Peace or Economic Catastrophe

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If Americans
do nothing very different, most of us will have a better economic
future, and so will our children, if we can avoid war.

These five
words — if we can avoid war — are crucial. I have in mind
war in the broadest sense. It includes terrorism. If we can somehow
recover peace as a society and not spread war, which will produce
low-intensity, low-tech, low-cost retaliatory domestic terrorism
inside our borders, economic growth will do its astounding work.

The magnificent
fact of the free market system over the last quarter of a millennium
is this: economic growth compounds. Recessions come and go. Wars
come and go. Inflations come and go. Economic growth continues.
It produces miracles.

Because we
do not perceive the daily effects in our lives of 2% per year economic
growth, we need years of hindsight to see just how far we have come.
We take for granted the effects of that seemingly insignificant
but civilizationally astounding 2% per year growth.

Most of my
readers are middle class. I grew up in a middle-class household,
and while I am no longer middle class in terms of net worth, my
tastes, outlook, and lifestyle remain middle class.

morality has a tendency over time to produce economic growth. It
is thrift-oriented. It espouses personal responsibility for one’s
own future. It is devoted to education as the way to advancement.
It is monogamous. It produces steadily rising income. From monks
who took vows of poverty in the medieval era, and whose orders grew
rich over centuries as a result of hard work and reinvested capital,
to immigrant Jews whose sons became lawyers and accountants, and
whose grandsons became media moguls and real estate tycoons, the
story has been the same: middle-class morality produces society-wide
economic growth and occasional individual wealth.

Two percent
growth per annum, compounded over two and a half centuries, has
produced the modern world. In contrast, the lifestyle of the rich
and famous rests on capital consumption. Eventually the heirs run
out of money.

My grandparents
were born in a world without automobiles, airplanes, commercial
electricity, radio, and most of the other common features of middle-class
life in the West. Their grandparents were born in a world without
railroads, steamships, anesthetics, or even something as common
as toilet paper. Their grandparents’ grandparents were born in a
world that would have been recognizable by Moses. This transformation
of the world did not take very long.

Two percent
per annum, either up or down, is barely observable in any area of
life. Yet over decades, such slow, directional change transforms
the social landscape. Middle-class morality can be maintained in
the conditions of compound economic growth, just as it was in North
America from 1750 to 1960.

If this morality
declines, growth will decline. Violence is a corrosive influence
on middle-class morality and lifestyle, as we can see in the West’s
inner cities and, for that matter, in the cities in Iraq.


Every generation
has its signs of economic decline. My parents’ generation went through
the Great Depression and then World War II. But eventually things
do change. Even in war-ravaged Western Europe and Japan, capitalism
and peace combined to produce economic growth on a scale that restored
middle-class living to pre-war conditions by 1950. Throughout the
West and in Japan in 1955, things were much better than in 1938.
Only in the Communist world did economic growth lag. Where men had
the economic liberty to make their own decisions with their own
skills and money, they prospered.

There is no
doubt in my mind that the American economy is facing a series of
severe challenges that will cost most Americans the fulfillment
of some of their most cherished dreams. One of these dreams is comfortable
retirement at the expense of the U.S. government. But that dream
deserves to die. Another dream is the idea of the typical American
as the richest average Joe on earth — a common dream of children
in my youth. Urban Asians are catching up fast. My grandchildren
will live in a world in which Americans will not be kings of the
hill. But so what? If the rest of the world catches up by way of
increased productivity, consumers around the world will benefit.
It is better to be middle class in a rich world than upper class
in a poor world. It is far better to be a two-eyed average Joe than
a one-eyed man in the kingdom of the blind.

The addiction
of Americans to consumer debt has limits: insolvency. The growth-stifling
effects of government regulation of the economy have limits: the
competence of bureaucratic regulators to pursue their plans. The
growth-hampering effects of high marginal taxation has limits: the
unwillingness of American voters, so far, to turn this country into
Scandinavia. The United States government absorbs about 25% of American
output. This percentage has not changed significantly in several
decades. It is too high, but limits placed on new spending by rising
Social Security and Medicare costs will keep new programs from becoming
budget-busters. The existing old-age programs will succeed at busting
the budget all by themselves.

Tax cuts would
help. Stable money would help. A wave of future-orientation would
help most of all: a widespread desire to invest rather than the
desire to borrow. We are unlikely to get and keep any of the three
over the next two decades. Still, the fact remains that the ability
of politicians to extract significant new revenues out of the wallets
of American taxpayers is limited. The bond market is the hammer,
and Washington does not hold it. The central banks of Japan and
China hold it.

