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Hayek Dinner Recap: Schiller on “The Agonizingly Slow Recovery”

April 22, 2014 at 8:31 pm

Brad Schiller gave us an excellent presentation on the current economic recovery at last Wednesday’s dinner. The recovery is anemic at best. In fact, it is the worst recovery in U.S. history.


And this despite some of the greatest fiscal and monetary stimuli in U.S. history. While the Fed kept interest rates at historic lows and printed money at an accelerated pace, the Congress and Administration plowed money into the economy. A quick look at the components of GDP illustrates the dramatic increase in the government sector while the investment sector floundered.


And job growth suffered. Recent announcements that we have recovered all the jobs lost in the recession ignores the underemployed, those who gave up looking and new entrants into the labor force.  The staggering number of new jobs needed to get to full employment, that is 5% unemployment, over time is illustrated below.


So, what went wrong? The answer according to Dr. Schiller lies in the disincentives to investment promoted in the fiscal and monetary stimuli and the new regulatory expansion brought on with Obamacare and Dodd-Frank. Instead of supply side economics we have had the opposite during this recovery. Government policies have restrained investment and employment.

We thank Brad Schiller for an excellent presentation and engaging Q&A that followed.

Public Unions–Stage Four Cancer on the Body Politic

December 4, 2013 at 2:46 am

The terms greed, corruption and crony capitalism are most easily applied, not to rent seekers–cronies like GE and Goldman Sachs–but to public employee unions. They elect the politicians who are their bosses. Those politicians, their bosses, thus have more affinity to them than the residents and citizens whom they are sworn to represent. The cycle goes on until governments go bankrupt. Detroit is the most recent example.

But the real catastrophe still growing is Illinois and Chicago. Under union and Democrat control since I can remember, it will implode in the not too distant future. Over generous pension promises made to public union employees are about to sink the city and state.

I can’t express it any better than today’s WSJ opinion piece on the phony Illinois pension fix:

WSJ-Review & Outlook_ Illinois’s Fake Pension Fix – WSJ

This is theft from the body politic, pure and simple. Note that it is also theft from the younger generations of workers ignorant enough to join the public unions. Wait a minute….strike that….in Illinois they are required to join!

What happened to freedom?

Remember Carter on Inflation…How About Roosevelt?

October 29, 2013 at 1:35 pm

We’re indebted to one of our younger, economically savvy members, Ryan Ruppert, for this report on inflation:

He begins referencing the recent NYT article that once again, as Jimmy was wont to say, “inflation is your friend.” Binyamin Appelbaum’s article, In Fed and Out, Many Now Think Inflation Helpsopens with the following lead buttressed by all sorts of Keynesian support: “Inflation is widely reviled as a kind of tax on modern life, but as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough.”

With Janet Yellen being hailed as the new female Greenspan/Bernanke on steroids if this doesn’t scare you then Ryan suggests that Abenomics is coming to the US. This is the Keynesian economics, demand-side  and state controlled policy of inflation currently in sway in Japan. Recall, deflation, excess debt, declining and aging population, fuzzy banking and crony capitalism are perennial problems in Japan.

But the really interesting part of Ryan’s report is a 1933 Roosevelt propaganda newsreel selling inflation to the unwashed masses. This is fascinating stuff. Ryan titles it with the tagline, “it worked for Roosevelt,” which in a scholarly fashion, he footnotes as bullshit!

Ryan’s email finishes with a tongue-in-cheek plug for a new economics text, This Time It’s Different: Eight Centuries of Financial Follyby Carmen M. Reinhart and Kenneth S. Rogoff.

Again, in scholarly fashion, Ryan footnotes this book’s main title as given with “heavy sarcasm!”

Thanks to Ryan for this warning. I am sure his UNR profs like Tom Cargill will indeed be proud.

Tom Motherway


Pulpits of Ignorance, Pulpits of Incompetence

October 26, 2013 at 3:28 pm

The clergy, Catholic Bishops in particular, should learn the lessons of old sayings, like, “once burned, twice shy” or “fool me once, shame on you, fool me twice, shame on me.” They, the Bishops made a deal with the devil in promoting Obamacare only to learn that they were abetting abortion, a grave sin the Church has long condemned. In trying to rectify this, they were shut out. Currently they pray for freedom of conscience, the right not to participate in the abortion they unwittingly promoted.

Now they seem to be preaching charity, the kind of charity the government “gives,” charity at the point of a gun. The recent WSJ op-ed by Nicholas Hahn, Tax Policy Isn’t the Purview of Preachers, highlights the recent clerical effort, a Faithful Filibuster, to encourage Congress to protect “programs that meet the essential needs of hungry and poor people at home and abroad!”

