, 25 January 2010.

AFGHAN CONFLICT: "US struggles to convey common enemy message: Pakistan and India," by Daniel Dombey, Financial Times, 25 January 2010.

Why I thought this: "uber ambassador" Holbrooke (not mentioned anywhere in this trio of pieces) speaks of creating a strong center in Kabul while Gates and McChrystal seem to be arguing for something quite different, to include making peace where they must with the more flexible Taliban.

Yes, Gates contradicted himself at times during his recent trip, but I sense a deeper divide between the Pentagon's vision of a successful drawdown and State's vision of a stable, coherent Afghanistan.

Two critiques on Obama's proposed financial regs package

EDITORIAL: "Obama erects a Maginot line: Overdue confrontation with banks is terrible thing to waste," Financial Times, 23 January 2010.

OPINION: "The President's Bank Reforms Don't Add Up," by Peter J. Wallison, Wall Street Journal, 25 January 2010.

OBAMA AND WALL STREET: "The Big Get Bigger | U.S. banks with more than $10 billion in assets are increasingly dominating the industry," FDIC data, Wall Street Journal, 23-24 January 2010.

OBAMA AND WALL STREET: "U.S. Plan Fuels Global Fire for Financial Regulation," by Stephen Fidler, Alessandra Galloni and Dave Kansas,

The FT says that banning banks from trading on their own book (deposits) will not stop them from putting those holdings at risk, so the so-called Volcker Rule is a Maginot Line-like barrier. The rule also is viewed as doing nothing to stop the non-bank parts of the financial system from creating danger.

Then this judgment, which I find especially damaging to Obama:

For all its warts, a genuine effort at regulatory reform was wriggling its way through Congress--and at least a modicum of attention was being paid to coordinating such reforms at a global level. All this has now been blown out of the water by a White House seized by political panic.

My last cite in the series suggests that global momentum toward reform has not been retarded by Obama's perceived panic.

And although Wallison's point is a good one (No one knows what "too big" really is), it is interesting to note how super-big banks are dominating more and more in terms of total assets, total liabilities, net interest income, non-interest income, net income--across the board. Most of the percentage shares held by the $10B-plus banks at the end of the 1990s ranged in the 60-to-70 percent band. Now all of those measures stand around 80% or higher (especially the noninterest income, where the share is almost 90%, meaning the biggies are dominating the experiments).

Who doesn't want a $600B contract?

INNOVATION & TECHNOLOGY: "A Power Play For China's Electrical Grid: With Beijing budgeting $600 billion to upgrade its network, global giants are racing to plug in," by Bruce Einhorn, Bloomberg BusinessWeek, 28 December 2009 & 4 January 2010.

Naturally, IBM is all over it. Why? If you want to be the best, you want to play in the biggest league, and the pro league always differs from the college game primarily on the basis of speed!

To cure a Texan of his belief that everything is bigger in Texas, send him to China. Four months ago, Brad Gammons moved from Amarillo to Beijing to help IBM land some of the $600 billion the Chinese government plans to spend over the next decade on its electrical network, especially on smart-grid technology to boost efficiency. Now the 50-year-old IBM vice-president marvels that "the scale and pace of how things move here is not something you experience anywhere in the world."

Awfully true, as China's demands are unprecedented. To compare, our smart grid effort rings in at about $8B.

Already, we're smarter though. China "consumes about four times as much electricity as the U.S. per dollar of gross domestic product and eight times what Japan does."

God bless those clever Japanese!

Of course, every Western giant flocks to China, so IBM can only corner so much (expecting $400M over the next four years). It's just that everybody wants to be part of this unprecedented effort at making a hugely inefficient system that much more smart. The scale of the effort alone means that the resulting market can be turned outward toward the rest of the world.

This has been my basic advice to Western companies for close to a decade: get to China and participate--whatever it takes--and then jump into the wider race of taking that technology to the rest of the emerging world. Because God knows the Chinese will steal everything they can and do the same if they can.

