FDR, Wage Ceiling, Arsenal of Democracy, Benefits, Big Three, Japanese Competition, Legacy Costs, Business Cycle and Bailouts

Posted by PITHOCRATES - February 14th, 2012

History 101

After the Arsenal of Democracy defeated Hitler the Wage Ceiling was Gone but Generous Benefits were here to Stay

FDR caused the automotive industry crisis of 2008-2010.  With his progressive/liberal New Deal policies.  He placed a ceiling on employee wages during the Great Depression.  The idea was to keep workers’ wages low so employers would hire more workers.  It didn’t work.  And there was an unintended consequence.  As there always is when government interferes with market forces.  The wage ceiling prevented employers from attracting the best workers by offering higher wages.  Forcing employers to think of other ways to attract the best workers.  And they found it.  Benefits.

Adolf Hitler ended the Great Depression.  His bloodlust cut the chains on American industry as they tooled up to defeat him.  The Arsenal of Democracy.  America’s factories hummed 24/7 making tanks, trucks, ships, airplanes, artillery, ammunition, etc.  The Americans out-produced the Axis.  Giving the Allies marching towards Germany everything they needed to wage modern war.  While in the end the Nazis were using horses for transport power.  This wartime production created so many jobs that they even hired women to work in their factories.  Bringing an end to the Great Depression finally after 12 years of FDR.

The Arsenal of Democracy defeated Hitler.  U.S. servicemen came home.  And the women left the factories and returned home to raise families.  With much of the world’s factories in ruins the U.S. economy continued to hum.  Only they were now making things other than the implements of war.  The auto makers returned to making cars and trucks.  The ceiling on wages was gone.  But those benefits were still there.  Greatly increasing labor costs.  But what did they care?  The American auto manufacturers had a captive audience.  If anyone wanted to buy a car or truck there was only one place to buy it.  From them.  No matter the cost.  So they just passed on those high wages and expensive benefit packages on to the consumer.  Times were good.  The Fifties were happy times.  Good jobs.  Good pay.  Free benefits.  Nice life in the suburbs.  All paid for by expensive vehicle prices.

The Big Three could not Sell Cars when there was Competition because of their Legacy Costs

But it wouldn’t last.  Because it couldn’t last.  For those factories destroyed in the war were up and running again.  And someone noticed those high prices on American cars.  The Japanese.  Who rebuilt their factories.  Which were now humming, too.  And they thought why not enter the automotive industry?  And this changed the business model for the Big Three (GM, Ford and Chrysler) as they knew it.  The Big Three had competition for the first time.  Their captive audience was gone.  For the consumer had a choice.  They could demand better value for their money.  And chose not to buy the ‘rust buckets’ they were selling in the Seventies.  Cars that rusted away after a few snowy winters.  Or a few years near the ocean coast.

The new Japanese competition started about 30 years after U.S. workers began to enjoy all those benefits.  So the U.S. car companies paid their union auto workers more and gave them far more benefits than their Japanese competition.  And those early U.S. workers were now retiring.  Giving a great advantage to the Japanese.  Because those generous benefits provided those U.S. retirees very comfortable pensions.  And all the health care they could use.  All paid for by the Big Three.  Via the price of their cars and trucks.

Well, you can see where this led to.  The Big Three could not sell cars when there was competition.  Because of these legacy costs.  Higher union wages.  Generous pension and health care benefits that workers and retirees did not contribute to.  (By the time GM and Chrysler faced bankruptcy in 2010 there were more retirees than active union workers).  The United Automobile Workers (UAW) jobs bank program where unemployed workers (laid off due to declining sales) collected 95% of their pay and benefits.  (You can find many quotes on line from a Detroit News article stating some 12,000 UAW workers were collecting pay and benefits in 2005 but not working.)  The Japanese had none of these costs.  And could easily build a higher quality vehicle for less.  Which they did.  And consumers bought them.  The Big Three conceded car sales to the Japanese (and the Europeans and South Koreans) and focused on the profitable SUV and truck markets.  To pay these high legacy costs.  Until the gas prices soared to $4/gallon.  And then the Subprime Mortgage Crises kicked off the Great Recession.  Leading to the ‘bankruptcy’ of GM and Chrysler.  And their government bailouts.