Quoting the article, “Catholic Bishops Stephen Blaire of Stockton, Calif., José H. Gómez of Los Angeles and Richard E. Pates of Des Moines, Iowa, were especially vocal. In a Sept. 30 letter to lawmakers, the bishops proposed “raising adequate revenues, eliminating unnecessary military and other spending, and addressing the long-term costs of health insurance and retirement programs fairly.”

Seems that the bishops have failed in their vocation, to promote God’s calling to charity. That is love of fellow man, recognizing need and fulfilling it, voluntarily in love, as Christ would.

In their failing and evidently unable to do their own job, they call upon the government to force “charity” on the government’s terms, force it at the point of fine or imprisonment! They have in fact in other instances become dependent on government; taking government money, tax money, to distribute it at government’s direction.

Will someone please give them lessons in economics, political science and sociology? Unfortunately, they don’t realize that this is the start of totalitarianism in which the state, the government, becomes all things to all people. Nor do they apparently realize that it is also the start of the demise of religion. They seem to be working themselves out of their vocations. Worse, they are taking their congregations away from God. Fool me once……shame, shame, shame!

Tom Motherway

We Must Favor Immigration or Die As a Society

June 26, 2013 at 8:28 pm

The simple lesson in demographics is that without immigration we will cease to exist as a society. Now that is a loaded statement which should be modified to say, we will cease to exist as a society. or perhaps societies, that we know!

Yes, we have a choice. As the video illustrates, we are not reproducing the society that we grew up in. But with immigrants growing and muslim populations growing, we can, to a certain extent, choose the society we want to become.

What are the values of the competing alternatives? How closely does either match the ones we are familiar with, comfortable with?

Is the current immigration bill really so bad? What’s the alternative?

Getting Better Value from the U.S. Healthcare System

June 21, 2013 at 11:13 am

Those who attended Wednesday’s dinner presentation by Dr. Michael Bloch at our Hayek Meeting will agree that we received a dynamite insider’s view of the serious deficiencies of and obvious solutions needed for our current health care delivery system. Here are a few bullet points from my notes:

  • Eliminate Waste—excess visits, procedures, paperwork.
  • Current system: episodic thus fee for service instead of long term health management
  •  Current incentives promote excess, unnecessary use and waste
  •  There are no rewards or penalties for excellence or deficiencies
  •  Dr. Bloch stressed live style as a cause of abuse of medical care delivery system and compared healthy eating and exercise to unhealthy re obesity.
  •  The incentives are also askew with respect to the private insurance system. Current insurers know that Medicare will take over the high cost results of the risks upon which they sold profitable policies. No incentives to manage premiums with value health care.
  •  Employer bases “free” medical insurance is wrong. Started in WWII, it’s become a permanent part of the tax system. It should be taxable compensation. If it were it would compete with specific private insurance offerings. In essence it promotes a sense that someone else will pay for it; thus it promotes overuse, abuse, waste and fraud.
  •  The major problem is that the patient is not the consumer, is ignorant of the costs, the options and the quality of care.
  •  As a result we now have a system driven not by need, but by supply of services. Something is wrong when hospitals, clinics and specialties advertise for business!
  •  The medical service professionals are smart enough to “game the system” to maximize profit using: unnecessary tests, aggregating services to split fees, directing patients to group owned facilities.
  •  Neither Obamacare nor free markets are the answer. We are a moral society and will have “safety net,” the level of which was undefined.
  •  Accountable Health Care Organizations, value based systems, seem to be a good step in the right direction.

And important part of the evening was Dr. Bloch’s admonition for healthy diet and exercise. Obesity in the U.S. is a killer that if reduced or eliminated would dramatically reduce the cost of healthcare. Simple equation is calories in must equal calories burned. And those calories should be good calories not excess carbs, sweets ro processed foods. In short we should chew our food!

A highlight of the evening was Dr. Bloch’s illustration of the magnificence of the machine that is the human body. Focusing on blood pressure regulation, he stood on his head then popped back up to say that despite the dramatic hydrostatic pressure change, his blood pressure was normal throughout his body and his balance and stability normal. There wasn’t a doubt in the room about his balance!

We want to thank Dr. Bloch for an excellent presentation truly embracing Hayek principles.

For those interested in a copy of the presentation, please email me.




Big Government and the Danger of the “Unelecteds”

May 15, 2013 at 3:53 pm

I recently finished a novel by C.J. Box, Breaking Point. It’s set in rugged western mountain range country and involves a worn out game warden and a double murder of federal agents. In the acknowledgments at the end the reader is told that it’s based on a true story the culmination of which wound up in a unanimous 2012 decision of the U.S. Supreme Court, Sackette v EPA. It’s an interesting story of uncontrolled bureaucracy, particularly in light of the recent revelations involving the IRS targeting conservative organizations.

Our federal system of limited central government divided into three branches and restrained by checks and balances was a model at its founding. At the founding the number of government functionaries was limited, sufficient to assist in the limited federal governing but not so numerous as to grow for the sake of bureaucratic growth.