Which, of course, makes them the most capital of capitalists.

China: the green and the black

WORLD NEWS: "Chinese Law Aims to Increase the Use of Renewable Energy," by Shai Oster, Wall Street Journal, 28 December 2009.

FRONT PAGE: "Earth-Friendly Elements, Mined Destructively," by Keith Bradsher, New York Times, 26 December 2009.

WORLD NEWS: "Gangster Trials Highlight China's Crime Battle," by Sky Canaves, Wall Street Journal, 29 December 2009.

The Chinese announce new regs to increase the employment of renewables, ones that basically force electricity generators to prove they are prioritizing solar, wind, etc. over the more intense carbon creator coal.

On paper, very impressive, but if you know anything about command economies (and China retains a lot of such protocols and ingrained habits, if for no other reason that the economy is populated with loads of state-run enterprises), the capacity of players inside the system to work around rules essentially defines their success. So put aside any ideas you may have that a command-ish economy can automatically tackle this problem better. The CCP is definitely in charge of politics, but wields immensely less power over economics--not because they lack power but because they lack sufficient levers as their economy grows more complex and interconnected with the larger world. Americans have this odd tendency to assume political control consistently trumps the need for economic control, when history says otherwise, especially once you head down the path of markets.

So yeah, we praise the Chinese for passing their "law," but this is not a system based on laws, so don't expect monitoring or enforcement (where the Chinese are notoriously crude--as in, round up some egregious suspects and hang them all on TV) or the incentive structure to be similarly impressive. Those attributes of a well-ordered system simply cannot be willed into existence. They are grown, in a social contract among the government, the population, and business--and not overnight.

So what matters here is not, did China pass a law or announce some target? What matters here is how the system as a whole responds, and there the CCP has little actual control. It's great for shutting up those who call for democracy, but that ain't exactly a transferable skill to this problem-set--hence the party's tolerance for grass-roots activity in environmentalism. Absent such data inputs, the Party is deaf-dumb-and-blind for the most part. It just wants its sacred 8 percent (and you have to know Chinese to know how magical the number "8" is to them).

But eight ain't enough, so to speak. It's more problem than solution in this realm.

Good example being the second story: China has a lock, right now, on most Rare Earth elements production in the world. If it plays its cards right (meaning OPEC-like), it can do well. But the more it scares the rest of the world over perceived vulnerability of access, I guarantee you the rest of the world will go down other paths--no matter the cost. And China will thereupon lose--big-time.

Again, remember: supply does not determine power, demand does. People will always want certain capabilities; how we deliver them can be rearranged in countless ways.

But the larger point: in pushing for the sacred 8 percent, look at the short-cuts China takes in its amazingly destructive mining of Rare Earth elements--the irony being their crucial role in some of the greenest technology now coming down the pike.

Then check out the tertiary problem of criminal gangs having a huge hand in that sector and China's Italian-like efforts (mass trials) to start tackling that huge mess. The further you go from the coast and especially the further you go from Beijing, the more the gangs rule economic transactions.

Which takes me back to the original point: this is still a very command-ish economy in behavior, and in a universe dominated by skills involving workarounds, you naturally find a huge and very profitable criminal sector.

So please, hold your applause on this noble law.

(Thanks: Louis Heberlein on the Chinese law cite)

Taliban development

ARTICLE: Taliban leaders meet secretly with U.N., Reuters, Jan. 28, 2010

That does bode well for the plans of McChrystal and Gates.

(Thanks: Jeff Jennings)

R U 4 Wall Street or Main Street?

Actually got that email recently, asking me to confess which side I'm on (the sender had a pretty strong premonition after seeing one of my briefs on the Internet).

I told her I found the dichotomy useless, like asking me whether I was on the side of my heart or my lungs. I've run or help run several small businesses and I've interacted here and there with Wall Street. I know just enough from both experiences and history to realize it's always been a symbiotic relationship where the abuse of one side impacts the other (by way of analogy: if I shove nicotine into my lungs, its suboptimal performance will stress my heart, and if I eat crap, my malfunctioning heart will abuse my lungs). But choosing sides? Please. Neither can exist without the other.