The U.S. Automotive Government Bailout cut Wage and Benefits once Set in Stone

The Big Three struggled because they operated outside normal market forces.  Thanks at first to a captive audience.  Then later to friends in government (tariffs on imports, import quotas, union-favorable legislation, etc.).  All of this just delayed the day of reckoning, though.  And making it ever more painful when it came.

During economic downturns (when supply and prices fall) their cost structure did not change.  As it should have.  Because that’s what the business cycle does.  It resets prices and supply to match demand.  With recessions.  Painful but necessary.  Just how painful depends on how fast ‘sticky’ wages can adjust down to new market levels.  And herein lies the problem that plagued the Big Three.  Their wages weren’t sticky.  They were set in stone.  So when the market set the new prices for cars and trucks it was below the cost of the Big Three.  Unable to decrease their labor (wage and benefit) costs, profits turned into losses.  Pension funds went underfunded.  And cash stockpiles disappeared.  Leading the Big Three to the brink of bankruptcy.  And begging for a government bailout.

Well, the bailout came.  The government stepped in.  Gave the union pension fund majority control of the bailed out companies.  Screwing the bondholders (and contract law) in the process.  And created a two-tier labor structure.  They grandfathered older employees at the unsustainable wage and benefit packages.  And hired new employees at wage and benefit packages that the market would bear.  Comparable to their Asian and European transplant auto plants in the right-to-work states in the southern U.S. states.  And put the market back in control of the U.S. auto industry.  For awhile, at least.

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LESSONS LEARNED #52: “The political right is usually right.” -Old Pithy

Posted by PITHOCRATES - February 10th, 2011

The Right Knows Business.  The Left Doesn’t.

Creating jobs is important.  Without jobs no one has any money.  No one can buy anything.  And the government can’t tax what we don’t have.  So jobs are important.  To those on the right.  As well as on the left.

Now critics of the Right claim that those on the right only care about profits.  Not people.  Whereas those on the left claim they care about people.  Not profits.  In some sense this is true.  Those on the right tend to understand business.  They know a business can only survive by making a profit.  And only a business that stays in business can create jobs.  The Right understands this.

Those on the left, on the other hand, don’t really understand business.  They don’t understand incentive.  Only duty.  And sacrifice.  For others, that is.  Not them.  They don’t think a business should make a profit.  That they should give any excess revenue to their workers.  Or to the government.  In other words, business owners, they feel, should serve others.  They should work and sacrifice so others may live better.  Workers shouldn’t have to work hard or sacrifice.  But owners should.

Protecting an Industry only Delays the Inevitable

Some great entrepreneurs created some great businesses.  Made life better for all of us.  Provided good, inexpensive clothing.  Made high quality steel cheaper and more plentiful than any other nation.  Built cars than the average working man could afford.  These titans of industry built this nation.  Because of them we surpassed all other nations and became the most powerful economic engine of the world.  Life was good.  There were lots of jobs.  Lots of stuff.  And lots of homes filled with the most modern stuff available.  America was the place to be.  People waited in line to immigrate to our shores.

Unfortunately, big piles of money attract a lot of people.  And not just workers begging to get a job in these new industries.  No.  It was people looking out for the workers.  Labor unions organized workers.  To get a ‘decent’ wage.  And better working conditions.  Cost of labor went up.  Which made the price of what they sold go up.  Imports started to look more attractive.  So government stepped in and slapped tariffs on those.  To force Americans to pay the higher price for our domestic goods.  Then they legislated ways to further ‘protect’ these American industries.  And how did that all work?

Well, take a look at the American textile, steel and automobile industries.  The Left overreached.  And killed these industries.  They’re no longer the dominate industries they once were.  We have no textile industry to speak of anymore.  The once big steel towns look more like ghost towns.  And the government had to bail out 2 of the Big Three auto makers.  Those generous union contracts added thousands to the price of a car.  Allowing Toyota to take over the top auto manufacturer spot from GM.  By providing the same or better quality for less.

Bad Jobs Today may have been Good Jobs Yesterday

That’s what happens when you protect an industry.  That industry has no incentive to innovate.  To be better.  To be more efficient.  To be more productive.  To give the consumer what they want.  Because when the consumer doesn’t have a choice, where else is the consumer going to go?  So protected industries rest on their laurels.  While others innovate.  And became better.

Combine that with union wages and benefits that keep getting higher and higher and what do you get?  Inferior products that cost more than the higher quality imports.  The Big Three sold crap during the Seventies.  Opened the door to the Japanese.  And a few decades later they took over the top spot from GM.  No matter how much we tried to protect our domestic automotive industry.

