The Force Structure Question for the US Military, part 2

The Air Force

I’m starting with the Air Force because I think they face the binary choice more clearly that the other forces and have made selections with the clearest bias to one-side. The Air Force is making decisions focused on Great Power War. Their argument is the straight forward. For them peacekeeping is largely about sustained air power for close air support. Any option that increases the number of GPS bombs and rotary cannons available is an improvement.

In 2000, the tactical side of the Air Force was a mix of a small number of F-15Cs (high end air superiority), a very small number of F-15Es (high end strike), large numbers of F-16 (low end dual purpose air superiority and strike), small numbers of B-1s and B-2s (strike, non-close air support), medium numbers of A-10 (anti-armor and close air support), and small numbers of AC-130 (close air support). Note, we actually have used the F-15 models A thru D for air superiority, for simplicity sack I will only be referencing the C model as it is currently the predominate of the 4. Since then most of the F-15c have been replaced with F-22s. The F-35 is set to replace the F-15Es and F-16s, in terms of GPS bombs the F-35 will carry more in these kinds of engagements (not stealth). The B-1B crews begin to train in CAS back in 2002 and in 2008 those aircraft were modified to handle laser guided bombs in addition to the standard GPS bombs for close air support. The newest version of the C-130 can switch from a traditional C-130 to an AC-130 which means instead of a small number of AC-130s the Air Force is able to deploy large numbers of AC-130s. On top of this we also have the addition of the predator drones with Hellfire missiles.

The end results is a massive increase in the number of available of GPS bombs. In this context, the USAF has decided to retire the much loved A-10 to maintain other forces. The hope is that although it is a loss, it will be the minimal possible loss with the additional GPS bombs and the AC-130s and predators filling the rotary cannon gap.

In the A2/AD context it is believed that the AC-130, A-10, Predator, F-16, F-15, and B-1s are vulnerable. Replacing the F-15 and F-16 with F-22 and F-35 addresses those problems with the F-35 providing the bulk of the strike capacity until the A2/AD threat has been removed. This school of thought continues with the argument that in enough numbers, complex, expensive, but highly versatile aircraft like the F-35 with a minimal of more specialized aircraft like the F-22, B-2, and a mix of autonomous options Predators Drones and Cruise Missiles; we will perform both Great Power War and Peacekeeping with the same high-end force.

However there are those who disagree with the Air Forces stances. Although it is accepted that the F-22 is superior to the F-15C and brings tremendous capabilities to battlefield, it is also worth noting that the F-15C has over 100 air to air kills and has yet to be shot down. Those kills are spread across not only the US in Desert Storm (30+ kills) but also earlier versions of the F-15 used by Israel (50+ kills from 79 to 82). Given the great expense of the F-22 and the resulting limitations from Congress on purchases, this means we are transitioning from a fleet of 800 F-15Cs to one of 186 F-22. In fact of the 20 air superiority squadrons we run today, only 12 squadrons were transitioned to the new F-22 while 8 squadrons remain flight the venerable F-15C. There is a similar story in terms of trading quantity for quality with the transition to F-35. The 1,700 new F-35 will be replacing 2,500 F-16, 120 F-15E, and 300 A-10.

Those who hold that peacekeeping is a critical mission set for the US Military truly hate and greatly disagree with the retirement of the A-10. It is a low cost, high-powered aircraft that can provide a unique, high-powered rotary cannon for close air support possible for the troops on the ground. Many of these critics point to the Gulf War where we grounded the A-10 for the opening weeks due to the anti-air threat but after those Iraqi A2/AD elements were targeted and destroyed the A-10s took to the air and wreaked havoc on Iraqi armor.

It is worth noting that our Air Force has been very busy in the last 3 decades. They have had two air wars in Iraq, steady operations in Afghanistan, and NATO operations in Kosovo and Libya. We have a number of aircraft that are veterans of five wars. Aircraft do wear out have do have to be replaced. New stocks of F-15C, F-16, and A-10 would be needed even if we were not upgrading to F-22s and F-35s.

The Force Structure Question for the US Military

What should the force structure of the US Military be?

This has always been a difficult topic for a number of reasons, primary it centers on an unanswerable question: what will the next war look like? There are generally two approaches to answering this question. The first is to look back at history and try to derive out a pattern. The second is to look to possible near-term adversaries and ask what it will take to overcome them.