That has all changed; government is now run by a vast herd of “unelecteds.” The gigantic group of unelecteds is further divided into “political appointees,” “career civilian employees,” and “military and civilian defense personnel.” According to the Office of Personnel Management total government employment in 2011 was 4,400,000, excluding 1,580,000 uniformed military personnel and 64,000 legislative and judicial personnel, leaves 2,756,000 executive branch civilian employees.There are only about 3000 political appointees. So Two and Three Quarter MIllion functionaries run the government.

Wickipedia lists fifteen pages of federal government agencies, bureaus and departments.The functions of these are sometimes duplicative and sometimes at cross purposes. It mentions “bureaucratic inertia” as the inevitable tendency of the bureaucracy to perpetuate itself, its procedures, and its growth. The unchecked growth is not dependent on successful results but the bureaucracy takes on a life of its own.

Our founding fathers would certainly be confounded by the myriad of so-called administrative agencies which have legislative, executive and judicial powers. These bureaucrats can thus act as rule makers, cops, judges and juries levying fines and confiscating property. The FCC, FDA and EPA are examples.This awesome power is great and corrupting, bringing to mind, Lord Action’s warning, “…power corrupts…absolute power corrupts absolutely.”

This morning’s WSJ treats readers to this tragicomic headline: “FBI Launches Probe of IRS.” So we have the spectacle of bureaucrats investigating bureaucrats whose presumable wrongdoing is “targeting” the Tea Party and like groups opposed to the current administration. Conservative groups were being scrutinized because of their political speech, the free exercise of which is constitutionally protected by the First Amendment. The groups were wrongfully being asked for lists of donors. And the IRS is a direct service of the Treasury Department responsible to the President. We will never know how this abuse of power occurred. Was it merely a low level minion seeking to curry favor with the political bosses or was it a direct order form a political appointee? What we do know is that an unelected misused the force of law for political reasons.

C.J. Box’s Breaking Point centered around the EPA’s wrongful application and enforcement of an administrative ruling. The Sackette Case which inspired the book dealt with that together with the Federal District Court’s refusal to review the action. Now we don’t see very many unanimous decisions from the U.S. Supreme Court, that it occurred against the EPA is evidence of the awesome abuse of power by that federal bureaucracy.

Nowhere is our Constitution will we find any delegated power for an Environmental Protection Agency. The same is true of most of the myriad of other agencies, departments and bureaus of the federal government. In short our federal government is too big with too much power. The temptation and ability of over two million unelected bureaucrats to abuse that power is a clear and present danger.

Ty Cobb: Reflections by the last soldier back from “Nam”

March 28, 2013 at 9:57 am

In world affairs economics is intimately intwined with diplomacy, realpolitiks and military intervention. Nothing better illustrates this than the following essay by Ty Cobb 40 years after the end of the Viet-Nam intervention. In the end freedom trumps all alternative political/economic systems.



Reflections by the last soldier back from “Nam”

 -      By Tyrus W. Cobb

Forty years ago Monday the last American combat soldier left Viet Nam, following the dictates of the Paris Peace Accords signed earlier that year.

As the plane carrying the last of the our U.S. delegation overseeing the implementation of the Peace Agreement prepared to leave, North Vietnamese and Viet Cong representatives, part of the observer teams, were at Tan Son Nhut airfield outside Saigon to witness our departure.

Boarding the plane on April 1, 1973, I recalled a few days earlier a conversation one of my colleagues on the American delegation, Colonel Harry Summers, had with a North Vietnamese officer of the same rank.

“Colonel”, Summers caustically pointed out, “Not once did your North Vietnamese or Viet Cong troops ever defeat the U.S. on the battlefield.”

“That’s quite true”, the Colonel from Hanoi responded, “but it is also irrelevant”.

So it was. They stayed, we left, and the Saigon government struggled on for two years before collapsing on April 30, 1975, as the VC and North Vietnamese launched the final assault. The photos of the helicopters taking our personnel and Vietnamese friends off the roof of the Embassy are riveted in our minds.

When our C-141 transport aircraft landed in Alaska 40 years ago, I waited until everyone had raced off the plane, then jumped off and claimed that “I was the last soldier back from Viet Nam”. Probably the case.

For those of us who had served in “Nam”, the relief of the war being over was mixed with the feeling that if the enemy had not defeated us on the battlefield, we had certainly lost the political war and the struggle for the “hearts and minds” of the Vietnamese people.

As a veteran of that conflict I am often asked if I thought the U.S. was right in engaging in that imbroglio. I answer that while I personally thought our intervention was the right decision, it may not have been the correct decision. That is, I believe that our support for the Government of South Vietnam in combating the invasion by North Vietnamese troops (NVA), and Hanoi’s support of the Viet-Cong (VC), was morally justified. I concede that the practitioners of Realpolitik have a point in arguing that our national interests might have been better served by pursuing balance of power politics in the region, playing off emerging Sino-Soviet and Sino-Vietnamese animosities.