Say what you want about life before labor unions but the fact remains that we had more jobs.  And as dangerous or as dirty as those jobs were, people still came to this country by the thousands to get those jobs.  People were falling off the Golden Gate Bridge during construction.  Did that dissuade people from wanting to work on that bridge?  No.  There was a shanty town with people waiting for others to fall and die so they could get their job.  Sure, by today’s standards, these were some pretty nasty jobs.  But not then.  In fact, they were pretty damn good jobs.  Compared to what else was out there.  How can we say this?  Because they chose those jobs over the other jobs out there.

The Greed of the Left Killed the Golden Goose. 

Henry Ford had a bold idea.  He was going to mass produce a car so he could sell it at a price that the working man could afford.  To get the best people in his plants he offered $5 per day.  Twice what other manufacturing jobs were offering.  No union made him do this.  The market did.  He got the best mechanics and the lowest turnover rates.  Other businesses had to follow suit to retain their best people.  And working conditions improved.  Because of the greed of these business owners.

Contrast that to today where union contracts force high wage and benefit packages onto a manufacturer.  And contractual obligations that make it near impossible to get rid of excess workers during times of weak demand.  Using the Ford model, Detroit became the Motor City.  An economic dynamo.  Under the union model, GM and Chrysler went bankrupt.  And Detroit is considering bulldozing sparsely populated neighborhoods into farmland.

When profit wasn’t a dirty word businesses prospered and provided jobs.  When the left came in to protect the little guy from those greedy business owners they made it difficult to make a profit.  Business struggled to compete with their competition.  And when they couldn’t, they shuttered operations.  Jobs disappeared.  The greed of the left to protect against the greed of the right killed the golden goose.  And all those good manufacturing jobs grew legs and left the country.  Where they’re now providing a better life for other workers.  Like they once did here.

Greed is a Hell of an Incentive

The Right understands business.  The Left doesn’t.  But it has never stopped them from trying to tell businesses how they should conduct business.  And the more they get involved, the more business suffers.  The more jobs we lose.  And the less competitive we get as a nation.

FDR tried for a decade to end the Great Depression.  Nothing he did worked.  When World War II came along, something had to change.  There was a crisis.  We needed to provide war material to our allies.  So the FDR administration told American industry to do what they do best.  They let them make profits.  Restored incentive.  And the government said they would interfere no more.  Well, that unleashed the floodgates.  Workers were hired and factories worked round the clock.  Businesses made profits that let them innovate.  Improve productivity.  Trucks, planes, boats, weapons, etc., poured out of American factories.  The Allies armies were mechanized.  Jeeps and trucks moved our armies.  While the Nazis used horses to pull their artillery and supplies.  The Arsenal of Democracy, the Detroit dynamo of industry, won World War II.  And men like Henry Ford made it all possible.  Because they were greedy.

The post-war era was one of the most prosperous times in our nation.  There were jobs for everyone.  And a better life was there for the taking.  Times would stay good until the Left ushered in their Big Government programs beginning in the Sixties.  To protect the little guy.  And it’s been downhill ever since (with a brief respite during the Reagan Eighties).

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LESSONS LEARNED #44: “Liberal Democrats have to lie because there are more taxpayers than tax consumers.” -Old Pithy

Posted by PITHOCRATES - December 16th, 2010

Lying to Make Future Liberal Democrat Voters

Ask anyone some questions about the Great Depression and they’ll probably get them wrong.  Why?  Because their history teachers revised history to make government look better.  Government wore the white hats.  And business wore the black hats.  Because their teachers were public school teachers.  And the teacher unions are one of the strongest unions in the country.  The government takes care of them.  And, in return, the public school teachers takes care of government.  By turning out as many future liberal Democrat voters as they can.

So what did our teachers teach us about the Great Depression?  Evil rich people caused it.  By speculating in the stock market.  And it was their speculation that caused the Great Crash which caused the Great Depression.  Rich business people bad.

Then Franklin Delano Roosevelt (FDR) rode into Washington and saved the day.  FDR expanded federal power and went to work to fix things.  He punished the rich (raised taxes).  Created a huge federal bureaucracy to manage the economy.  And spent money like there was no tomorrow.  Public works programs.  Even gave us Social Security.  He made everything better.  Big hearted government people good.

That’s the history in our history books.  The only problem is that it’s wrong.