In the case of the US military these approaches have led to two very different camps in term of military force structure. The first group talks about a military that can perform “operations other than war.” This is counter-terrorism, counter-insurgency AKA COIN, and traditional peace keeping. Politicians and military leaders hate the terms “peacekeeping” and “nation building.” But take a hard look at the day-to-day patrols during the Vietnam War, US anti-drug operations in Guatemala and Columbia, Somalia in 1993, the NATO air-wars in Kosovo and Libya, our decade plus in Afghanistan, and Iraq the 2nd time around post “mission accomplished.” Our reconstruction plans post-WWII in both Germany and Japan required lots of funding and US Army bases on site.

Politicians say they don’t want to do peacekeeping, military commanders say they don’t want to do peacekeeping, but time and time again politicians find themselves asking military commander to go do peacekeeping in one form or another. No one likes it but no one has liked it for the past 68 years. This is not going anywhere. It will happen again. We owe it to our soldiers and other service members to accept the unhappy truth and make sure they are prepared to do it and do it well.

The second group looks to near competitors and is all about what is known as Great Power War. In the current environment that means a focus on A2AD (Anti-Access, Area Denial). These experts are looking at the anti-air and anti-ship missiles of nations like Russia and China. They are seeing the addition of sea mines and cyber-attacks. They are also seeing Iran training with swarms of smaller ships, a more quantity over quality approach to naval warfare.

America has dominance in the ability to project power and strike targets. The goal of A2AD is 2 fold:

  • Cause high casualties to striking forces. In many cases A2AD assets are not enough to outright win in an open war, however they are enough to ensure a significant cost if there is an engagement
  • Strike assets will need to function at a longer range and with greater limitations. The effect of this means some strike assets will be outside their range thus sidelined while others will have to take on significant additional risks while deployed.

Part of the A2AD conversation is to make sure policy makers understand that the strike power seen both times in Iraq cannot be replicated against certain nations due to their A2AD capabilities. It is also critical to understand different military assets have different levels of exposure to A2AD capabilities.

The optimal force for peacekeeping and the optimal force for great power war can be diametrically opposed in many ways. Peacekeeping thrives on low tech solutions, requires stay power over the long runs, and having both international and political partners are not only critical but may be more critical than the military force being deployed. Great Power War requires multiple specialized high tech solutions, a burst of forces in large numbers but only for the short term, and although international and political partners are helpful, it is the military force that determines what is happening on the ground.

People on the peacekeeping side tend argue that their mission is the most likely, which is historically true. Those on the Great Power War side argue that their mission is the deadliest/hardest, which is also historically true, and thus the standard we should prepare against. Given these two differing viewpoints, each of the service find themselves being pulled in two-different direction at once in a time when resources are sequestered, older equipment is worn out due to extended campaigns, and all services are in a “reset” phase.

Next week I will be applying these two viewpoints to specific military branches.

The 3 Economies, part 3

Thanks for coming back! If you missed the first or second entry in the series you will want to read those first since I will be referencing them throughout this post.

Labor Markets

The Labor market is… messy. One share of stock is as good as another however no employee is exactly the same as another. Outcomes are unknown, can be effected by things unrelated to your company, and an interview/resume combo is far less informative then a stock’s disclosure report. Among salesmen, the top tier commonly sell twice the average. The bottom tier commonly sell only half the average. That is a 4 fold difference in outcome based on something that can’t be measured before they are hired.

While stocks and products don’t care what portfolio they are in or what shelf they sit on, people do care and care deeply what company they work for and what work they are doing. A loaf of bread does not care if it is sold for 75¢ or $3 dollars. To an employee there is a massive difference between making $25,000 a year to $100,000 a year. If my grocery store puts bread on sale, it is still the same bread and my sandwich tastes the same. If I cut an employee’s salary from $50,000 to $35,000 odds are their productivity will plummet.

These non-market factors also carryover to the distribution of labor. Financial assets are non-physical so can be transferred near instantly; Products can be shipped from one side of the country to the other although it may take a few days and cost a bit. Employees are very different. People can relocate, but slowly and with great difficulty. The effect of this is that many labor markets are localized, although this can vary by skill set. Higher skills sets tend to be more likely to move and companies are generally willing to pay more to get people to move. For lower tiers of skill the markets are more local.

In short, labor is a product that cares where it is thus limiting distribution, cares what it costs thus you have non-market forces effecting price, and the buyer has incomplete information about the quality of labor they are buying. Labor markets are messy.

