Deflation as a metaphor

The world is shifting towards a multi-polar system with a less dominant US and a more powerful China and India, and a “historic” transfer of wealth from west to east, according to a new US intelligence report. Financial Times

In the NIC’s view, the rise of China, India and the rest will mean that by 2025 the US will be “one [my emphasis] of a number of important actors on the world stage, albeit still the most powerful”. For more than 200 years, even when challenged, the US has been a rising power. The adjustment will not be easy. Philip Stephens -FT

This week's news of a drop in consumer prices may sound on the surface like a good deal for financially strapped U.S. households. But economists warn that sustained deflation -- a period of falling overall prices -- would deepen the nation's economic troubles. Such a period would make it harder for people to repay debts and would prompt consumers to delay purchases in anticipation of lower prices and harder times. "Everyone is having these huge sales, and consumers know if they wait longer, the chances of them not having a good selection is fairly small and the chances are that the prices will be lower," said Charles McMillion, an economist who runs MBG Information Services. "So why buy today? This is exactly why economists are always scared to death of deflation." Washington Post

When Obama takes office in two months, he will find a number of difficult foreign policy issues competing for his attention, each with strong advocates among his advisers. We believe that the Arab-Israeli peace process is one issue that requires priority attention.(...)The major elements of an agreement are well known. A key element in any new initiative would be for the U.S. president to declare publicly what, in the view of this country, the basic parameters of a fair and enduring peace ought to be. These should contain four principal elements: 1967 borders, with minor, reciprocal and agreed-upon modifications; compensation in lieu of the right of return for Palestinian refugees; Jerusalem as real home to two capitals; and a nonmilitarized Palestinian state. Brent Scowcroft and Zbigniew Brzezinski - Washington Post

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"Deflation as a metaphor" compares the perception of America's relative decline as a superpower to economic deflation, where people hold off from making a purchase because, with prices falling, they think that they can get a better deal if they wait longer. When this happens, prices fall even faster as frantic sellers try to attract reluctant buyers with even lower prices and the potential buyers become even more reluctant to buy. Finally the economy seizes up and only those with great cash reserves benefit. Deflation is a process, a self-fulfilling prophecy that feeds on itself: falling prices make prices fall faster.

The National Intelligence Council's report, "Global Trends 2025: A Transformed World" postulates that by the year 2025 the United States will be dramatically less powerful than it is today. If we take deflationary process as our guide, the universal perception of America's decline should quickly accelerate that decline.

I agree with Brent Scowcroft and Zbigniew Brzezinski when they say that solving the Palestinian/Israeli conflict would be the keystone to a re-invigorated US presence in the Middle East. As they put it:

(To) let attention lapse would reinforce the feelings of injustice and neglect in the region. That could spur another eruption of violence between the warring parties or in places such as Lebanon or Gaza, reversing what progress has been made and sending the parties back to square one. Lurking in the background is the possibility that the quest for a two-state solution may be abandoned by the Palestinians, the Israelis, or both -- with unfortunate consequences for all. Resolution of the Palestinian issue would have a positive impact on the region. It would liberate Arab governments to support U.S. leadership in dealing with regional problems, as they did before the Iraq invasion. It would dissipate much of the appeal of Hezbollah and Hamas, dependent as it is on the Palestinians' plight. It would change the region's psychological climate, putting Iran back on the defensive and putting a stop to its swagger.

However, I think that in no other question is the "superpower deflation paradigm" more applicable than in the Middle East in general and the Israel/Palestine conflict in particular.

To cut to the chase, I think the “two state” solution is dead on its feet. Even the “painful concessions” necessary to create this "nonmilitarized Palestinian state" Bantustan described by Brent Scowcroft and Zbigniew Brzezinski are beyond the Israelis; and by the shape the new administration appears to be taking, Barack Obama seems even less likely than Bush or Clinton to lean on them.

Without veering off too far into paranoiac scenarios, with Rahm Emanuel as White House chief of staff and Hillary Clinton as Secretary of State the Israelis and the assorted “friends of Israel” in the US establishment must be sleeping much, much easier than when they were fretting over the President-Elect’s middle name.

What is needed is not rocket science, The Palestinians live where, or as near as they can live, to where they have always lived. All of the Palestinians are covered under a multitude of UN resolutions. What is required is a realistic two state solution. A “realistic two state solution” means a Palestinian state with full sovereignty, control of its own airspace, access to the sea, the same right to be armed as the Israelis have etc. in short a real country, not a Bantustan.

The Israelis have always resisted any realistic two state solution, even when the United States was powerful enough to guarantee one very favorable to Israeli interests and more so now when American power is in a sharp decline.

That leaves the Israelis three alternatives:

1. Ethnic cleansing


2. Apartheid


3. Full citizenship for Palestinians in one democratic state containing both Jews and Palestinians.

Giving the superior Palestinian birthrate number three would probably result in the Jews soon being a minority in the new state.

Number two is what we have defacto at the moment.

If neither a realistic two state solution or a democratic one state solution are acceptable to the Israelis. Then it seems obvious to me they are only marking time with defacto apartheid until, when in a moment of great international confusion, say a general war in the Middle East, an occasion arises to ethnically cleanse the Palestinians. It appears to me that much of the talk in Washington and the EU on this subject is just so much smoke to screen this obvious analysis.

In my opinion, the Israelis and especially AIPAC (who use Israel for their own agenda in American politics) are doing nothing and have never done anything but run out the clock, and play for time.

This strategy has been based on the idea that American military, political, economic and cultural hegemony were eternal, and in the last decade, also on the idea that Israel's technologically driven economic growth was also endless. Both of these assumption are proving false. This leaves Israel in a very delicate position indeed. In the end the Israelis being able to maintain their maximalist positions depends almost entirely on US hegemony. As the world becomes more multi-polar and less eurocentric (white), Israel will be looking at a vastly different playing field.

To give you an example, which is already relevant and will become much more so in coming years: there is no China/Israel, Public Affairs Commitee (CHIPAC) in Beijing. Think about it.

The Chinese don't suffer from much Holocaust guilt. Their only interest in the Middle East is that there be peace and cheap, accessible, oil. Israel has zero strategic value for them and little or none of the influence over their domestic politics that it has over America’s.

As America’s influence fades, the Israelis are being left naked. Israel missed its best chance for peace on the best possible terms when the triumphant father Bush dragged them kicking and screaming to the Madrid conference in 1991. That is a ship that will never return.

Will the Palestinians wait for a better deal as US influence fades? Will the Israelis do something desperate like lighting the fuse to a general war in the Middle East to interrupt this spiral? DS