21-st Century War Economics

...Like Japan, we are in the grip of a wrenching deflation that so tilts the balance between debtors and creditors that our capital markets had long been frozen...

...That most have failed to grasp deflation as part of this equation is understandable...

...Likewise, a lame and lagging indicator is the consumer price index...

...See "Why the West Has Won," p. 60] Where there is a way there is a will...

...A high-tech 14 THE AMERICAN SPECTATOR 9 NOVEMBER/DECEMBER 2OOI collapse portends not mere recession but depression...

...Albert Eisele, the publisher of The Hill, headlined his version, "The End of the Republican Revolution...

...Inflation was a threat not because of anything the Fed might do but because we were growing too fast...

...Even the producer price index, one of the foggy rear-view mirrors Washington favors, has just plunged 1.6 percent in a single month, the largest drop since 1947...

...Oh, well...

...Yet Washington clowns and financial filberts still warn about inflation, and Milton Friedman says all is well because the hoarding of cash is jacking up the money supply numbers...

...Is it $75 billion...

...House leaders staunchly defend market freedom for those economic prime movers, the airport metal-detector technicians, then allow Democrats and lobbyists to write the far-reaching tax bill...

...the public now has more trust in the federal government...

...21ST'CENTURY WAR ECONOMICS BY GEORGE GILDER AND BR.ET SWANSON T he Republicans don't have a clue how bad the economy is"a Democratic congressional aide told us one late October night, savoring the vision of a gavel in Dick Gephardt's hand.Then, slowly, he broke into a wide smile, like a happy hijacker dreaming of seventy succulent virgin interns awaiting him in paradise...

...Measuring economic policy by "deficits" was a disaster for conservatives...

...Chiefly in the business of appraising enterprise and technology, we do not visit Washington often these days...

...That's almost double the combined pre-tax earnings last year of Ford, Chrysler and General Motors," said Saul 1Kubin of UBS Warburg in Barron's...

...Does Osama bin Laden's handiwork mean Big Government is back...

...But with deflation and depression now ravaging our domains, we decided to make an expedition to the source of the problem...

...Addressing conservatives at a recent weekly luncheon, one Republican senator failed to find a place for the economy among his three top priorities...

...But our economic problems far pre-date September 11...

...Yes, there have been gross misstepsmthat is how capitalism works...

...As Huber also pointed out, the private sector will develop and deploy much of this technology without any government aid...

...Running at $10 billion a month, defaults by Internet carriers are helping push bankruptcy levels to record highs...

...11, White House budgets projected that federal spending would drop from 18 percent of GDP to 16 percent over the next decade...

...Confronting this rise of invention and enterprise, however, is a countervailing force of destruction from the public sector: the purblind economics of envy and class hatred, barring any policy that favors the accumulation of capital by entrepreneurs who can invest it productively in these very same crucial fields...

...Originating in the private sector, one is overwhelmingly positive and redemptive: the ever accelerating advance of technology...

...The conservative consensus on shrinking governmentmnow facing this concerted counterattackmis a relatively new phenomenon...

...Prosperity, we are told, comes from taking money and benefits from productive and ingenious people--thus reducing their productivity and investment---and giving it to tax avoiders, thus ensuring that they stay out of work...

...Annual sales of 16 million vehicles, therefore, means reduced Big Three revenue of $16 billion...

...Pity the poor voter who listened to both parties...

...But by the 1980s they discovered that they could block Reaganite calls for tax cuts by publicly opposing "deficits...

...Since the end of the Second World War, conservatives have had two pole stars: opposition to communism globally and to deficit spending at home...

...9 THE AMERICAN SPECTATOR 1 5 imminent inflation...

...He cites Japan's "recovery" after the horrendous 1995 Kobe earthquake, and is right such events do not disable the real engines of growth...

...Both houses quickly passed a 342-page collection of new federal police powers, in the name of fighting terrorism.The Senate voted 100 to zero to nationalize the 28,000 underwear inspectors at airports...

...16 THE AMERICAN SPECTATOR 9 N O V E M B E R / D E C E M B E R 2OO...

...Prior to Sept...

...In an inflation, the government prints too much money...

...Democrats wanted to tax more...

...Washington wants to win the war against terrorism by sucking funds out of the technology sector and endowing indolence, even while we hurl every Third World country and debt-fuelled technology startup into a deflationary pit.With commodity prices from coffee to cotton at 15-year lows, deflation is sinking Pakistan, Turkey, Argentina, Brazil, Venezuela and Colombia...

...The cosseted, cretinous world of Washington economics and media punditry sees economic growth as an effect of the Prozac of "consumer confidence" and government spending...

...Insurance companies will require every building and mall and other public space to know who enters it and what is in every box and bag and SUV that passes over its portals...

...It gets Larry Lindsey, Alan Greenspan, and Congress off the hook...

...But its friends won't fail for lack of trying...

...Former Microsoft CFO Greg Maffei led 360networks off the precipice of debt...