Much like production technology and product development, companies invest in their human capital. There is a natural attrition rate for employees that the company will have to work against. Human capital can’t be mothballed and it takes a long time to develop good employees. Thus, companies don’t, nor should they, instantly optimize their long-term workforce to match only short-term needs.

If revenue has dipped then it may make sense to hold on to excess employees for the dip since you will need them when sales return to normal. Of course the problem with that statement is knowing if this is a short-term dip or a long-term shift. It’s also important to never forget that employees are people. Nobody wants to fire someone they like and who they know is working hard. While it is easy to see how larger companies can commoditize their labor, for smaller companies letting people go can be personally painful for the owner/operator. This can be a major market friction.

This pressure to hold a non-optimum amount of employees is one of two big sticking points in the division between GnS and the Labor Market. The second is the Keynesian notion of sticky wages, which we have already touched on in passing.

The connection between GnS and Labor

So what is the net effect of all of this? Expect the Labor market to lag behind the GnS market in terms of lowering total jobs vs. output. Expect employees to be unwilling to lower the price of their labor… at least in the short run. Note that both of these trends are the effect of a negative GnS on the labor market. Companies aren’t too hesitant to hire during a boom and employees will gladly accept a raise and accept it right now. Thus a positive GnS can interact very smoothly with the labor market while the effects of a negative GnS are commonly delayed and dissipated.

Labor economists must look at the long term when discussing these numbers. Seasonal variations are strong, effects are delayed, and different labor types can be treated as either a short term cost or a long term asset depending on their skill sets and the company. While the links between the financial markets and GnS only apply to some firms, the links between Labor and GnS are all about a mix of short vs. long delays in effects and the natural frictions in hiring/firing. It is also critical to remember that while any company wanting finance has access to the same financial market, firms hiring employees may face dramatically different labor markets given there location. Skill sets and education are not highly fluid and thus these markets can be highly isolated.

I started with the statement that the labor market is messy. That is the best ways I know to end.

Final Notes on the 3 Economies

Now here is where we start to get blunt and maybe a little mean. I am not here to be a jerk but there is a point in time where things are simplified to the point of inaccuracy.

The debate between “Wall Street and Main Street” is nonsense. Not because of political ideology but because when people talk about “Main Street” they are general talking about the labor market which is highly disconnected to the financial markets. As you have seen both are connected via the GnS market but both have very imperfect connections to the GnS market itself much less each other. If it feels like the financial market and the labor market are completely unrelated it is because they largely are. A good policy for the financial market might have no bearing at all on the labor market. That is not the fault of the policy, those markets are naturally that far apart. The same goes for the effect of labor market policies on the financial market.

If a labor policy is good it is because of what it does to the labor markets, not the stock market. If a financial policy is good it is because of what it does to the investment world as a whole, not just the NYSE and definitely not a shift in the unemployment rate a week or two later.

Both labor costs and credit issues do effect the cost side of the GnS market; however, these effects can differ wildly per company and sector of the economy. Different companies within a sector have different exposures to the credit market, however all companies share that one credit market. Companies within a sector do share a labor market for much of their workers, but it is commonly limited to those within that sector. A glut of teacher does not counter act a shortage of nurses in the short run. Neither will a credit crunch.

That “nice one size fits all” analysis about how the jobs report boosted the moving average of the NYSE… bullshit. Just bullshit. Just retail stocks within the NYSE, ok that makes sense. I can get behind that story.

The Fed changing interest rates causes tech stocks to drop a half a percent. Bullshit. The Fed rate affecting banks… ok that makes sense. The connection is obvious. A report on the lack of graduates with computer science degrees causes tech stocks to drop half a percent. That might or might not be true but at least that makes senses, the details belong together. It is a story the reporters can tell and the pieces make sense.

There are these grand stories of interconnect pieces where the burden of proof is just not met. It is on the story teller to prove the connection. When facing these kinds of stories I make it a point of looking for the mechanism. What is the piece that causes X to change Y. How significant of an effect does X have on Y? What are the limits to that effect? What counters and substitutes for that effect?

The take away is this: there are simple stories and fundamental truths that do hold for parts of the US Economy, but when we start to simplify across complex systems and ignore major frictions and mechanisms between sectors we are simply lying to ourselves. If we are going to talk about complex systems, then let’s recognize that they are complex, treat them as such, and require a bit more proof.

Thank you for joining me over the last 3 week. As always, I will have a new topic starting on the first Friday of each month. Next time I will be talking about the force structure questions the US Military faces, how foreign policy fits into these questions, and the pros and cons of different solutions.