So, we should
maintain an attitude of long-run optimism, on this condition: if
we can avoid war. The problem is, we are becoming more likely to
see the war brought home to us. The political-strategic promise
of 2003 that war in Iraq and Afghanistan will keep the terrorists
“over there” was never realistic. Terrorists are ever more mobile.
Our southern border is as porous as ever. Finally, the costs of
effective terrorist violence are constantly falling because of the
very productivity of technology and capitalism.


My father
was a great fan of George M. Cohan, so I grew up with Cohan’s music.
Like most Cohan fans, he loved “Over There.” I can think of no song
that more encapsulates the message of America as the liberating
policeman of the world. “For the yanks are coming, the yanks are
coming, there’s drum-drum-drumming everywhere.” There is, indeed:
on approximately 750 military bases in over 100 countries. Each
country contains prospective terrorists who want revenge for our
being over there.

The voters’
assumption has been that our troops will keep terrorists occupied
over there. But why should we think that all terrorists with a grudge
against America are occupied over there? Islam is an international
religion. It has 1.2 billion adherents. It does not take a large
percentage to put together a team of terrorists who could bring
the U.S. economy to its knees.

I think 12
men could do it. That is not a large percentage.

We live in
an era of asymmetric warfare. Small groups of mobile, dedicated
terrorists can create havoc with large organizations, as we saw
on 9-11. Add to this a desire for revenge, coupled with a particular
variety of Islamic warriorism.

In June, 2007,
an important article appeared in Military Review. The author
was Thomas Hammes. Col. Hammes is a retired Marine. He is the author
of a book on 4th-generation warfare, The
Sling and the Stone
(2004). The title refers back to David’s
use of a sling and a stone against Goliath. That was surely low-tech
technology warfare. Its effect on Goliath was to destroy the confidence
of the opposing military forces, who fled.

warfare has to do with moral confrontation. Any technology used
is a means to an end. If a group can undermine the enemy’s will
to resist, Sun Tzu-like, it can achieve a victory. If it can break
the enemy’s economic system, so much the better.

Hammes’ article
is titled, “Fourth Generation Warfare Evolves, Fifth Emerges.” It
deserves your consideration. The fact that it was published in Military
Review is also worth considering.


Hammes writes
that modern warfare has moved from organizations that are loyal
to a nation-state to those that are loyal to a cause. They are likely
to use their resources to attack a nation-state that is perceived
as damaging the cause. The members of these organizations see their
cause as a moral cause. This leads to fanaticism. The organization
does not feel restrained by conventional standards of morality.
Hammes could have used the example of the 9-11 hijackers. They cared
nothing about the lives of those who were on the planes or in the
towers. The Geneva Convention meant nothing to them.

Matching this
transformation is the problem Hammes calls “no return address.”
The 9-11 terrorists are classic examples. They were mostly Saudis,
but this fact did not lead to an invasion of Saudi Arabia by the
United States. Instead, it led to an invasion of Afghanistan, followed
by an invasion of Iraq. The supposed mastermind, Osama bin Laden,
is still at large.

In the aftermath
of a successful terrorist attack using low-cost biological weapons
of mass destruction, what could the President do? The perpetrators
are unknown. Who put them up to it? If the technology is off-the-shelf
technology available anywhere on earth, how could the sources of
the devastation be traced back to a nation-state?

If the cause
is international, and if the target is internationally perceived
as a local invader, the recruits can come from anywhere. If they
speak the same international language, such as Arabic, this identification
offers nothing specific to the revenge-seeking government. The victim
can strike out blindly, but this undermines its legitimacy in the
eyes of the new victims. A new pool of recruits appears overnight.


First, the
capitalist system is driven by price competition. Second, there
is a fundamental law of economics that says, “When the price of
anything drops, more is demanded.” Col. Hammes did not mention this
law. It seems applicable to the process he describes.

He focuses
on a potential weapon of mass destruction: a laboratory-created
strain of the smallpox virus. He says that he could have picked
another virus, but smallpox is convenient. Here is the basic story.

He begins
by reporting the findings of Dr. Craig Venter. Dr. Venter and his
team have synthesized a specific virus by using readily available
base pairs. He used these base pairs to synthesize a completely
different virus. The components are commercially available. There
are no restrictions on their purchase. This was an expensive experiment,
but he said that in less than a decade, a competent graduate student
in a university laboratory will be able to achieve a similar synthesis.

This experiment
so impressed a science writer named Paul Boutin that he went back
into a biology lab. He had not worked in one since high school.
There, with assistance from a biologist who kept him away from life-threatening
experiments, he created a glowing yeast. He used the same techniques
that could be used to create a smallpox virus.