I spent two tours in “Nam”, the first advising South Vietnamese forces (ARVN), and the second as an intelligence staff officer and later as a member of the U.S. delegation overseeing the 1973 ceasefire. In that capacity I served as the U.S. liaison officer to the North Vietnamese and Viet Cong, was the first American to meet with the “enemy” after the ceasefire, and the first to go to Hanoi (to start the implementation of the Peace agreement).

Like any American officer, I was frustrated by the South Vietnamese Army and Government. They constantly demonstrated an inability to work in unison, and were often corrupt as well as inefficient. Still, in the South there was a thriving private economy, a government that responded to a great extent to the wishes of the people, leaders who encouraged religious expression, and citizens who engaged in intense political discourse.

South Vietnam was far from a Jeffersonian democracy, but in contrast to the repressive Communist system in the North, it was a fledging participatory civic culture. I was struck, in going to Hanoi the day after the ceasefire (January 26, 1973), how mordant life there seemed, so regimented, emotionless, and authoritarian. While we Americans worked well with the NVA and the VC in the peace implementation, and were impressed by the discipline and order their troops exhibited, it was nonetheless a discomfiting contrast with the ebullience of life in the South.

Following reunification in 1975, the Communist government in Hanoi confiscated all private land, forced citizens into collectivized agricultural communes, instituted draconian “reeducation” policies, persecuted minorities, invaded their neighbors (Cambodia, 1978), and outlawed political opposition. The Communists isolated Vietnam from the world community (except for help from the USSR), and plunged the economy down to an abysmally low level. While the protesters marching against American intervention in Vietnam “won” when the U.S. withdrew and Vietnam was reunited, they lost when the Communists imposed a brutal regime and prohibited all political opposition

The disintegration of the Soviet Union led to cutbacks in assistance, and forced Vietnam to reassess its failed Socialist experiment. In the late 1980’s Hanoi instituted Western-style economic reforms that dramatically improved Vietnam’s business climate. Vietnam became one of the fastest growing economies, averaging 6-7% growth rates, inflation (300% in 1987!) was tamed, and foreign investment grew. The shift to a more market-oriented economy significantly improved the quality of life.

There is a supreme irony in all this. While the U.S. “lost” the war, it later won the peace by adroitly playing off the Sino-Soviet-Vietnam rivalry. Maybe there is a lesson there—yes, playing “balance of power” politics may be distasteful and require a certain amount of dexterity. But perhaps it might be a better approach than trying to change countries with authoritarian regimes, corrupt leaders, and religious fanaticism by massive military intervention and “nation building”.

-      Tyrus W. Cobb was the first American soldier to meet with the North Vietnamese and Viet Cong after the ceasefire was signed and the first to go to Hanoi to begin the release of our POWs and the implementation of the Peace Accords.


Reagan and Star Wars: Thank You, Mr. President

March 22, 2013 at 10:10 pm

At a time when President Obama, in responding to North Korea’s recent threats, ordered additional missel defense batteries posted on the west coast, we forget the brave, moral genesis of those technological advances. President Reagan morally repulsed by MAD (mutually assured destruction) ordered the development of “star wars.” He was lambasted for this effort in the popular press.

Ty Cobb, who was in the White House at the time pens an excellent article on the topic on the 30th anniversary of the inaugurating speech for the Strategic Defense Initiative. It is reprinted in full below.

It is important to recognize that there was a time when we had moral leadership in the White House acting for the common good of this great nation. Hopefully, for the sake of our grandchildren, it will one day happen again.

Reagan and the Strategic Defense Initiative Key to the End of the Cold War?

By Tyrus W. Cobb

Thirty years ago this week President Ronald Reagan issued a stunning reversal of America’s national security strategy. Instead of basing our security on the presumption that an attack by one superpower on the other would result in the unleashing of a catastrophic retaliatory strike, Reagan committed the United States to pursuing a strategy of defending against offensive missiles. The “Strategic Defense Initiative” (SDI) concept envisioned employing ground and space-based systems to protect the United States from a devastating attack. SDI was designed to permit the U.S to shift away from the idea of “Mutual Assured Deterrence” (MAD) toward a reliance on non-nuclear defensive systems.

The President was repelled by the idea that we based our national strategy on the threat to annihilate the population of the Soviet Union, and Moscow did the same. The SDI concept, however, won few friends or admirers initially, and was widely ridiculed as his “Star Wars” plan, after the George Lucas fantasy of that name. A majority of scientists called the concept “technologically impossible”; other critics worried about the impact of the spending for the program. Our Allies were non-supportive, or at best, silent in their commentaries, including stalwart friends such as British Prime Minister Margaret Thatcher.