Tax Cuts and the Roaring Twenties

This is the story told because it favors those who favor expanding government.  Big Government wants to tell us what’s best for us.  And our public schools want to shield our children from their parents.  Because they (and Big Government) are smarter than parents.  So they revise history.  And lie to our kids.

Really?  Come on, they’re not really lying to our kids.  I mean, what reason could they possibly have to lie to our kids?  Just look at the demographics.  The far Left, those in government who like to spend money and tell us how to live our lives, are about 20% of the population.  The other 80% have real jobs and pay taxes.  And this is a problem.  How do you convince 80% of the people (who pay taxes) to pay more taxes so the government can spend it against their wishes?  All the while having the government telling these taxpayers how they should live their lives?  Easy.  You lie.  And you lie to their kids.

There was an economic boom before the Great Depression.  The economy was roaring so strong that they called it the Roaring Twenties.  And it had nothing to do with speculation.  We were building automobiles.  Electrifying the country.  Selling electrical appliances.  And building radios.  This was no speculative bubble.  It was real and strong economic growth.  And guess what kicked it off?  Tax cuts.

Higher Tax Rates Shelter Wealth instead of Creating Jobs

They don’t talk about this in the history books.  Because no public school teacher or government bureaucrat likes tax cuts.  Because economic growth created by tax cuts sends a very simple yet powerful message.  We don’t need Big Government.

Following World War I, government was a bureaucratic behemoth.  With a huge federal debt.  Fighting world wars can do that.  The Progressives, who gave us Prohibition and other nanny-state-like things, liked that big bureaucracy.  They liked activist government.  But even they knew that a high debt was not good.  And being the zero-sum economists they were, they knew only one way to reduce that debt.  Higher taxes.  And their candidate for the 1920 election, James M. Cox, promised to do just that.  And he lost the election.  Proving that Progressives don’t understand economics.  Or the American people.  Those Americans who have jobs, at least.

Warren G. Harding won that election.  And his secretary of the treasury, Andrew Mellon, understood economics.  To find a better secretary of the treasury you have to go all the way back to our first one.  Alexander Hamilton.  Mellon understood business.  And understood rich people.  High tax rates did not bring in more tax money.  Why?  Because rich people know how to shelter their wealth.  But give them a lower tax rate where they can make and keep what they earn, they’ll invest that money and create jobs.  They’ll pay more in taxes (even at a lower tax rate) because they’re not sheltering their wealth.  Their employees will pay more in taxes because they’ll have jobs.  And this is what happened during the Roaring Twenties.  People were working.  Making durable goods (cars, electrical appliances, radios, etc.).  Times were good.  Very good indeed.

Government Activism Gives us the Great Depression

The United States became an economic juggernaut during the 1920s.  The Americans were eclipsing the Europeans.  We were not a superpower yet.  But the Europeans saw the writing on the wall.  They wanted to form their own union of European states to compete against the economic powerhouse that was the United States.  We were kicking ass and taking names.  And no one could hold a candle to us.  We were unstoppable.

Then Herbert Hoover became president.  He was a progressive republican.  He liked activist government.  Hoover was a Big Government Keynesian and wanted to use the powers of government to end the business cycle.  He believed high wages meant high prosperity.  And in parity between farm and nonfarm prices.  He was everything FDR would become.  In fact, the Hoover administration started a lot of the FDR New Deal programs.

Farmers had mechanized their farms.  They plowed more fields than ever.  And grew more than ever.  With bumper crops prices fell.  Normally not a problem.  You just sold more.  But the war was over.  European farmers were farming again.  Not only did they not need our crops, they slapped tariffs on our exports to protect their farm prices.  So farmers couldn’t sell enough to make a profit at the lower prices.  Farmers went bankrupt.  Farm loans went unpaid.  Farm banks failed.  The Federal Reserve failed to provide liquidity to help other farm banks in trouble.  More failed.  This rippled into the nonfarm banks.  Which contracted the money supply.  Business started to hoard their cash because of the tight credit market.  They cut back on production.  Laid people off.  Then the Smoot-Hawley Tariff went to committee in Congress.  Business responded, knowing that that higher tariffs on imported goods they used would increase their cost of production.   They hoarded more cash.  Cut back on production.  Congress passed the Smoot-Hawley Tariff.  Other nations respond by imposing their own tariffs.  This resulted in a trade war.  Business sales fell.  Production fell.  More banks failed.  Hello Great Depression.

