Thwarting North Korea's Dangerous Power Play

Did you know that North Korea considers itself to be at war with the U.S. and its UN allies? The end of hostilities in 1953 did not result in either a victory for one side or a peace treaty. There is a cease-fire in Korea; that is all. The protracted negotiations, that never have really ended, merely stopped the fighting. Periodically North Korea reminds us that it intends to win the war and unite the Korean peninsula under its hard-line Stalinist regime. Last May North Korea announced that it no longer considers itself bound by the 1953 cease-fire.

Achieving Victory via Intimidation and Blackmail

The recent sinking of a South Korean warship by a North Korean submarine--although North Korea officially denied culpability--is part of its strategic plan for victory via intimidation and blackmail. North Korea has detonated at least two nuclear devices and has conducted ballistic missile flight tests over Japan. Neither Japan nor South Korea has nuclear weapons, but the U.S. has extended to them its nuclear umbrella. Most observers believe that this is sufficient. Since a nuclear attack on South Korea or Japan would be met with an overpowering nuclear retaliation from the U.S., it is felt that North Korea cannot achieve its goals. This is a variant of the Cold War era’s Mutual Assured Destruction (MAD) strategy, but with a significant and dangerous twist. Whereas the Soviet Union and the U.S. targeted one another with nuclear weapons and vowed retaliation upon one another's territory if either should initiate a first strike, the U.S. nuclear umbrella strategy for South Korea and Japan assumes that the U.S. would retaliate even if American territory were not attacked. This is the opening that North Korea seeks to exploit.

By attacking South Korean forces and then denying involvement, North Korea feels that it can drive a wedge between the U.S. and its allies. If South Korea retaliates militarily for the submarine attack, North Korea could threaten it with nuclear annihilation unless it surrenders. (If South Korea does not retaliate, North Korea will step up the attacks.) Furthermore, it could claim to be responding strictly in self-defense and would be justified in attacking American forces wherever they are located, perhaps with nuclear weapons.

A New Korean War Would Drag in Japan

This threat brings Japan into the picture. Because America has significant military forces on Japanese territory, Japan sees that it could be the target of a nuclear attack in a war for which it is not directly involved. Last year Prime Minister Hatoyama campaigned to end America's military occupation, but recently he reluctantly admitted that Japan is unable to defend itself and must continue to accept America's strategic umbrella. (See Japanese Prime Minister Accepts U.S. Base) In effect, Japan admitted that it is a vassal state--despite the fact that it is the number two economic power in the world--and might be dragged into a nuclear conflict against its will. This demeaning and dangerous situation will not be tolerated by the Japanese for much longer.

How to Thwart North Korea’s Dangerous Gambit

There is a solution, although it is very controversial. If Japan and especially South Korea had nuclear weapons themselves under their own control with a credible means to deliver them, North Korea's strategy would fail. Whereas, North Korea might conclude that America would not risk nuclear war to defend South Korea, due to both American and Japanese public opinion, there is much less doubt that South Korea would defend itself and do so successfully, if it had nuclear weapons. Therefore, North Korea's strategic power play can be checkmated by selling to both South Korea and Japan nuclear weapons and the means to deliver them. These weapons must be under the sovereign control of the Japanese and South Korean governments, not under de facto U.S. control. The MAD strategy that prevented a U.S.-Soviet war would operate to insure peaceful, if not friendly, relations on the Korean peninsula.

The purpose of military and diplomatic strategy is to move from a condition of less security to one of more security. The U.S. is more secure when its allies take personal responsibility for their own sovereign defense. For example, the U.S. is more secure because France and Great Britain control their own nuclear arsenals. Their ability to ensure their sovereign defense removes a layer of uncertainty and complexity in international military affairs. Likewise, it became less likely that India and Pakistan will fight again over Kashmir since both became nuclear powers.

North Korea needs to know that South Korea has the will and the ability to defend itself. The same goes for Japan. With its own nuclear retaliatory forces, both South Korea and Japan will not need U.S. forces as some sort of “trip wire” whereby U.S. entry to a war would be assured by an attack upon American forces as part of an attack upon one of our allies. Our allies will not be attacked in the first place. American boys can come home. America can reduce its worldwide military empire, saving both cost and rebuilding its tarnished reputation as a non-imperial power. Our relationship with our allies will improve, for our defense pacts will be among equals. Furthermore, the need for one member of the alliance to call upon another for assistance will be carefully defined and greatly circumscribed. This strategy is a win/win all around.