The 3 Economies, part 2

Thanks for joining me again. If you missed last week’s blog you will want to read it before you read this one.

The Goods and Services Market

When Economists talk about “the Economy” this is the part they are generally talking about. This is (most of) GDP, products going to customers, and services being used. However this process is not instant, perfect, all knowing, or omnipresent. Even in the world of modern e-commerce where hundreds of intermediate sellers are presenting the same item, the results at check outs can vary and the item still has to be shipped. In cases where products are similar but not identical more research is need and sources may be good for popular items but will most likely be limited for more specialized items.

Different products and services can take on different market structures. As we move from identical or nearly identical products into items which are more complex, specialized or unique, the rules shift. The issues of understanding quality, getting clear pricing, and delivery/transaction costs can increase in complexity and increase dramatically. In these cases it is also common for market structures to shift from near prefect competition into more oligopoly like conditions.

The key thing to remember here is the effect of these frictions. There is no factory, retail outlet, or service provider that is going to be as fluid as the financial markets. Prices will not change by the second, items are not delivered instantly, and disclosure rules are minimal (if at all) thus information is normally wrapped in marketing or opinions on review sites.

The market for goods and services (GnS) will adapt but it takes time and energy to produce products, liquidate excess inventory, restock, and for management to manually adjust prices. Most companies are doing all four of these tasks at all times to some extent or another. While different financial markets tend to be highly interconnect, goods and service can be surprisingly independent from each other at times. There have been many, many times where people say “the economy” is doing badly but a large number of sectors are very stable and growing year to year as if nothing has changed.

It is a well understood economic phenomena for some companies to be cyclical while a few are counter-cyclical, i.e. for some companies to perform well in tandem with “the economy” while others actually improve when the economy is down and struggle when the economy is doing well.

Yes, we live in an age where things have become more and more connected than ever before; however, we must be careful not to jump to grand conclusions and image connectivity where it simply is not, or where they may be an effect but it is minor at most. My challenge for anyone on this issues is simple. Before you think something is connected try to quantify how interconnected it is. Try to calculate that number. If the best you can muster is notions about how it is connected to “the economy” as a whole then they probably are not as connected as you think.

A shift in other sectors might change a company’s revenue from 52 million to 51 million. A million dollars is a lot of money, but note that 98% of the firm’s revenue has not changed. When was the last time 98% of your life was exactly the same from year to year?

The news media, politicians, and even we lowly economists like to talk about “the economy” as if it is a race horse bounding down the track. It makes for great TV and catchy news titles online but is commonly over stated. In reality it a jumbled mess lurching in all direction with the aggregate effect being a slight movement in one direction or the other. For most companies the actions of your competitors and middle managers are more important to your bottom line than the larger economic picture. I am not saying the effect isn’t there. I just want to place that effect in a more reasonable, empirically accurate context.

Not all Markets are Highly Competitive Open Markets

When people talk about economics they tend to assume an underlining structure of an open competitive market place with near perfect information, lots of sellers, and lots of buyers. However if you take a hard look at most market places the reality can be much less Marshallian than we imagine. Marketers work very hard to create price discrimination via ad campaigns and product differentiation. Branding has become a proxy for quality. Stores are stocked to provide options… but those are often limited to good-better-best sales pitches. Sales, coupons, and various point schemes cloud the true costs/savings of different bundles of goods.

For many industries, selection can be a real issue. It common to see a pair of heavy weight businesses going head to head with a more niche 3rd tier competitor far behind. This has improved dramatically in recent times with e-commerce outlets bringing a range of smaller sellers to market places well beyond their normal geographical reach.

The connection between Financial Market and the Goods and Services Market

Before I dive too far into this connection I want everyone to take a second and just think through a question: If the NYSE drops 2% on Thursday does a car manufacturer in Alabama drop its production goal for Friday?

No… of course not.

The talking heads on the news love horse races and thus financial markets. They are always in flux thus have content to cover, regardless of if that content actually means anything. So the question quickly becomes how does the financial market effect firms? The answer to that question largely depends on the firm, but we will cover large archetypes here.

The first is a mix of long term and short term loans. Long term for when they can’t, or shouldn’t, self-fund expansions and retooling. The second is short term loans for covering various cash flow issues like seasonal variants in revenue or one time production costs both of which are common issues in business.

Note that these are fairly simple bank operations, not complex financial arrangement. Financial markets can lower the costs of these transaction or simply provide a skilled CFO a range of options beyond traditional banking, like issuing stock or corporate bonds. The results of lower costs will increase the rate at which companies retool or the easy with which they can address cash flow issues. Although these costs are lowered they still exist and of course not needing to pay any cost will always beat paying a low cost.