Tax Cuts Stimulate Economic Activity

This is the part they don’t teach you in history class.  It was government involvement that killed one of the strongest bull markets in history.  And would prolong the Great Depression.  The growth of government and the anti-business climate created great uncertainty.  And that didn’t go away until World War II.  When James Byrnes (head of the Office of War Mobilization) allowed business to make fat profits if they could deliver the vast quantity of war material needed to defeat Hitler, Mussolini and Tojo.  And they did.  The Arsenal of Democracy won World War II.  Private business doing what they do best.  Business.

But liberals like to spend money.  Our money.  And tell us what’s best for us.  To do that, though, they need us to vote for them.  And telling us that they want to take more of our money while telling us what’s best for us won’t make us vote for them.  It didn’t help Cox to tell the truth in 1920.  And no other presidential candidate since.  Because the 20% of the population that agrees with them isn’t enough to win an election.  You need some of the 80% who have jobs and pay taxes.

History has shown tax cuts stimulate economic activity.  They did when Warren Harding cut taxes.  When JFK cut taxes.  And when Ronald Reagan cut taxes.  This truth doesn’t make a good argument for raising taxes, though.  So our public schools and Big Government revise that part of history.  And lie to our kids.  Until they bleat “Business bad.  Government good.”  Like good future liberal Democrat voters.

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Obama Makes FDR Look Like a Conservative

Posted by PITHOCRATES - September 29th, 2010

Then

None of FDR’s New Deal programs pulled the economy out of the Great Depression.  Businesses sat on their cash.  Afraid of further liquidity problems.  Afraid of what anti-business policy the FDR administration would pass next.  And the depression had left them with so much excess capacity (because no one was buying anything) there was no need to hire anyone to expand capacity.  So they didn’t.

FDR tried to stimulate the economy with record government spending.  None of it helped.  There were some make-work projects for some people.  But public make-work projects don’t stimulate an economy.  Jobs in the private sector do.  And excessive government spending just makes the businesses in the private sector nervous.  The government has to pay for that spending eventually.  Through higher taxes.  Excessive borrowing.  Or simply by printing money.  None of these actions bode well for the private sector.  They will just increase the cost of doing business (via higher taxes, higher interest rates or a higher inflation rate which makes everything more expensive).

The Great Depression finally ended thanks to Adolf Hitler and Hideki Tojo.  With a world plunged in war, our allies needed war material.  Enter the Arsenal of Democracy.  The FDR administration suspended the New Deal policies and allowed the private industry to do what it did best.  Unfettered capitalism.  Unimpeded by government.  And the rest is history.

Now

We are trying the failed policies of the FDR administration again.  And they’re working just as well as they did for FDR.  Excessive government spending is making the businesses in the private sector nervous.  Because they know the government will have to pay for that spending eventually.  Through higher taxes.  Excessive borrowing.  Or simply by printing money.  So they’re battening down the hatches.  Preparing for a rough ride through stormy, economic seas.  Sitting on excess capacity.  And piles of cash.  Because they don’t know what anti-business policy the Obama administration will pass next.

It’s worse now than it was then.  The world is not at war.  Massed armies are not threatening our allies.  There are no customers for the Arsenal of Democracy.  World war can’t pull us out of this depression.  We are on our own.  We will pick up the tab for Obama’s spending.  Well, not us.  Our children will.  Or their children.  Or their children’s children.  And each day the Obama administration spends more, the worse that day of reckoning will be. 

It doesn’t have to be this way, though.  If we stop the spending we can mitigate the damages.  But we have to act soon.  For we are fast approaching the point of no return.

I Have this Strange Feeling of Déjà Vu                                                           

Command economies don’t work.  That is, if you go by the historical record.  The New Deal failed.  The Soviet Union failed.  And where they haven’t failed, life isn’t so good.  I mean, no one is trying to sneak into North Korea or Cuba.  Why?  Because it sucks in those countries.  And yet we keep trying to be like those countries.  Why?

How bad is it?  Well, here’s one opinion:  U.S. Economy “Close to a Destructive Tipping Point,” Glenn Hubbard Says (by Aaron Task on Yahoo! Finance).  It’s a discussion of a new book:  Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity by R. Glenn Hubbard and Peter Navarro.  Based on titles, I’d say it’s pretty bad.  You might want to add this book to your reading list.