UNFAIR TRADE PENALTIES PROMOTE POVERTY AND WAR

The Obama administration proposes to slap penalty tariffs on imported tires from China. It accuses the Chinese government of engaging in unfair trade practices, namely, subsidizing its domestic tire industry. Beyond the spectacle of starting a trade war with one of our largest and most important trading partners who also just happens to be a nation that is emerging in fits and starts from being an implacable enemy, there is no ethical or economic justification for imposing said penalties. The public face of this seriously flawed policy is that Chinese subsidies destroy American tire manufacturers and cost American jobs. The private face is that once again the rest of the country must pay higher prices for lower quality union made goods.

Penalty Tariffs Violate Man’s Natural Rights

It doesn’t matter if the accusations about Chinese subsidies were true! Even if it were true--which it most assuredly is not!--that Chinese subsidies destroy American industries and cost Americans jobs, our government has no ethical basis to forbid by its coercive police power our citizens’ right to purchase any legal good from any person or company wherever it may be located on the face of the globe. This is not a utilitarian argument or even a foreign policy argument, although both are perfectly apt in this case. It is an argument based upon the rights of a free people, which may not be legally abrogated by the state. As American citizens we delegate to our government only certain powers. Our economic freedom is not one of those powers so delegated. Economic freedom is part and parcel of political freedom, for a man is not politically free if he must seek the permission of his government to engage in trade in order to sustain his earthly body. If a government may deny man the right to purchase tires, it may deny a man the right to purchase food. And, come to think of it, that is exactly what the U.S. government does when it slaps protective tariffs on sugar cane from the Caribbean! Cheap sugar is snatched from our very mouths in order to force us to purchase more expensive domestic sugar. And now we are not allowed to purchase Chinese tires. This is a violation of natural law and, therefore, the law is illegal and should be repealed forthwith. Nevertheless, there is a lot more to say about this matter from an economic perspective.

None of Our Business

What China does internally to subsidize its home industries is none of our business. Let me repeat that—it is none of our business. Chinese subsidies harm Chinese citizens, just as American subsidies—such as farm subsidies—harm Americans. Both are to be regretted, but it is our business only to lobby for the repeal of American subsidies. Let us set a good example. If China wants to tax its citizens so that Americans can live more prosperously, that is its business and its business alone. This is the case for all supposed “unfair trading practices” that allow Americans to purchase cheaper goods from abroad. Why must our government interfere with something that benefits its own citizens, especially when it creates ill will with the rest of the world?

Case Not Proven, Because It Cannot Be Proven

It is impossible for the U.S. to isolate any one cause as the source of decline of any American industry. There are too many factors that can cause a company or an industry to decline or fail to reach what its supporters may feel is its full potential. This is especially true of American unionized industries. First of all, unions force upon these companies higher wages than would be the case in the absence of government supported legislation requiring the companies to negotiate with the unions. This cannot be denied, since the legislation exists and the unions exist. Why do they exist if not to secure higher wages than other Americans, not members of the union, would willingly accept? Unions intimidate non-union workers (and their own members!) to prevent them from accepting jobs at less than the rate that the union leadership arbitrarily demands. Furthermore, they trespass upon the companies’ factories and destroy its physical plant, while the police and the courts turn a blind eye. The fact of union violence and government’s failure to protect industry property cannot be ignored as a major source of the decline of many of previously strong American industries.

In addition, American companies are hobbled by a myriad of labor and, increasingly, environmental regulations, all of which add significant costs to company products and prevent them from employing their labor and equipment in the most efficient manner. Local governments literally extort companies to provide public services in order to obtain permission to expand their operations. This is a well-known and open secret of local government operations. Ten years ago Boeing, America’s giant aircraft manufacturer, moved its head offices from Everett, Washington to Chicago, Illinois to protest the city of Everett’s continued demands that Boeing fund its wish list of public goodies.

International Expansion of the Division of Labor

I’m sure there are many more factors that must be considered when a company loses its international competitiveness, and we haven’t even discussed the obvious one of entrepreneurial error. How can any one of them be singled out as THE cause of its difficulties? But beyond this looms another, more basic, factor that accounts for the decline of some home industries—the normal process of the expansion of the division of labor beyond our borders. Just as no one would suggest that a town or a city or a county or a state must be completely self-sufficient in all things--because the expansion of the division of labor operates to destroy old industries and old jobs and create new and more productive ones in their place, the “creative destruction” phenomenon articulated by Joseph Schumpeter--one must not look upon international trade as some sinister plot by foreigners to destroy our country job by job and industry by industry. International trade represents an expansion of the capital base to include the workforce of the entire world.