Improvements in the financial markets, lowing financing options, and providing flexibility to CFO’s who are facing complex financial challenge can all help to increase production in the GnS markets… but only among the firms facing those kinds of financial problems and then only for a fraction of those firms’ total production. These are marginal gains, not grand economics revolutions.

The important thing to remember about financial markets is that it is at the edges, not the core, of business finance. Although we saw major financing issues starting in 2009, specifically in housing and cars, most elements in the economy were unaffected. Groceries were still bought, doctors still cared for patients, and electronics were still developed/produced/sold. Firms that had financial issues before the financial crisis were the ones that suffered heavily during the credit crunch. The credit crunch was irrelevant to businesses that did not need credit.

Next week I will be concluding this series with a discussion of the labor market and how it differs from and interacts with both the GnS and Financial Markets.

The 3 Economies

The 3 Economies

When talking about the US Economy there is a set of problems that I see people running into again and again. It is almost as if people are not talking about the same economy which in turn leads to economic arguments where we can’t even agree on basic facts much less begin to work towards a solution.

Instead of viewing the US economy as a single entity, I believe there is value in viewing it and discussing it as 3 different economies that are imperfectly connected to each other. Each of these economics follow slightly different rules. The 3 economies are: the financial market, the goods and services market, and the labor market.

The Financial Markets

The financial markets are hyper reactive. Things change on a dime. A new market price can be reached in a fraction of a second. Pricing information is largely open and readily available. Due to public disclosure laws, it is as close to perfect information as you can get for a product. Don’t misunderstand me, a skilled and unethical accountant can fudge the numbers to make a company look better than it is, but only to a point. In terms of information, you know far more about the stock you are buying then your next toaster.

Note that although the NYSE is critical, it is only part of a larger international financial market place. Other stock exchanges, various public and private bonds, venture capital, and private investment are all competing for the same resource, capital. Ups and downs in a specific subset may reflect a fundamental change in the financial markets… or may just be a rebalance between subsets. The old joke in Economics is that the NYSE has correctly predicted 9 of the last 5 recessions.

It is also critical to remember that the financial market is what statisticians call “noisy”. There is a lot of ups and downs that just happen. Over the last decade, on average the Dow Jones Industrial Average changed about .75% per day on trading days. If you look for dramatic changes then a guideline of two standard deviations (to cover about 95% of the data) comes out to be about a shift of 1.8%. In other words, a shift of greater than 1.8% in a single day happens about once a month. If someone tells you that something massively important happens and that the markets reacted to it, then look at the shift. If it was less than 1.8% shift then it was not that dramatic. If it is less than .75% then there was actually a less than average about of change on the market that day. If you take a hard look at most financial reporting, expect to see a lot of false drama over sexy issues used to explain tiny shifts that frankly are just noisy markets being noisy.

The big, powerful, fancy theory in Economics to explain the financial market is something called “Modern Portfolio Theory” (MPT). It is taught in most graduate schools and is largely regarded by both practitioners of the market and scholars as dysfunctional. Specific critiques center on false assumptions built into the underlining theory and a mismatch between forecasts made using MPT and actual market prices. In fact more recent graduate level text books open with a discussion on MPT not as a tool that should be used but as a pedagogical exercise.

I genuinely believe that MPT can and will be replaced, and fairly swiftly, once a better theory with more consistent predicting power enters the field. Traders and Economists have been watching for that theory since the mid 1970’s and it has not yet emerged. This theoretical gap is critical since those who turn a profit in the market are those who can “get in front” of the market. It is this desire that has in many ways forced traders to be overly sensitive to changes and information. This adds to the lean, aggressive trader and the quick changes in prices that we see in modern financial markets.

Thank you for taking the time to read my blog. The entries for the next two weeks will be about twice as long. Next week I will be talking about the goods and services market as wells how it fundamentally differs from and interact with the financial market. In two weeks I will conclude this topic by using the same approach to discuss the labor market with a few final conclusions to wrap things up.

Economic History… before the Industrial Revolution

I have a massive beef with how we teach economic history today. 3 beefs to be exact:

  • it normally starts around 1850 plus or minus 30 years
  • it is European/American exclusive
  • it normally deals with economic philosophy instead of economic quantification or structures

To be blunt, the difference in scope between world history and economic history is pathetic. However, in science there are times when you have very limited information so you have to make do with what you can find.