...Too many chips...

...Semiconductor sales have been halved since autumn 2000...

...monetary policy and IMF-sponsored tax hikes are enhancing the power of desperadoes everywhere and imperiling any alliance against the terrorist jihad...

...Nobel Laureate economist Gary Becker argues in the Wall Street Journal that the U.S...

...Even as the Ms expand at record pace, real liquidity~ signaled by plunging spot commodity prices~is not rising...

...former AT&T number two Alex Mandl did the same at Teligent...

...These were measurable efforts...

...Automobile sticker prices are not falling, but ubiquitous zero percent financing has the same effect...

...R.onald Reagan's victory over the Soviet Union, ironically, removed this central organizing principle of the Right...

...Congressional pundits aver that all we need to overcome a deflationary spiral is avid avoidance of permanent tax rate reductions and artful application of stimulus from the dildonic pen of Paul Krugman...

...150 billion...

...they felt the case was stronger when linked to Americans' aversion to debt...

...one could judge a president's foreign policy by how many countries fell to the Red Army on his watch...

...Everyone in Washington blames business first...

...Oklahoma's stalwart Don Nickles and a few Senate colleagues were accordingly reduced to Daschle damage control...

...Too many twenty-yearold dot-commers who forgot to bring the business plan...

...Under widespread development but in need of aggressive adaptation to martial needs, these tools of war comprise our chief advantage against terrorism.They can obviate scores of thousands of deaths in battle and millions of civilian casualties...

...Too many junk bonds...

...Bill Clinton's presidency exhausted the room for error and demagoguery...

...Too much Valley capital...

...From the iron stirrups of the Vandals and Goths and the long bows at Agincourt to the atomic bombs and the Turing Bombe computer that cracked Hitler's Enigma code, wars are always decided chiefly by technology and the culture that supports and uses it...

...100 billion...

...Throughout both cycles Alan Greenspan has been in denial...

...And the massive spending binges of Bush's 1990 budget and Clinton's in 1993 were implausibly pronounced "deficit reduction measures" mthey just tacked on tax hikes, too...

...Because it is so rare, and because it mimics inflation, deflationmnothing more or less than an insufficient supply of money--is inconspicuous...

...In between hip if muddled musings on the New Economy, the one-time Randian told us the stock market rose not because of new value creation but because we were greedy...

...As Peter Huber put it in an incandescent speech at our Telecosm conference in San Francisco in early November, we can apply "our silicon against their sons...

...The boom was real...

...As late as November, Washington sages still expected an economic recovery based on the socialist sorcery of Robert Rubin and the tricks and trichinosis of House and Senate budgetary bacon and pork...

...Bush advisor Glenn Hubbard finally exposed Rubin's crank notion, but only after the stimulus cake full of empty Keynesian calories was seven-eighths baked...

...Moore's law of microchips, the driving force of the last two decades of growth, continues apace, and optical technologies are advancing two or three times as fast...

...It imagines that seven trillion dollars of wealth can disappear because of bubble-headed investors rather than bubble-headed policy makers...

...They ignore real inventions and real value created over the last half-decade.Astounding number: a communications network built with 1995 technology capable of carrying world Internet traffic at 2000 levels would cost $8.7 trillion.This year the figure would run closer to $20 trillion...

...But in crisis leaders must emerge to tell the truth about real perils and possibilities...

...In times of peace and prosperity, politicians can cavort with interns, pollsters and astrologers...

...In Washington even the Republicans mill around like a herd of hornless Guernseys, prodded by the press and the polls to thwart any moves aiding the elite of entrepreneurs and technologists who can deliver relevant weapons...

...adding it to the list would only dilute efforts to confirm new federal judges, he said...

...Nearly no one in the city had any idea of the dire condition of the enterprises and technologies that will be indispensable to winning a war...

...IN HALF--STILL NO CEASE-FIRE ON BIG GOVERNMENT BY GROVER G. NORQUIST T wo weeks after the terrorist attacks on New York City and the Pentagon, a Wall Street .Journal front-page story announced: "Terror Attack 1Reverses a Two-Decade Drive to Shrink Government...

...voiced obsessively by every wealth-hating intellectual from the New Republic to Pat Buchanan...

...In a leadership vacuum, they instead adopted former Clinton Treasury Secretary Rubin's enematic idea that tax cuts push up long-term interest rates and choke off investment...

...Meanwhile gassing up the nation in a blinding kultursmog is an asinine illusion of the media and the academy, George Gilder is the author of Telecosm, editor of the Gilder Technology Report and Chairman of Gilder Publishing, LLC Bret Swanson is senior editor of TAS...

...Not only has it fooled policymakers, but it has also swallowed some of the nation's best business managers...

...will recover quickly from September 11 because we retain our knowledge and skills...

...If we hadn't climbed so high, we wouldn't have so far to fall...

...Which of the two conflicting trends in Washington wins will determine the outcome of the war against terrorism, the future of capitalism, and the survival of freedom...