The Tenets of Reagan’s Arms Control Philosophy

Reagan was a staunch opponent of traditional approaches to arms control, which in his mind were primarily focused on limiting the growth of future capabilities. He wanted arms agreements that severely reduced offensive systems, treaties that did more than just restrict future growth. Secondly, despite doubts by many critics, as well as many in his administration, Reagan envisioned global agreements to jointly build defensive programs. This was not going to be a capability that the U.S. alone would possess. Finally, the President envisioned a world without nuclear weapons, a position that he felt fervently about, and one that was opposed or ridiculed by friend and foe alike.

These tenets were a remarkable deviation from traditional policy. Arms agreements that actually reduced inventories; replacing the threat to annihilate populations with defensive systems; developing and then sharing strategic defense capabilities; and eventually ridding the world of nuclear weapons!

As President Reagan stated in his speech, “What if free people could live secure in the knowledge that their security did not rest upon the threat of instant U.S. retaliation to deter a Soviet attack, that we could intercept and destroy strategic ballistic missiles before they reached our own soil or that of our allies?”

The antecedents of Reagan’s futuristic SDI proposal had many Godfathers, but probably none as influential as Edward Teller. As a newly elected governor of California, Reagan was briefed by Teller on defensive technologies at the Lawrence Livermore National Laboratory in 1967. Another key “Ah ha” moment came during then Presidential candidate Reagan’s 1979 visit to the NORAD’s Cheyenne Mountain complex. Reagan asked the generals briefing him what capabilities we had to defend ourselves against a missile attack. The answer was, “Basically, none…we just launch a counter-strike before we get blown off the earth!” Reagan was very disturbed that our systems could detect impending annihilation, but could do nothing to prevent it.

President Reagan was concerned not only with the prospect of a superpower Armageddon, but had the foresight to see that the day was coming whereby even small and medium size countries would also possess a missile strike capability to target the U.S. His solution was to turn U.S. deterrence doctrine upside-down, to shift to defensive technologies that he would then extend to the entire world.

I know many observers have expressed doubt about President Reagan’s statements that he would share our defensive technology once we had mastered it. But I am sure he meant it, despite reservations on the part of some of his key advisors. Many times I heard the President say to foreign leaders, allies and adversaries alike, that his goal was once we had developed this technology, that we would share it with the world (including, as he said to a skeptical Mikhail Gorbachev, to the USSR—and he meant it!)

Strategic Realities Motivated Reagan and the White House

The shift to a defensive strategy was generated not just by moral concerns, but practical realities as well. The United States was falling significantly behind the USSR in strategic missile deployments, with many failed schemes littering the landscape. As Bud McFarlane wrote to me:

“To me, it (the shift) was a matter of necessity as a consequence of our having no other means of deterring the Soviet threat. Recall that after three tries (i.e., ‘Race Track’, ‘Big Bird’, and ‘DensePak’) we had failed to deploy the MX missile in any configuration. This meant leaving the USSR with a 3-1 advantage in land-based ballistic missile warheads—potentially a first-strike capability!”

Admiral Poindexter had been discussing state of the art defensive technologies with retired General Danny Graham and the CNO, Admiral Jim Watkins, who advised that there had been substantial technological improvements (over previous unimpressive efforts, such as “Safeguard” and “Sentinel”). Lack of real support in the Pentagon had also doomed earlier attempts to get money in the budget for strategic defense R&D. According to Bud McFarlane, the combination of (1) Soviet advances in fielding ICBM systems; (2) The promise new technologies offered; and (3) Repeated failures to obtain funding for outmoded defensive systems and, especially, numerous failed attempts to deploy the MX ICBM, made the shift to SDI not only attractive, but necessary.

Allan Myer, a former Army Colonel and previously an NSC staffer, had moved over to the White House speechwriting staff and had the lead there in coordinating the President’s March 23 speech. Myer strongly defends the strategic shift the speech represented, noting to me:

“What else should a President in 1983 have done? One might even be able to make the argument that given the state of technology, the growing imbalance in strategic weapons between the USSR and the US, and what it could mean for an analysis of ‘could you win a nuclear war’ by the Soviets by the 1990s……….that a President would have been derelict in his duties not to have done precisely what Reagan did in March 1983.”

McFarlane noted that their efforts turned to getting the other Chiefs on board, and Watkins was the key. At the meeting when the scheme was revealed, the other Chiefs—feeling completely blind-sided—were in shock. And non-supportive! Secretary of Defense Caspar Weinberger and his principal deputies, such as Richard Perle, were adamantly opposed as well.

Another “strategic reality” that underscored the necessity of shifting to defensive systems, was the need to counter the vast amounts of revenue Moscow was directing to the military—by some estimates, 40% of GDP! The U.S. could not match that investment nor did it want to.

