My first thoughts Tuesday afternoon set up an analytical framework on where the economy would go in the near term. If the Pentagon warriors would succeed in persuading President George W. Bush that all the stops should be pulled out in retaliation for the terrorist attacks, the future would be a dismal one. If the wiser heads prevailed, i.e. Vice President Dick Cheney and Secretary of State Colin Powell, there would be no precipitous action: What finally would be done would be measured, and the country would be able to creep back toward some semblance of normalcy. For the most part, our government has kept its head even as public sentiment appears to have cried out for blood. The New York Times lead editorial Thursday was exactly to my thinking, actually making the point that the people know they have the luxury of screaming for revenge because they have a President and a system that will be above raw passions and think through the myriad consequences of the use of force. So far, so good. President Bush has given a dozen addresses, each promising action, but so far pulling no triggers or dropping any bombs. It was greatly encouraging to hear that Bush the Elder issued a statement yesterday calling for moderation.
The best news we have today is that his son has ruled out the possibility that Iraq was responsible, an idea being pushed by the Pentagon warriors and their friends on The Wall Street Journal editorial page. If there is to be a war on terrorism, Cheney and Powell know it cannot be without a broad coalition of governments, including the Arab states that joined in pushing Iraq out of Kuwait. There is no evidence of complicity by Saddam Hussein, and as I suggested Tuesday, it is unlikely any state knowingly sponsored the terrorists, or else news of its planning would have leaked out through their bureaucracies. More and more the attention is focused on Osama bin Laden, whom we counted as one of the good guys during the Soviet-Afghan war, when his partisans teamed with the Pakistanis to help expel the Soviets. This now is the margin the world financial markets are watching. How will we actually deal with Afghanistan?
Will the United States get the green lights it will need from coalition partners to bring down the Taliban government in Kabul? If we go ahead without a green light, the prospect of more terrorism increases. If we bomb the Afghan capital, which looks like it has been bombed repeatedly already, we wind up killing innocent civilians, as we have been doing for several years in Iraq, which I believe is one of the chief reasons the terrorists struck Tuesday. If they have been training for a long time in order to punish the United States, it has not been because of the conflict in Israel, but because of the behavior of the United States in Iraq and the bombing of the Sudan aspirin factory; Israeli assassination of suspected Palestinian leaders may have been the last straw. The optimum outcome in the next week or so would be to have Kabul turn bin Laden over to the World Court for a trial on the charges formally made against him for previous terrorist actions. Which way this issue turns will swing the markets one way or the other.
We have been watching London’s markets carefully, noting the FTSE index was not hit quite as hard as the other European and Asian equity markets. In our staff meetings, I’ve been the most optimistic that if the President makes the right decisions, the economy will recover faster, noting how the Brits kept their economy functioning under far worse circumstances during the bombing of London by the Nazis. The Brits seem to take that into account. There have been a few hitches in the last few days, with signs that there are still terrorists ready to strike again, but they have been false alarms. It never made sense to me that the planners of this attack held back reserves. Their aim, I believe, was to cause sufficient pain to force the United States to rethink its behavior in the new unipolar world. They are “Muslim McVeighs,” who do not “hate” the United States or Israel, but who like McVeigh got it into their heads that no government could realistically contest the power of this Goliath and that it would take private slingshots to make that happen. Note the WSJ lead editorial today, still arguing for a national missile defense shield to bring down ICBMs the Taliban might have up its sleeve. Senate Foreign Relations Chairman Joseph Biden, who announced Monday to the National Press Club that he would mount an all-out campaign against the Pentagon Boondoggle, by Wednesday could note that the terrorists had done that job. If there is to be a multinational coalition against terrorism that would include Russia and China, he suggested, we can’t at the same time be fighting them on an issue they insist will threaten their security. The Pentagon call-up of up to 50,000 reservists to fight further terrorism at home was not as good, though, as they will only get in the way of the national economy. When you put 50,000 people in charge of security, their first impulse will be to shut everything down, really locking the barn door after the barn has burned down.
Even so, as one day follows another into weeks and months, this will be sorted out. The Fed can pump $90 billion in liquidity into the banking system, but unless airplanes resume normal operations, the economy will grind to a halt. Mail has to be delivered so bills can be delivered and paid. We depend on FedEx and UPS for the same reasons. The stock market will open on Monday, no doubt down a bunch, but as the inconveniences of all this security drives ordinary people nuts, they will insist on ways to relax. The mail will be delivered. The borders will reopen and people will learn to do more business by Internet instead of struggling with airport security. Ordinary people find ways to adjust. The burdens of myriad new regulations, acting like new taxes on production and exchange of goods, is the best explanation we have for the rise in gold, as the regs lower the demand for liquidity. The Fed’s liquidity injections, of course, are being sterilized by the fed funds target and are useless. London’s sell-off today reflects negative reaction, we think, to the security decisions being made here that globally threaten commerce.
In thinking about the events this week, I recalled the first day of my 1956 UCLA class in “Politics,” taught by Professor Titus, an old conservative born in the 19th century who was about to retire. He began the class by writing on the blackboard in foot-high letters: “IT COSTS TO BE BOSS.” The message was the flip side of “Rank has its Privileges.” The United States was boss of the free world, Titus was telling us, and that meant responsibilities we had to shoulder that others did not. When I woke up this morning, it was with those big, block letters on my mind. In the last decade, since the Cold War ended, it has been the Triumphalists who have held sway in deciding what kind of global leader we would be. These are the bombers, the old Cold Warriors, who insist that rank has its privilege, that there is no “moral equivalence” in judging our actions, no Golden Rule whereby we do unto others as we would have them do unto us. Because we are such a good country, we keep telling ourselves, we can do as we wish and the rest of the world will have to like it or lump it. It now turns out that it costs to be boss in ways we had not imagined. Where will we be a year from now? Don’t know yet. It takes lots of trial and error in learning how to be the big boss when there is no guide manual.