...Big Three incentive packages, averaging $2,400 in October, are $1,000 more than a year ago...

...From biotech and satellites to neural nets and smart bombs, from optics and high energy microwaves to antibiotics and biotech, technology can enable us swi~ly to identify and subdue the forces of terror and chaos ascendant in the world...

...The 1994 GOP congressional sweep brought modest spending...

...To every man and nation comes a moment to decide whether to embrace reality and truth, however harsh and harrowing, or to indulge in evasions and alibis...

...as did former IBM and National Semiconductor executive Ellen Hancock at Exodus...

...In the 1950s conservatives attacked it, even when their real agenda was to limit the size of government...

...From the other side, liberals argued that deficit spending was in fact an unmitigated goodmJohn Maynard Keynes wrote a whole book on the subject...

...Too many greedy bankers and importers of cheap foreign steel and machine tools...

...It is the bubble theory extended beyond day-traders.And conservatives are fond of it...

...The time has come for President Bush to combine his leadership in the war against terror with leadership in the drive against depression...

...Deflation has hobbled Japan for a decade and demolished the airline, auto and telecom industries...

...The economy needs more money to sustain even diminished economic activity...

...Unlike inflation, however--where people quickly spend their depreciating dollars--a deflationary rise in the Ms is coupled with much slower money turnover...

...No one mentioned mounds of contrary evidence from every corner of the globe...

...Deficit spending has been the Right's other great touchstone...

...In key technology sectors, capital spending has sunk some eighty percent...

...It is now much more difficult to measure how an administration is managing national defense.We know now that there were major intelligence and foreign policy failures during the Clinton years, but it was hard to measure at the time...

...Too much fiber.Too many cool but irrelevant gadgets...

...Like Japan, our economic problems are not two percent the result of physical disaster...

...Since then, House and Senate appropriators have voted for new spending initiatives totaling $251 billion~$70 billion for money-losing Amtrak alone...

...Forty percent officiallymbut in reality more than one hundred percentmof our economic growth since 1995 derives from technological advance...

...At a time of acute need for new antibiotics and anti-viral drugs, Tommy Thompson proudly threatens Bayer with suspension of its Cipro patent, for the offense of developing a drug useful against anthrax.At a time the nation needs steel for weapons, Administration vertebrae melt under protectionist lobbying...

...But it faces a powerful force of negation and decline...

...Real interest ratesmalso at all-time highs, corrected for deflation--imperil half the world's telecom industry, from Deutsche Telekom to Global Crossing...

...But the gleeful politicos' hunt for alibis is chiefly to avoid acknowledging systemic economic problems caused in Washington itself...

...Republicans wanted to spend less...

...September 11 is now an excuse--in Psych 101-speak, an enabler...

...Cleaving the global economy like a titanic force of nature are two imperious trends...

...But today, with some seventy percent of all dollars circulating overseas, the monetary Ms are nearly irrelevant...

...The New York Times editorialized that the attacks had turned George W. Bush into a "moderate...

...Later briefly indicted as the inflation-inducing culprit was productivity (don't ask and we won't tell you the contorted tale).Then an inventory glut emerged as the cause rather than the result of the slowdown...

...It masks the true systemic forces undermining the global economy: deflation, the highest and most paralytically complex tax burden since World War II, and crippling antitrust and telecom regulation...

...Now September 11 clouds our economic future.Anything but Washington...

...State and local spending ballooned...

...So is the bust...

...The auto industry provides an excellent illustration of why and how deflation trumps interest-rate cuts in terms of their impact on the economy...

...Alan Greenspan is not sure that the global deflation that began in 1996 is real, even today...

...The Big Three are going to post tremendous losses for the foreseeable future," writes analyst Michael Churchill of Polyconomics...

...Their rhetoric told voters they were in agreement...

...During a week walking down those benighted corridors, we were amazed by the depths of ignorance we found...

...Travelers will demand automated systems for screening luggage rather than merely harassing citizens.The result will be a new technology boom...

...The famous monetarist Friedman, who assumes constant velocity, warned recently of NOVEMBER/DECEMBER 2OO...

...On tax cuts, Republicans failed to champion the obvious math that lower marginal tax rates yield greater economic output and government revenues...

...In a deflation, people and firms hoard scarce money in riskaverse accounts more likely to be included in government M statistics...

...They dropped the noun "spending" and used their opposition to "deficits" as a weapon against tax relief and in favor of"revenue enhancements...

...Private citizens will require their physicians to give them protection against biowar...

...Our most innovative fiber optic equipment firms now exhibit revenue halflives of about three months...

...Liberals are cheering polls that suggest i i i i i i i i i i i i i i i i i i i i i i i i ii iiiiiii Grover G. Norquist is president of Americans for Tax Reform...

...Seven trillion dollars of new wealth were blown away.The Japanese have yet to recover from their own decade of deflation, and still their Hooverian central bank warns of inflationary peril...