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LESSONS LEARNED #25: “War is costly. Peace, too.” -Old Pithy

Posted by PITHOCRATES - August 5th, 2010

AT THE HEIGHT of the Roman Empire, the empire reached from North Africa to Britannia (England), from Hispania (Spain) to Mesopotamia (approximately modern day Iraq).  When Roman power ruled the civilized world, there was peace.  The Pax Romana (Roman Peace).  The Romans built empire through conquest.  And Rome grew rich with the spoils of conquest.  For awhile, peace was only those quiet intervals between growth and conquest.  But with secure borders, a uniform government, a rule of law, a stable currency, bustling trade & markets and a military to be the world’s policeman, peace broke out.  For some 200 years.

Life was good for the Roman citizen.  As well as for those living in the empire.  The Romans modernized the provinces they conquered.  Made life better.  Even for the conquered people.  Although there were those who hated being subjugated by a foreign power.

Reg: They bled us white, the bastards. They’ve taken everything we had. And not just from us! From our fathers, and from our father’s fathers.

Loretta: And from our father’s father’s fathers.

Reg: Yeah.

Loretta: And from our father’s father’s father’s fathers.

Reg: Yeah, all right Stan, don’t belabor the point. And what have they ever given us in return?

Revolutionary I: The aqueduct?

Reg: What?

Revolutionary I: The aqueduct.

Reg: Oh. Yeah, yeah, they did give us that, ah, that’s true, yeah.

Revolutionary II: And the sanitation.

Loretta: Oh, yeah, the sanitation, Reg. Remember what the city used to be like.

Reg: Yeah, all right, I’ll grant you the aqueduct and sanitation, the two things the Romans have done.

Matthias: And the roads.

Reg: Oh, yeah, obviously the roads. I mean the roads go without saying, don’t they? But apart from the sanitation, the aqueduct, and the roads…

Revolutionary III: Irrigation.

Revolutionary I: Medicine.

Revolutionary IV: Education.

Reg: Yeah, yeah, all right, fair enough.

Revolutionary V: And the wine.

All revolutionaries except Reg: Oh, yeah! Right!

Rogers: Yeah! Yeah, that’s something we’d really miss Reg, if the Romans left. Huh.

Revolutionary VI: Public bathes.

Loretta: And it’s safe to walk in the streets at night now, Reg.

Rogers: Yeah, they certainly know how to keep order. Let’s face it; they’re the only ones who could in a place like this.

All revolutionaries except Reg: Hahaha…all right…

Reg: All right, but apart from the sanitation, the medicine, education, wine, public order, irrigation, roads, the fresh-water system and public health, what have the Romans ever done for us?

Revolutionary I: Brought peace?

Reg: Oh, peace! Shut up!

(From Monty Python’s The Life of Brian, 1979.)

Maintaining a peaceful empire is costly.  As people got more accustomed to peace and plenty, they began to complain about taxes.  Citizens refused to volunteer to serve in the Roman Legions maintaining that peace.  Barbarians began to serve in the Legions.  Some rose to command them.  Some Roman commanders came from the very people they were fighting in the border regions.  Soon Rome would rely on mercenaries (hired soldiers) to defend their borders.  All of this cost the empire.  It had to pay more and more to maintain the loyalty of the military.  Ditto for the huge bureaucracy administrating the empire.  And they lost control.  Trouble on the borders and economic collapse ended the peace.  And, ultimately, the empire.  The civilized world broke down and collapsed.  And barbarian leaders on the borders, hungry for conquest, attacked.  Plunging the former Roman provinces into war and instability.

RISING FROM THE ashes of the Roman Empire were the seeds of new empires.  And the ground that proved most fertile was the northern limit of the old empire.  England.

England started to assert herself with the growth of her navy.  With her borders secured, a uniform government, a rule of law, a stable currency, bustling trade & markets and a military to be the world’s policeman, peace broke out.  Again.  For about a hundred years.  During the Industrial Revolution.  After the defeat of Napoleon. 

Imperial Britain stretched across the globe.  The sun never set on the British Empire.  And wherever she went, she brought the rule of law, modernity, a sound economy and political stability.  Her old colonial possessions went on to be some of the richest, most prosperous and peaceful nations in the world.  India.  Australia.  New Zealand.  South Africa.  Canada.  And, of course, the United States of America.  She achieved her century of peace (Pax Britannia) by a balance of power.  She maintained peace by intervening in disputes, often on the side of the weaker nation.  She prevented stronger, aggressive nations from threatening her weaker neighbors.   And she provided a safe environment for the weaker nation to live peacefully in the shadows of stronger, more aggressive neighbors.