The instinct to identify and demonize "others" has a rich tradition in American history, but especially in tougher economic times. Read Benjamin Friedman's "Moral Consequences of Economic Growth." Whenever the economy expands, liberty and social tolerance rise, and whenever the economy suffers contraction or even just stagnation, liberty is infringed and social tolerance evaporates.

The same is true the world over and throughout history. So if you want "moral animals," give them economic growth (conversely, if you just want the animal part, deny it to them).

And if you want to try and move down that virtuous path sans Wall Street, be my guest. But that experiment has been tried many times in recent history and found wanting.

The MSM feeds this popular stupidity, and it's truly pathetic: scared people seeking simplistic answers, preferring the fantasies of elite conspiracies to cold hard facts.

People really are in the mood to cut off their nose to spite their face. It reminds me of the scene in "Blazing Saddles" when the black sheriff (played by Cleavon Little), when confronted by an angry mob and town leaders (all with the surname Johnson), puts a gun to his head and the following dialogue ensues:

Bart: [low voice] Hold it! Next man makes a move, the nigger gets it!

Olson Johnson: Hold it, men. He's not bluffing.

Dr. Sam Johnson: Listen to him, men. He's just crazy enough to do it!

Bart: [low voice] Drop it! Or I swear I'll blow this nigger's head all over this town!

Bart: [high-pitched voice] Oh, lo'dy, lo'd, he's desp'it! Do what he sayyyy, do what he sayyyy!

[Townspeople drop their guns. Bart jams the gun into his neck and drags himself through the crowd towards the station]

Harriet Johnson: Isn't anybody going to help that poor man?

Dr. Sam Johnson: Hush, Harriet! That's a sure way to get him killed!

Bart: [high-pitched voice] Oooh! He'p me, he'p me! Somebody he'p me! He'p me! He'p me! He'p me!

Bart: [low voice] Shut up!

[Bart places his hand over his own mouth, then drags himself through the door into his office]

Bart: Ooh, baby, you are so talented!

[looks into the camera]

Bart: And they are so *dumb*!

Yet another reason why we were lucky to get cool-and-detached Obama--despite his leadership deficiencies--over angry and rash McCain, who's done nothing since to convince me otherwise (just the opposite).

One neocon perhaps "mugged" by reality re: Iran?

ARTICLE: How Obama can reverse Iran's dangerous course, By Robert Kagan, Washington Post, January 27, 2010

Kagan, the smartest of the neocons because he actually admits the power of a larger economic reality beyond the usual--and pathetic--neocon myopia regarding national security (none of them have any real-world biz experience or knowledge, which isolates their strategic thinking to a cruel degree as globalization matures), is now finally backing himself into accepting the globalization/"grand bargain" logic on Iran.

Notice how he suddenly seems to discover the possibility that it's workable if we enable the regime's tired authoritarianism to evolve in the direction of Brezhnevian lethargy.

Next leap of logic: he realizes it's already--and rather predictably--there.

(Thanks: Stuart Abrams)

Low-body Leviathan action

ARTICLE: U.S. military teams, intelligence deeply involved in aiding Yemen on strikes, By Dana Priest, Washington Post, January 27, 2010

Another clear intervention, probably with a new--and classified--operation name that distinguishes it with the lesser effort to date.

But note it's only several dozen JSOC--the carrier equivalent in this Long War.

What do I mean by that?

Old joke: how many carriers do I really need?

Punchline: Just one, but I need to know exactly where to place it at all times!

Point: even our Leviathan-like, direct action stuff need not be body intensive.

Obama's SOTU: not much foreign policy

ARTICLE: First State of the Union speech by President Obama: 'We face a deficit of trust', By Anne E. Kornblut and Michael D. Shear, Washington Post, January 28, 2010

Exactly my impression of SOTU speech: foreign policy a distant second and mostly an unwind of strategic lockdown caused by Iraq and Afghanistan. Rest is nice-to-have (e.g., nuke free world, climate deal), but no heroics or priorities.

