Markets Biggest Threat to Peace

Even with stock markets tottering around the world, the president and the Congress seem determined to spend the next six months arguing about dress stains. Too bad. The United States and the world are facing what could grow into the greatest threat to world peace in 60 years.

Forget suicide car bombers and Afghan fanatics. It’s the financial markets, not the terrorist training camps that pose the biggest immediate threat to world peace.

How can this be? Think about the mother of all global meltdowns: the Great Depression that started in 1929. U.S. stocks began to collapse in October, staged a rally, then the market headed south big time. At the bottom, the Dow Jones industrial average had lost 90% of its value. Wages plummeted, thousands of banks and brokerages went bankrupt, millions of people lost their jobs. There were similar horror stories worldwide.

But the biggest impact of the Depression on the United States--and on world history--wasn’t money. It was blood: World War II, to be exact. The Depression brought Adolf Hitler to power in Germany, undermined the ability of moderates to oppose Joseph Stalin’s power in Russia, and convinced the Japanese military that the country had no choice but to build an Asian empire, even if that meant war with the United States and Britain.

That’s the thing about depressions. They aren’t just bad for your 401(k). Let the world economy crash far enough, and the rules change. We stop playing “The Price is Right” and start up a new round of “Saving Private Ryan.”

The current depression isn’t as bad as the Great Depression--yet--and it may not ever get there. But try telling that to the Asians. The Thai stock market has lost about 90% of its value. Tens of millions of people from Moscow to Malaysia have watched their savings disappear, wages fall and hopes for the future wither and die. Guess who they blame.

It’s all a U.S. plot, say many ordinary Asians and a disquieting number of Asian politicians. Asia was getting too rich and powerful. The United States therefore engineered this crisis. And now that many Asian currencies have declined, and many Asian companies are for sale cheap, the United States will buy up Asia for pennies on the dollar.

This is paranoid, but not totally dumb. The economic crisis we see today does result, in part, from U.S. policy. Not that we were plotting cleverly to make Asia poor. Actually, the U.S. government wants Asia to get rich--and the quicker the better. The United States feels much like Julius Caesar in William Shakespeare’s play. Seeing Cassius with his “lean and hungry” look, Caesar instinctively says, “Would he were fatter!”

Ever since all the other great economic powers were either defeated or ruined by World War II, America has borrowed its foreign policy from the witch in Hansel and Gretel: Fatten them up.

Not that we wanted to eat them. We wanted to fight communism. We figured that only poor countries went Red, so the best way to win the Cold War was to make workers around the world too rich to rebel. This worked, more or less.

When the Soviet Union collapsed seven years ago, we fine-tuned our policy but made no basic changes. The goal changed from defeating communism to promoting democracy, but the basic reasoning stayed the same: Fattening them up keeps the United States prosperous and the world at peace.

That simple idea is the real core of U.S. foreign policy--plus maintaining a military strong enough to scare off the lean and hungry guys who can’t or won’t climb on the chow wagon. If there’s a better way to run a world, nobody’s pointed it out to the foreign-policy establishment.

There’s only one problem: The United States has a goal, but it doesn’t have a plan. The economic ideas that the Washington policy establishment thought would guarantee growth in Asia and elsewhere used to work. Now, suddenly, they don’t--and neither Washington nor anybody else knows what to do.

Our biggest blunder? To think that the export-oriented growth strategies pioneered by Japan, Taiwan and South Korea would keep working forever. The United States both directly and indirectly through intermediaries like the International Monetary Fund and the World Bank encouraged developing countries everywhere in the world to learn from and imitate the examples of the early Asian tigers. Use your low wages, lax regulations and low taxes to lure foreign investment, we told them, and save money yourselves. Then put all that money into factories aimed at producing goods for export to the U.S. and Europe.

We never stopped to think that what worked brilliantly for a handful of countries might not work as well if everybody tried it. It’s a little like traffic. If a few people decide to take the freeway, they save time. But if everybody tries to crowd onto the same freeway at the same time, they get caught in a monstrous traffic jam and nobody gets anywhere.

This is happening in Asia today. The Japanese, the South Koreans, the Taiwanese and the people of Hong Kong were all doing 70 miles an hour on the export freeway toward growth. The Thais, the Malays, the Indonesians and the Chinese saw how well they were doing and headed for the on ramps in their millions and billions. Now the Indians, Bangladeshis, Sri Lankans and Vietnamese are trying to crowd onto the freeway--even as the traffic jams congeal.

Unfortunately, as horns honk and tempers fray, the United States, like a deranged traffic helicopter overhead, is still urging more countries to get on the freeway--and advising those stuck on the freeway to stay where they are.

Those billions of drivers stuck in that traffic are pounding their steering wheels and cursing their fate. They are also cursing that damned helicopter, which keeps issuing cheery, out-of-touch little updates even as the traffic gets worse.

The Asians aren’t the only people mad at the helicopter. The Russians, too, think they’ve gotten a bum steer. But taking U.S. advice didn’t land the Russians on a jammed freeway; they’ve driven straight into what looks like the economic version of the La Brea tar pits, where their country and their hopes are being slowly and irresistibly sucked down by the ooze.

None of this is all our fault, and some isn’t our fault at all. We advised the Russians to privatize their economy; we didn’t tell them to hand it over to the Mafia. We told the Asian nations to chase export-led growth, but we never said anything about turning their banks into Ponzi schemes.

As we move forward from here, the U.S. has two facts to face. First, we still want to fatten them up. “Let me have men about me that are fat;/Sleek-headed men and such as sleep o’ nights,” said Caesar. He was right. If the Russians get rich, they’ll settle down, and we can all stop worrying about all those nuclear weapons. If the Chinese and their neighbors get rich, they will buy more goods from us, settle the quarrels they have among themselves more peacefully and not think we are out to destroy them.

The second fact is a bit uglier: We don’t actually know how to make the world economy grow. Our old methods have stopped working; no obvious new miracle cures have appeared. The United States and the world must now pass through a dangerous and possibly prolonged era when the world economy urgently needs fixing, and nobody knows what to do.

There are no guarantees in this world. Maybe we’ll find a workable solution in time, and the global economy will start to right itself. Maybe we won’t find a solution, the meltdown will spread and we’ll slide into war-spawning depression.

But one thing is clear: The U.S. national leadership is facing what could be one of history’s sternest tests. Yet both parties and all three branches of government seem more interested in interns than in international finance.

That isn’t good news, in case you were wondering.