So to what extent was the idea of using SDI to “break the back of the Soviet economy” a factor? That’s up for debate. I had been calling for the U.S. to utilize its technological and economic advantages to “leverage” changes in Soviet behavior. However, I was focused more on employing these elements of national power primarily in the energy sector, which the Soviets depended on significantly. I certainly didn’t foresee SDI as a “lever”. Bud McFarlane writes that he, however, was motivated by a strategy of “imposing an economic burden that the Soviet economy would not be able to sustain”. While this strategy did not have widespread support at the time, Weinberger and his deputies came to embrace it, and possibly for that reason, gradually became more supportive of SDI.

Reagan Shocks the World by His Commitment to the SDI Program

When the president announced his concept in a March 23, 1983, national television address, it was the result of meticulous preparation in secret White House meetings between the National Security Council staff, the president’s science advisor, and the Joint Chiefs of Staff. It was only after this review that the president felt confident enough to bring it before the American people.

In defending his SDI program, Reagan often spoke of the immoral basis of our MAD strategy, seeing this “deterrence” concept as “the sword of Damocles that has hung over our planet for too many decades.” “I’ve become more and more deeply convinced that the human spirit must be capable of rising above dealing with other nations and human beings by threatening their existence,” he stated.

I remember one discussion vividly: The day before Reagan met with Soviet General Secretary Mikhail Gorbachev in Geneva in 1985, we had a courtesy meeting with Swiss President Kurt Furgler. Like most sophisticated Europeans, Furgler spoke demeaningly and condescendingly about the “Star Wars” idea, and questioned why the President would consider moving away from the MAD doctrine that had seemingly underlined global stability.

Reagan paused for a moment, then said:

“President Furgler, I can’t help but think that here I am in Geneva— the city that hosted the conferences that led to the outlawing of the most inhumane aspects of war. Yet today I come here as the leader of one of two superpowers who base their strategies on the idea of the mutual annihilation of each others’ populations.”

“I’ve got to believe there is a better way, don’t you?”

That floored Furgler and his aides. What could they say in response? “No, we really like the idea of blowing up the world?”

It was also true that many doubted Reagan’s statements that he truly wished to rid the world of nuclear weapons. But it was a viewpoint which he held strongly, even against the advice of his closest advisors and allies. It was a point he would often raise in pre-Summit discussions, which made his national security team nervous! Those around the President had often heard him just ask, “Well, Cap…or Bud…or George…why can’t we just agree to abolish ALL nuclear weapons”? All of his advisors—and that included George Shultz at the time, despite his more recent declarations in favor of a nuclear-free world—would recoil and say something like, “Well, Mr. President, we agree in principle, but given Soviet conventional force advantages, we cannot at this time consider giving up our reliance on nuclear weapons to repel Soviet aggression.” The President would nod, “Well, ok, I won’t push it.” But you knew he would (and he certainly did at the Reykjavik Summit with Gorbachev in 1986).

Was SDI a “Pipe Dream”? Technologically feasible?

Reagan secured precious little support from the scientific community for his “Star Wars” idea. Doubt that the program could achieve its objectives is understandable. For SDI to work, our systems would have to intercept Soviet intercontinental ballistic missiles at various phases of their flight. For the interception, SDI would require extremely advanced technological systems, none of which existed!

However, as then Military Assistant to the National Security Advisor (NSA) and later himself the NSA, Admiral John Poindexter, reminded me:

“The President felt that we should start a research and development program with the objective of developing these advanced systems. He was very disappointed with the scientific community’s declaration that it was not possible before the R&D had even been attempted. President Roosevelt would probably have faced the same criticism if the Manhattan Project had been made public.”

In his speech 30 years ago, Reagan avoided specifics regarding what a system might look like. His focus was on research and development–“I am directing a comprehensive and intensive effort to define a long-term R&D program” designed to “eliminate the threat posed by strategic nuclear missiles.”

Among the potential components of the defense system were both spaceand earth-based laser battle stations, which, by a combination of methods, would direct their killing beams toward moving Soviet targets. Air-based missile platforms and ground-based missiles using other non-nuclear killing mechanisms would constitute the rear echelon of defense and would be concentrated around such major targets as U.S. ICBM silos. The sensors to detect attacks would be based on the ground, in the air, and in space, and would use radar, optical, and infrared threat-detection systems.

Over the years the U.S. has pursued ballistic missile defense (BMD) with less fervor, reflecting the emerging “unipolar” world and lack of a superpower threat. However, given the rise of concerning threats from rogue nations such as North Korea, a new emphasis on constructing a viable defensive system is emerging again.

Was SDI A Bargaining Chip? Did the Soviets Believe it would work?

