The most important investment analysis, in terms of outcomes and forecasting, relate to inflation and deflation. Low and stable inflation removes one of the greatest uncertainties confronting investors, and uncertainty is the greatest headwind to investment returns. The distinction between “real assets” and “financial assets” hinges upon inflation and deflation. In a broad portfolio sense, the inflation environment certainly trumps the success or failure of individual CEO’s or companies. It even trumps, in terms of driving investment returns, the underlying economic growth of nations and the globe. Historically, war is the single biggest driver of inflation globally and in the US.
The implications of war for inflation, and for financial markets are profound.
Therefore, I want to tap the wisdom of historians and military experts to shed some light on the Syrian entanglement. First is President and General Dwight D. Eisenhower. Second is Secretary of State and General Colin Powell. Third is commissioned officer in US Navy and Cato Institute Scholar Christopher Preble. These military leaders, better than civilians, understand the cost of war both in terms of personal cost and sacrifice for military personnel, and the implications for domestic and foreign civilian populations.
Though Eisenhower was anything but a pacifist he understood that securing America’s leadership and prestige pivoted on “how we use our power in the interest of world peace and human betterment (1).” During his presidency, the major threat was Soviet expansion and destabilization of sovereign states on the edge of the Soviet sphere of influence.
He sought to limit U.S. involvement to those cases where the United States was invited by democratic, or at least non-communist, leaders to provide military assistance. He was instrumental in the winding down and transitioning the WWII military economy of U.S. and Europe to a peacetime economy, and for example launched the Atoms for Peace program.
In his Presidential farewell address, he warned his successor to guard against the ”unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”
Over the subsequent 50 years, and to this day, his warnings went largely unheeded. He suggested that at our universities, government contracts had become “virtually a substitute for intellectual curiosity,” and that we should remain alert to danger that “public policy could itself become the captive of the scientific-technological elite.” Prescient! In the closing paragraph of his address he expressed words that ring true to this day:
We pray that peoples of all faiths, all races, all nations, may have their great human needs satisfied; that those now denied opportunity shall come to enjoy it to the full; that all who yearn for freedom may experience its spiritual blessings; that those who have freedom will understand, also, its heavy responsibilities; that all who are insensitive to the needs of others will learn charity; that the scourges of poverty, disease and ignorance will be made to disappear from the earth, and that, in the goodness of time, all peoples will come to live together in a peace guaranteed by the binding force of mutual respect and love.
General Powell’s finest years were as chairman of the Joint Chief of Staff from 1989 to 1993 where he formulated the “Powell Doctrine,” summarized by the following eight questions (2) that all have to be answered affirmatively before military action is taken by the United States:
- Is a vital national security interest threatened?
- Do we have a clear attainable objective?
- Have the risks and costs been fully and frankly analyzed?
- Have all other non-violent policy means been fully exhausted?
- Is there a plausible exit strategy to avoid endless entanglement?
- Have the consequences of our action been fully considered?
- Is the action supported by the American people?
- Do we have genuine broad international support?
In addition, Powell echoed Casper Weinberger’s admonition that U.S. troops only should be committed wholeheartedly and with the clear intention of winning.
Christopher Preble has written extensively on the perils of the U.S. assuming the role of uninvited policeman to world. In his books he stresses the huge cost to the US of allowing nations and regions around the globe to free-ride on US Military expenditures of funds, resources and soldiers’ lives. He recently wrote(3) :
The deeply dysfunctional Syrian state is not something outsiders have the tools to repair. Cruise missiles launched from ships and submarines won’t persuade the divided Syrian opposition to unite around a common goal, nor are they likely to cause President Bashar Assad’s supporters to capitulate and throw in their lot with the rebels.
But such strikes will result in additional death and destruction on the ground.
Some market participants argue that since Syria’s population is merely 20 million, and pre-war production of oil of just 385,000 barrels a day mostly consumed internally, that what happens in Syria shouldn’t have a major impact on global markets. Such suggestions are misguided. U.S. entanglement in Syria augers a precipitation of WWIII, pitting Obama and Hollande, against Russia, China, Iran, numerous countries in the middle east, sectarian and secular populations around the world, notably the US congress, and US military leaders.
Obama has options other than bombing Syrian targets to dissuade dictators from using chemical weapons. At this time it appears that he has been turned back by the United Nations, by our allies, by Congress, and by American people. There is no loss of face in doing the right thing. “Standing Down," not following through with enforcing the “Red Line” involves some political cost. But now is not the time for Obama to calculate the political cost of losing face. And it is not the time for hawks on his left or right to seize on the potential political gain.