Specialization, just another word for the division of labor, accounts for all of man’s economic progress. It cannot be otherwise. Just as we as individuals no longer hunt or grow our own food, we as a nation no longer produce everything that we once produced. To say that others can do this for us more cheaply is but another way of saying that we have better things to do. When the costs of the factors of production upon which an industry depends rise in one country, this means that these factors are more urgently needed elsewhere for the production of goods that consumers value more highly. This includes labor. Cheaper foreign goods free factors of production so that they may be employed to produce these more highly valued goods. There is a reason that most advanced nations import certain products from developing countries. Developing countries are like new entrants to the labor market; they perform the less skilled jobs first before moving to more highly skilled ones later. This process is taking place even among developing nations themselves. China itself is losing some manufacturing jobs that require lower skills to less developed countries like Indonesia. This is a process to be admired and encouraged. It is in everyone’s best interest, both economically and politically, for the entire world to become more capitalistic.

The Division of Labor Promotes International Peace

A little considered byproduct of the expansion of the division of labor as represented by increased foreign trade is that it promotes peace among nations. Of course, governments seem to do everything in their powers to thwart this process, erecting trade barriers to foreign products and penalizing supposed “unfair trade” practices. But ask yourself this question: do you want to kill your barber, your grocer, your filling station owner? Of course not, because these people perform valuable services for you. But one could also say that they have taken away some of your employment. At one time people cut their own hair or had a family member do it for them. More people lived on farms and grew much of their own food. They produced much of their own fuel—no, not gasoline, but oats to feed their own horses. Do we wish to return to this more primitive, meaning less capital intensive, time? Of course not. They why do we want our nation’s business owners and laborers to continue to produce absolutely everything that we require? The fact is that more international trade means a higher standard of living for everyone involved, and the “creative destruction” of some jobs and industries is a consequence and not a cause of this beneficial process. It is a peaceful process among cooperating peoples around the world. As this process deepens, we understand that we NEED the production of the rest of the world and they NEED ours. This creates a worldwide culture of cooperation and peaceful intercourse that leads to higher standards of living among peoples everywhere. Government trade barriers promote the opposite; government trade barriers promote impoverishment and war. The choice is clear.

Blame Milton Friedman

I wrote the following letter to National Review Magazine in response to an article by my friend Kevin D. Williamson, which appeared in the September 21, 2009 edition.

Re: “Blame Milton Friedman” by Kevin D. Williamson

Dear Sirs:
I am tempted to respond to the excellent essay by Kevin D. Williamson (“Blame Milton Friedman”) as would the Kung Fu master of the old TV show: “Ah, grasshopper, you are established on the road to wisdom but you have a long way yet to travel.”

The gist of Mr. Williamson’s essay is that the bank bailouts (TARP, TARP II, and who knows what else) were necessary under the circumstances, because the forces of statism wanted to go even further, plus there is the possibility that these programs will be limited somehow. Furthermore, these programs probably did stem the danger of massive depositor losses and—Oh, the Horror!—uncontrolled deflation.

The Friedman/Schwartz analysis of the cause of the Great Depression as a failure of the Fed to prevent a decrease in the money supply has been challenged and, in my humble opinion, refuted by that of the Austrian School economists. Murray N. Rothbard’s breakthrough analysis of the economy of the 1920s and Hoover’s interventionist response—America’s Great Depression--explained why a recession was inevitable and intervention made things worse, much worse. The newly created Fed had created a bubble economy in the 1920s through its fairly continuous expansion of bank reserves, which became the building blocks of bank deposits. The subsequent crash is explained by the Austrian Business Cycle Theory, whereby artificially lowered interest rates from the expansion of bank reserves fostered unsustainable investments in longer-term, more time-consuming economic processes that were not funded by real savings.

(That is saying a mouthful in one sentence and hardly does justice to this elegant theory. The best book for an introduction to this theory is a compilation of four essays by noted Austrian School economists, Rothbard included, titled The Austrian Theory of the Trade Cycle, compiled by Richard M. Ebeling. Both the Rothbard book and the Ebeling book are available on line at www.Mises.org.)

Fiat money expansion cannot paper over these malinvestments forever. Either the bubble comes to an end and the unprofitable investments are liquidated, as occurred rather quietly in the unheralded and forgotten American depression of 1920/21, or hyperinflation destroys the economy, as occurred in Weimar Germany of 1923. The damage has been done. Socializing the loss through bank bailouts does not cure anything; it merely spreads the losses over the entire economy in the form of higher prices down the road and encourages future bubbles through moral hazard. Despite Mr. Williamson’s hopes, the damage has not been minimized either—the damage was done long ago--; it will not be temporary—as happened in 1920/21 but not in 1929/45--; and there is no political consensus to undo the federal incursions into the economy. Quite the contrary. Because the incursions kick the can down the road a few more yards, there are calls for more of them and in greater amounts. But this solves nothing and makes the necessary correction even greater, because malinvestment in unsustainable processes continues to expand.