In the arms control negotiations with the Soviets, SDI proved to be a very powerful bargaining chip, primarily because the President did not believe it was up for discussion. Secondly, as many of us who met with USSR officials came to realize, the Soviets were the most fervent believers that the U.S. could actually develop and field the complex systems needed for SDI to work. Moscow had apparently concluded that this system would tip the nuclear balance toward the United States. They had come to believe that SDI would enable the United States to launch a first-strike against the USSR, tipping the nuclear balance decidedly against them. As Poindexter adds, the Soviets were pursuing R&D on a defensive system of their own, but believed that the U.S. was much more capable of achieving that capability than they were.

It took me personally some time to realize this. Soviet officials would constantly harangue me or my colleagues on the danger that SDI represented for the “strategic consensus”. Or that SDI was technically impossible. Or that it was so expensive that it would bankrupt us. OK, I finally thought, why would they be so concerned if chasing this scheme would drive us to financial ruin? Or why would they feel the need to stress the technical hurdles to achieve effectiveness?

The answer was that while we in the U.S., including many in the administration, were doubtful that this complex system would be feasible, the Soviet leadership actually thought we could do it. This came at a time that the USSR itself was falling further behind economically—much more so than many in the U.S. Intelligence Community believed at the time.

We did not fully appreciate then that Gorbachev, unlike his predecessors, was aware of the depths that the Soviet economy had fallen. It also appears that Gorbachev was deeply concerned about the President’s SDI program, feeling that what was at stake was more than just a space defense program. He believed that if the United States once and for all combined its technological superiority with its economic potential, America would make an enormous “skachok” (leap) ahead. In doing so, we would, to use the Marxian phrase, be “consigning the Soviet Union to the ash-heap of history1”

The General Secretary knew that he needed to redirect resources away from the defense sector to rejuvenate the stagnating Soviet economic system, but first he must stop the U.S. potential to jump ahead—which he feared our pursuing SDI would do. It might not be a stretch to suggest that Gorbachev was traumatized by the prospect of a serious escalation of the costs involved in trying to maintain strategic parity with the United States.

This conclusion was echoed recently by former National Security Advisor, Bud McFarlane, who said that the best evidence of the impact of the President’s initiative has come from Russians who served in the Kremlin at the time. In 1992, the Russian Ambassador to the US, Vladimir Lukin, told McFarlane that “…your Star Wars initiative accelerated our collapse by at least five years.”

Gorbachev and Reagan: SDI Assumes Central Place at the Summits

Gorbachev knew he had to put a brake on Reagan’s military build-up, principally but not limited to SDI. However, he also realized that deep and fundamental reforms of the corrupt, centrally managed Soviet political system needed to be undertaken. While he recognized that this would cause some disruption, he failed to anticipate that the changes he was implementing would soon spiral out of control. Trying to open up Soviet society (“glasnost”) and restructuring the politico-economic system (“perestroika”), while arresting the U.S. military build-up so that resources could be redirected away from the defense sector, presented a formidable challenge. Neither the Soviet Union nor Gorbachev survived the challenges.

At their first Summit meeting in Geneva in 1985, Gorbachev made a halfhearted attempt to place restrictions on the SDI program. Failing to achieve that goal, the General Secretary fell off his objections so that he could bask in the aura of having achieved a “successful” first test on the world stage.

But the following year, in Reykjavik, Gorbachev was in no mood to settle for a “hand shake” Summit. He came loaded “for bear” with extraordinarily far reaching proposals. Until Reykjavik, Soviet leaders had dismissed U.S. proposals for arms reductions as one sided and insincere, and rejected them. Yet Gorbachev came to Reykjavik with his own dramatic proposals, including a 50% reduction in strategic offensive arms, a complete elimination of all intermediate range (INF) missiles, and a non withdrawl from the 1972 ABM treaty for 10 years.

The negotiations were complex, animated and highly substantive, and Gorbachev proved to be intelligent, knowledgeable and facile. Reagan held firm in his principles. No more unverifiable treaties (“Trust but Verify” he loved to say in Russian), no more agreements codifying Soviet superiority in arms on the European continent, no more tolerating Moscow’s refusal to grant its citizens basic human rights, and – perhaps most importantly to the President – no more reliance on offensive nuclear missiles to provide for our security. Gorbachev hung firm on many key points, I think hoping that the President would “understand” that an agreement on Moscow’s terms would ensure the President emerged from the Summit as a popular and respected world leader and peacemaker.

Reagan and Gorbachev in Reykjavik for the Summit negotiations

At the Reykjavik summit, the one issue Gorbachev needed to lock in was an agreement that the U.S. would confine its research and testing on the Strategic Defense Initiative (SDI) to the laboratory.

Some have said that the reason so many Soviet concessions were made was because Reagan used SDI as a “bargaining chip”. Maybe so. However, the reason SDI succeeded so well was precisely because the President believed in the program so passionately. It was a great bargaining tool because the President did not believe it was a “bargaining chip.”