For a hundred years Britannia kept the peace.  In large part due to her Royal Navy, the most powerful and potent navy at the time.  If you ate any imported food or used any imported goods, it was thanks to the Royal Navy that kept the world’s sea lanes safe.  But this peace came with a price.  The rise of nationalism, the quest of new empires to establish their own overseas colonies and a change in the balance of power in Europe with the rise of Germany added to that price.  And then a shot fired in Sarajevo by a Serbian terrorist ignited a tinderbox.  The assassination of Archduke Franz Ferdinand by Gavrilo Princip started World War I.  The most bloody and expensive war at the time, it bankrupted Great Britain and ended her empire.  And left the world a less safe place. 

From the ashes of World War I rose new leaders with aspirations of world conquest.  Fascist Italy led by Benito Mussolini.  Nazi Germany led by Adolf Hitler.  Communist Russia led by Joseph Stalin.  Imperial Japan led by Hideki Tojo.  And the nation that led the victors in World War II would, by default, become the new world power.  The new world policeman.  The United States of America.

SO WHAT HAPPENED during the inter-war years that led to World War II?  War exhausted Britain and France.  Neither had the stomach for another war.  Britain continued to rely on the Royal Navy for protection (as an island nation, sea power is indispensable).  France built fixed fortifications (the Maginot Line).  Both were primarily defensive strategies. 

In America, General Billy Mitchell demonstrated the vulnerability of battleships to air power by sinking a battleship with an airplane (greatly flustering the naval high command).  Colonel George S. Patton developed an armored doctrine for an unenthused army and eventually transferred back to the horse cavalry.  Meanwhile, Imperial Japan was building aircraft carriers.  And Nazi Germany, Fascist Italy and Communist Russia developed air and armored doctrine while fighting in the Spanish Civil War.

Fascist Italy attacked Ethiopia in 1935 to rebuild the Roman Empire and make the Mediterranean Sea a Roman lake once again.  Nazi Germany launched World War II in 1939 by an armored assault on Poland with tactical air support.  Poland resisted with horse cavalry.  And lost.  Imperial Japan attacked Pearl Harbor in 1941 to destroy American naval power in the Pacific.  They did a lot of damage.  But the American carriers, their prime objective, were at sea.  They would eventually meet those carriers later at the Battle of Midway.  Where they would lose four of their best carriers and many of their best aviators.  This tipped the balance of power in the Pacific to the Americans.

America was ill-prepared for war.  But American industry, the Arsenal of Democracy, ramped up and built the planes, tanks, guns, rifles and ships that would win the war.   It would come with a heavy price tag.  Global wars typically do.  Had there been a balance of power that would have checked the territorial ambitions of the aggressor nations, it would have been a different story.  Of course, having the power is one thing.  How you use it is another. 

France had more tanks than Germany before the outbreak of hostilities.  But the Nazis quickly overran France.  Why?  Doctrine.  France’s doctrine was to hide behind the security of the Maginot Line.  It was a defensive-only strategy.  She developed no armored doctrine.  The lesson they learned from World War I was that armies killed themselves attacking fixed defenses.  Germany, too, learned that lesson.  So their doctrine called for going around fixed defenses with fast-moving armor spearheads with tactical air support (i.e., blitzkrieg).  Formidable though the Maginot Line was, it could not attack.  And if the Nazis didn’t attack it, it did nothing but concentrate men and firepower away from the battle.

WHEN WE PULLED out of South Vietnam, we agreed to use American air power if North Vietnam violated the terms of the treaty ending that war.  Watergate changed all of that.  Even though JFK got us into Vietnam, it became Nixon’s war.  And a vindictive Congress wouldn’t have anything more to do with it.  The North tested the American will.  Saw that there was none.   Attacked.  And overran South Vietnam.  The message was clear to tyrants.  America will quit in the long run.  Especially after a large loss of life.

Other ‘retreats’ would reinforce this perception.  Especially in the Arab world.  The withdrawal from Lebanon after the bombing of the Marines’ barracks.  The withdrawal from Somalia after the Somalis dragged dead American troops through the streets of Mogadishu.  The Arab world even saw the victory in Desert Storm as a retreat.  The anti-American Arab world said that our invasion was about oil.  That what we really wanted was to topple Saddam Hussein and take his oil.  It was just another Christian Crusade into holy Islamic lands.  When we didn’t do that, the Arab world saw it as another American retreat.  That America didn’t have the will to endure a bloody battle to conquer Iraq. 