It turns out
that the smallpox genome has been published on the Web. Boutin found
it within 15 minutes.

So, the fact
that smallpox no longer exists outside of specialized research laboratories
that deal with deadly viruses is no longer a major restraining factor
on its reappearance in the general population.

then sums up the present situation
. Here, we see the power of
technology coupled with the free market’s price competition.
nucleotides to make smallpox can be purchased from a variety of
suppliers without identity verification.

has about 200,000 base pairs. DNA with up to 300,000 base pairs
has already been successfully synthesized.

An Australian
research team heated up mousepox virus by activating a single
gene. The modification increased its lethality from 30 percent
to over 80 percent. It is even lethal to 60 percent of an immunized
population. They posted their result on the Internet. It turns
out smallpox has the same gene.

The cost
of creating a virus is dropping exponentially. If Carlson’s Curve
continues to hold true, the cost of a base pair will drop to between
1 and 10 cents within the decade. Thus, a researcher could order
all the necessary base pairs to create a smallpox virus for between
$2,000 and $20,000. The equipment he needs to assemble the virus
will cost an additional $10,000.

Hammes then
refers to a simulated smallpox terrorist attack that was conducted
in the summer of 2001 at Johns Hopkins University. The list of observers
was high level. It was called Dark Victory. The attack was assumed
to involve three states. The source was unknown. With the incubation
period of nine days, there was no way to trace its origins.

The simulation
covered only 13 days. Then it was mercifully shut down. Of course,
in the real world, there would be no shutdown after two weeks. It
would spread. Here
is a summary of the simulation’s findings on biological warfare

An attack on the United States with biological weapons could threaten
vital national security interests. Massive civilian casualties,
breakdown in essential institutions, violation of democratic processes,
civil disorder, loss of confidence in government and reduced US
strategic flexibility abroad are among the ways a biological attack
might compromise US security.

2) Current
organizational structures and capabilities are not well suited
for the management of a BW attack. Major “fault lines” exist between
different levels of government (federal, state, and local), between
government and the private sector, among different institutions
and agencies, and within the public and private sector. These
“disconnects” could impede situational awareness and compromise
the ability to limit loss of life, suffering, and economic damage.

3) There
is no surge capability in the US health care and public health
systems, or the pharmaceutical and vaccine industries. This institutionally
limited surge capacity could result in hospitals being overwhelmed
and becoming inoperable; could impede public health agencies’
analysis of the scope, source and progress of the epidemic, the
ability to educate and reassure the public, and the capacity to
limit causalities and the spread of disease.

4) Dealing
with the media will be a major, immediate challenge for all levels
of government. Information management and communication (e.g.,
dealing with the press effectively, communication with citizens,
maintaining the information flows necessary for command and control
at all institutional levels) will be a critical element in crisis/consequence

Hammes continues.
The contagion could be spread merely by having a few infected people
get on several airliners bound for the United States. The numbers:
3 million infected, one million dead, in 25 states. In 13 days.

How’s that
for a suicide attack?

What would
you do about it on the day you hear about a smallpox outbreak? Remember,
there is a nine-day incubation period. On the day you saw a report
on the Web regarding an outbreak of smallpox, what steps would you
take? I know what I would do. Before. For my recommended ten steps,
click here.


We live in
a society that is rich because of the division of labor. The problem
we will be facing for many years is simple to describe: blowback.
The decentralized systems that keep us alive rely on such factors
as a fractional reserve banking that is licensed by the government,
a public health system run by various governments, a government-operated
road system that has concentrated populations, and government-funded
public utilities.

In those end-of-the-world
movies about a planet or meteor heading for the earth, the entire
economic system functions normally until the handful of chosen ones
board the escape rocket (When
Worlds Collide
), or get on the rocket that will blow up
the meteorite (Armageddon),
or go to work on the coasts, despite the inevitable tidal wave (Deep
). It is all nonsense. The division of labor would
collapse within weeks of the announcement. That is why there will
be no announcement.

Peace is indispensable
to the maintenance of social order, which is in turn indispensable
to the division of labor. Our government’s senior officials for
over a century have failed to understand this. Our foreign policy
has reflected this: “Over There.”

the price competition of the free market, when coupled with advancements
in biological science, is moving toward blowback: “Over Here.” The
politicians have not counted the costs of their actions. Neither
have the voters. They have underestimated the cost of worldwide

One more time:
“When the price of anything drops, more is demanded.” This includes
high-risk foreign policy that is perceived as low risk.

6, 2007

North [send him mail]
is the author of Mises
on Money
. Visit
He is also the author of a free 19-volume series, An
Economic Commentary on the Bible

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