The final session that stretched into the night was a scene of high drama. Gorbachev offered to eliminate all strategic forces, not just ballistic missiles. Reagan then countered that it would be fine with him if they could agree to eliminate all nuclear weapons. They almost had an agreement. The sticking point fell to the area that most concerned the Soviets – confining Reagan’s SDI to the laboratory and not permitting actual testing of the systems.

This the President could not agree to. The Summit ended in apparent failure and discord. As the two leaders walked to the door with dour looks on their faces, Gorbachev asked the President, “What more could we have done?” Reagan, asking Gorbachev how he could “turn down a historic opportunity because of a single word”, simply said to the General Secretary, “You could have said yes.”

The American and Soviet leaders maintained communication, but serious arms control negotiations were placed on hold for awhile, not the least because the Iran-Contra affair—which broke open just two weeks after the Iceland Summit—constrained the American President. Gorbachev, as well, was preoccupied with the failing Soviet economy, and serious challenges to his leadership from the “Old Guard” over his political reforms.

Negotiations did get back on track, however, resulting in the intermediate force reductions agreement (INF) in late 1987 at the Washington Summit, and the following year in Moscow principles were finalized on the strategic arms reductions (START) treaty.

SDI was instrumental in the demise of the USSR, but was certainly not the sole factor. In the end, the combination of greater political and social freedoms instituted by Gorbachev, and the proactive policies implemented under Reagan to impose severe economic and political burdens on Moscow, together led to the collapse of the Soviet Union, on Christmas Day, 1991.

         - Tyrus W. Cobb Reno, March 21, 2013

Hayek Dinner Recap 3.20.13: Cargill on the Future of Capitalism

March 21, 2013 at 2:40 pm

Those of us who attended last night’s Hayek Dinner at the Grove were treated to an outstanding presentation by Dr. Tom Cargill on The Evolution of Economic Planning and the Future of Capitalism.  The basic conflict throughout history has been the role of the individual versus the role of the collectivist group. Ignoring the early utopians like Plato and Moore, Tom showed two quick charts, the first showing estimated world population growth from prehistory to the dawn of the 21st century, the second showing estimated gross world product for the same period.

It’s the dramatic growth in both population and income that Tom treated. Did one cause the other, or were they co-dependent? Both occurred only after individuals became freer upon exiting the feudal system. Cities grew, trade increased, skilled craftsmen increased and cities blossomed. Politically the new rising classes started to gain rights.

Tom argued that freeing the creative, competitive juices of the individual was the cause of the dramatic growth. Adam Smith’s Wealth of Nations (1776) was the intuitive analysis of the growth; his “invisible hand” did indeed work. While other economists later quantified his theory and attempted to add elements of state control, the obvious results were not challenged until Marx’s Communist Manifesto in 1848 and Das Capital in 1867. This first attempt at modern utopianism posited an ideal world the benefits of which derived from each according to his ability and were passed onto each according to his need. This of course necessitated absolute control.

WWI gave rise to the first application of Marx’s philosophy in the Soviet Union and later in Germany, Italy and Japan. Absolute control of the socialist states rested in powerful dictators at great costs in wealth and human life. It should be noted that these same collectivists states escaped the effects of the Great Depression, which buttressed the argument for collectivism. WWII saw John Maynard Keynes develop a modification of the absolute control with a role for the state to manipulate the individual and his free markets. He was opposed of course by Friedrich Hayek who argued against the prevailing intellectual elite’s love of socialism.

To one degree or another Keynes’s idea of government activism in hitherto free markets prevailed until its failure was becoming increasingly obvious with runaway inflation and interest rates in the 1970s. Then with Reagan and Thatcher came what Tom called the Age of Friedman. It was Milton Friedman, Nobel Laureate from the Chicago School who promoted the intellectual basis for a return to classical liberalism.

Tom commended the Friedman lecture on The Future of Capitalism at UNR where in 1977 Tom had the honor of introducing Milton Friedman. It’s engaging, so give it a listen.

Since the golden age of Friedman the free world has again fallen into the collectivists mentality with ever increasing state control. Witness Europe, Japan and the United States. The entitlement society prevails with expanding governments crony capitalists and crony public unions. Special interests prevail over free markets and common good.

Tom suggested that we were near the tipping point, the time at which the public recognizes the non-sustainability of the present course and peacefully changes it or violently revolts. As history teaches, that last is an unpleasant thought.

In the Q&A that followed, Jerry O’Driscoll suggested that we should not get too pessimistic because the public by a significant majority in recent polls favors free markets. As he suggests, it’s crony capitalism that gives the black eye to capitalism.

We want to thank Tom for an excellent presentation. It sharpens our desire to get the message right and educate others on the danger of our country’s present direction.