So some in the Arab world would test America.  Al Qaeda.  Headed by Osama bin Laden.  They started small and became more daring.  World Trade Center bombing.  Tanzanian Embassy bombing.  Kenyan Embassy bombing.  Khobar Towers bombing.  The USS Cole attack.  And they paid little for these attacks.  America didn’t fight back.  But their luck ran out on September 11, 2001.  Because America finally fought back.

PUBLIC ENEMY NUMBER one, Osama bin Laden, belonged to the conservative Sunni sect of Islam called Wahhabi.  They have a large following in Saudi Arabia.  The Wahhabi have a delicate relationship with the Saudi Royal family.  They disapprove of the Western displays of wealth in the House of Saud. 

Al-Qaeda was a shadowy enemy.  We confronted them in the mountains of Afghanistan where the Taliban gave them a safe sanctuary.  We attacked.  Knocked the Taliban from power.  Drove al-Qaeda underground.  But we could not stop their funding.

Wahhabi money from Saudi Arabia financed 9/11.  And the money continued to flow.  The Saudis would not intervene on behalf of America.  They feared any crackdown on the Wahhabi could unleash a civil war.  So America needed leverage to get Saudi cooperation.  And they found it in an old nemesis, Saddam Hussein. 

A Sunni minority ruled Iraq.  The Saudis did not like Saddam Hussein.  However, they liked the balance of power he offered to Iran.  Iran was Shiite.  As much as the Saudis did not like Saddam, they disliked Shiite Iran more.  This was the American lever.

After some diplomatic gymnastics, the invasion of Iraq was set.  The Saudis thought we were bluffing.  They didn’t believe we would invade Iraq.  Never in a million years.  If we didn’t do it in Desert Storm when we had the force in place to do it and didn’t, there was no way the Americans would amass another coalition and redeploy forces to the region again.  Especially because America doesn’t like long, drawn out, bloody wars.  Which an invasion of Iraq would surely be.

They asked us to remove our forces from the Saudi bases.  We did.  Now they were getting nervous.  That was the political game.  Make some noise to show the Arab world you weren’t an American toady.  But, secretly, you want those American forces to remain.  That American presence did provide security.  And stability.  After the invasion of Kuwait, it sure looked like Saudi Arabia would be next.  It was only that large American force in the desert that changed that inevitability. 

The Americans invaded.  And conquered.  Now the Saudis had a vested interest in helping the Americans.  They needed them to be successful in Iraq.  To contain Iran.  The lever worked.  The Saudis stemmed the flow of Wahhabi money to al-Qaeda.  The invasion of Iraq proved to be one of the most effective battles in the war on terrorism.  

HISTORY HAS SHOWN that a balance of power can lead to peace.  It has also shown that a superpower can enforce a larger peace.  But it also has shown that there is good and bad when it comes to power.  The Romans could be cruel, but so were most in that time.  The road to empire, after all, started out simply as a quest to provide a buffer between Rome and the hostile barbarians on her borders.  Rome, then, expanded in pursuit of peace.  (Initially, at least.)  And then used her power to maintain peace.

Many view Great Britain as the successor to the Roman Empire.  And many view America as the successor to the British Empire.  These powers share many things (rule of law, an advanced civilization, political stability, etc.).  Perhaps the greatest, though, is a powerful military.  And how it was/is used.  As a powerful deterrent to an aggressor nation.  To protect trade routes.  To maintain peace.  Malign these empires/nations all you will, but the greatest periods of world peace were due to their military power.  And their will to use that military power.  Expensive as that was.  Is.

So, yes, wars are costly.  Peace, too.  Sometimes, though, we must fight wars.  But we can avoid a lot of them.  By a peace-time military force that acts as a deterrent.  Because there are bad guys out there.  Who only respect one thing.  And it isn’t diplomacy.  Often the only thing preventing them from waging a cruel war of conquest is a potent military and a willing leader to use it.  If a tyrant knows he will face a military consequence for acting, he may not act.  When he knows that consequence will be devastating, he will not act.  But if he knows a nation hasn’t the military power or the will to use military power, he will act.  Just as Hitler did.  As Mussolini did.  As Tojo did.  And as Osama bin Laden did.

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