Unfortunately, the best for which we can hope under our current set of policies is a repeat of the 1929/45 Great Depression and not a collapse of the economy as occurred in Germany in 1923. But almost of trillion dollars of excess reserves just waiting to be turned into bank deposits via a growth in lending, combined with other policy errors that will exacerbate the problem, tell me otherwise.

It's Time for Japan and South Korea to Go Nuclear

How long must the U.S. pretend that it and only it may have nuclear weapons and its allies must rely upon it for protection? This policy may have made sense in the years immediately after World War II when there was some reason to hope that few nations would learn the "secret" to building the bomb and, even if they did learn it, they would not have the industrial capacity for a nuclear weapons program. Furthermore, the world’s so-called strategic thinkers believed that the world would be safer the fewer nations that had "the bomb". The entire nuclear non-proliferation industry revolves around this false premise. Thus, we are witnesses to the charade and utter futility of all the major nations—once again!—calling on the United Nations Security Council to pass resolutions condemning North Korea’s nuclear and missile programs, as if any half-wit expected such a resolution to accomplish its intended purpose.

Japan is the world’s second largest economy. Let me repeat that…Japan is the world’s second largest economy, and yet it relies upon the U.S. for protection from a country that does not have the GNP of a major American (or Japanese) city! South Korea’s economy is many times that of North Korea’s. Both Japan and South Korea have the technological capability of defending themselves from all comers, provided that they possess nuclear weapons and the means to deliver them. It is the absence of this capability that emboldens North Korea to believe that it can accomplish through intimidation what it could never accomplish otherwise. North Korea believes that it can drive a wedge between Japan and South Korea and their protector, the United States, by calling our bluff that America will sacrifice its troops and possibly a major American city in order to defend its allies. Well, maybe we will and maybe we won’t. Who can say?

The template for proper national security response by a nation that is less than a superpower is that established by Charles de Gaulle of France. Regular readers of my columns previously read why de Gaulle formed an independent atomic deterrent for France. De Gaulle, one of the clearest-minded of the post World War II statesmen, understood that, in the final analysis, a country must rely upon itself for its own survival. The possession of nuclear weapons made it possible for France to face the mighty Soviet Union on its own, relying upon neither the U.S. nor other European nations in NATO. As de Gaulle so clearly articulated at the time to President Eisenhower, France’s experience in both world wars showed that even friendly nations might refrain from going to war on behalf of an ally, either due to internal political opinion of the time or because a lightning war settled matters before friendly nations could sway the outcome. France cooperated militarily with NATO, but the France of Charles de Gaulle always retained its independence of action, as it does even today.

No nation need fear either Japan or South Korea. Both are friendly, non-aggressive, democratic countries. China and Russia may fuss and fume at a nuclear Japan, especially, but such protests will be purely for internal consumption. Furthermore, more self-reliant allies would secure many peaceful benefits, both to themselves and the U.S. For example, a nuclear-armed Japan and South Korea would allow the U.S. to scale back its military empire at a time of budgetary crisis. Of course, we may maintain security agreements with both countries. But the new arrangements will become more of agreements among equals, at least in the sense that each is free to pursue its own foreign policy in its region of the globe. Reciprocal military support would be clearly defined and not an open-ended and nebulous security pact.

Also, the calculation of our allies’ enemies will have changed. Now North Korea would not be able to manufacture some crisis whereby an irresolute American leader might abandon its less-than-perfectly-stated defense commitments. An attack upon either country would exact a horrific response from the very country attacked. This was the lesson that de Gaulle gave to Eisenhower—that there is no substitute for purely national self-interest. It is vitally important that one’s enemies clearly understand that each nation will fight for itself, without being required to call upon the help of a more powerful ally, and is capable of inflicting serious and unacceptable damage. This is the very essence of peace through strength.

When President Kennedy and British Prime Minister Harold Macmillan suggested that the allies might be required to come to some new accommodation with Khrushchev’s Soviet Union over Berlin, de Gaulle told them to stand firm…that the Soviets did not want war but rather the fruits of war. It was all bluster and threats. The several Berlin crises came to nothing. Thus will be the case when North Korea faces a nuclear-armed Japan and South Korea. Then its bloodthirsty regime will crumble as surely as did the once mighty Soviet Union.

Our insistence upon keeping our two allies in the Western Pacific nuclear weapon-free and dependent upon us for sovereign protection has resulted in the opposite of what we both intended. The weak but bloodthirsty enemy of our allies has become emboldened to military blackmail and, to our shame, we have paid. It’s time for our allies to protect themselves; the world will become a much safer place.