Unsurprising.

Fix the economics or plan to fight again

A Deal with the Taliban?, By Ahmed Rashid, New York Review of Books, Volume 57, Number 3, February 25, 2010

My Life with the Taliban
by Abdul Salam Zaeef, translated from the Pashto and edited by Alex Strick van Linschoten and Felix Kuehn

Columbia University Press, 331 pp., $29.95

Rashid offers, as usual, plenty of history to argue that a decoupling moment, as Stuart Abrams put it in his email to me, exists vis-a-vis al Qaeda (which did strike me as pathetic in Bin Laden's laying claim to the underwear bomber: "My, how big your teeth have grown, Grandma!" cries Little Red Riding Hood (West) in response to this "frightening development" in the Long War).

But the analysis here is incomplete in that economics seems completely absent, and if that remains the default core logic of any political deal, then just sked the next decapitating invasion for 5-7 years from now, because I don't see the Taliban getting it any more right the second time around.

Money still likes the BRICs

COMPANIES & MARKETS: "Emerging markets funds lure investors," by David Oakley, Financial Times, 30 December 2009.

Despite the overall global downturn, record amounts of investments pumped into funds that focus on emerging markets last year--$80B! Three-quarters ($60B) went to the BRICs (Brazil, Russia, India, China).

That's a stunning jump above the previous record of $50B (2007) and represents an even more unprecedented swing from 2008's outflow of $50B. (So a $100B drop from 07 to 08 and then a $130B upswing from 08 to 09.)

Meanwhile, $86B flowed out of the developed Core in 2009.

Seems to me like the rebalancing proceeds whether anyone wants it or not, as the money rushing from Old Core to New Core and Gap necessarily forces Old Core West to spend less and enables rising global middle class to spend more on itself in the proximate (consumption) and ultimate (infrastructure) sense.

I wonder if all the de-globalization types that heralded the $100B drop in 2008 will note the $130B uptick last year.

De-globalization indeed!

We don't want another Tunguska

ARTICLE: Russia to Plan Deflection of Asteroid From Earth, By ELLEN BARRY, New York Times, December 30, 2009

And they laughed when I said maybe we should keep some nukes around for extra-terrestrial targets!

Earmarking, at least in Defense, is miniscule

U.S. NEWS: "Defense Bill Earmarks Total $4 Billion," by John D. McKinnon and Brody Mullins, Wall Street Journal, 22 December 2009.

Congressional earmarks amount to $4B, or roughly one-half of one-percent of the total Defense budget.

This tells you how little Congress changes anything coming out of the Pentagon, which makes you wonder why the DoD obsesses over its "case" to Congress. I mean, are they shooting for 99.99% of their budget passing with no changes instead of the usual 99.95%?

Point: the SECDEF matters on budget, but Congress does not.

The revolutions China allows--and does not

BUSINESS DAY: "Direct Selling Flourishes in China, Providing Jobs and Igniting Criticism," by David Barboza, New York Times, 26 December 2009.

INTERNATIONAL: "In Sentence Of Activist, China Gives West a Chill," by Andrew Jacobs, New York Times, 26 December 2009.

First story starts with scene of 28,000 women attending a huge Mary Kay cosmetic training convention. MK has a small army of 200k currently employed around the country.

Door-to-door sales, banned as recently as 1998 by the government (fear of "cults" recruiting!), "is sweeping the country, breathing new life into old American brands and creating hundreds of thousands of jobs, often for disadvantaged or poorly educated young women."

Gotta watch any economic opportunity that empowers women in this way, because once turned on, they can be a demanding bunch.

But it's likewise clear that China's communist party remains committed to squelching any dissident-driven calls for democracy (meaning a multi-party environment), recently sentencing a prominent human rights activist to send the usual "chilling message."

Bottom line: economic-driven social revolution okay, but politically-driven stuff remains verboten.