In today’s blog I will attempt to add a critical piece to the standard story of economic history. It is not as long reaching or global as I would like, but it is at least a minor improvement on what we have seen. Also, I will be completely ignoring economic philosophy. You’re welcome.

In antiquity, we have seen the rise and fall of empires. With the rise of empires we see a crescendo of culture, literature, and wealth. As the empire falls we see a “dark age” and stories of poverty. In modern times we have large government bureaus that gather and construct a detailed economic picture for us and from time to time we find fragments of that from the ancient world. When analyzing antiquity our mathematics is far more back of the envelope. Nothing you are about to read is cite worthy and take all of it with a grain of salt. If there was better information I would bring it to you but it just isn’t there.

Most empires, large and small, were about 90% devoted to sustaining themselves and the remaining 10% was nobility, culture, religion, etc. Arts, culture, and religion all gain from economies of scale. By centralizing the excess 10% from across multiple cities/towns into a single city, an empire will gain more of those “high society” elements at a higher average then if they were independent of each other. This mandatory centralization of cultural actors was why cultural elements rose and fell in tandem with empires.

This is a trend that we see across history, around the world, until Britain in the 1200’s and other parts of Europe soon after. Here we see a series of minor agriculture reforms that completely change the structure of their economy. Before this lords ruled peasants, directed their activities, and provided them with tools and food. Both groups were directly attached to the land they ruled/worked.

Around 1200 this attachment to the land was weakened. Lords became more like landlords and peasants were able to move between lords to rent specific fields. From this simple change we see a mix of micro-revolutions happening. First off, peasants now provided their own tools. What we see in the archeological record is a massive increase in the number, range, and variations of tools. It appears that once lords stopped buy tools and the farmers themselves started to make the purchases it sparked a massive change in tools design and production.

Secondly, we see an increase in people moving between towns. The reputations of the farmlands began to become important. As farmers began to move away from unproductive farmland to more productive farmland, an informal system of field rotation was created via market frictions. Bad fields would stay unused until the lord dropped the price so low someone would rent it simply because even if it produced less food, they would get to keep most of that smaller amount.

Rent was generally paid in the crop itself. Pre-1200, let’s say a piece of land could produce about 100 units if the peasant put in a medium level of work. However, the peasant got the same amount of food and shelter regardless of their work load. If they put in a high level of work they could get 120 units while at a low level of work the field would only produce 80 units. The incentive for the peasant is to put in the lowest level of work to get the standard pay. Since the pay is standard, the lord’s only choice to get the higher level of production is via fear or by taking more land.

So now let’s say we change incentive structure. The rent is 60 crops and yes, paying 75% to the lord was not uncommon. But since the peasants turned tenant farmer now get to keep the remainder of their corps the work to keep ratio changes dramatically. Now if you put in a low level of work you get to keep 20 crops, if you put in a medium level of you get to keep 40 units, and if you really work hard and put in a high level of work the peasant gets to keep 60 units of crops… the same as the lord gets from this piece of land via rent!

So from this mix of incentive structure, tool ownership, and field rotation productivity shifted dramatically. Instead of needing 90% of the population to sustain the nation only 60% was now needed. That means that instead of 10% being devoted to culture, religion, and the arts 40% of the population can now be used.

From 1300 to 1400 we see a massive increase in the number of monasteries, libraries, and universities. The roots of Oxford University are laid in 1280’s. Cambridge was officially founded in 1208 but its first college was established in 1284. English monasteries already had libraries before this time, but we see case after case of those libraries expanding as well as massive Cathedrals being built, collapse, and then being rebuilt again but this time with a bit better understanding of architecture.

From here we see the start of the trend. Agricultural reforms led to an increase in those engaged in intellectual pursuits. Intellectual pursuits led to the scientific age. The scientific age created the engineering need for the industrial revolution… which is generally where others begin the discussion of economic history.

And this is where the problem lies with starting a history lesson in the 1800’s. There are a massive number of microeconomics and efficiently lessons to be learned from the 1200 to 1400. Lessons on incentive structures, technology/efficiency, and simply understanding how you are distributing man hours. What is particularly striking is how many of these empirical phenomena, not “economics principles” or ideas but regularly observed outcomes, are ignored in various economic philosophies. But, I promised to not talk about economic philosophies so we will end this for today.

I hope to see you all again next month.

Is the U.S. Actually Rebalancing to Asia? Part 3

Welcome back, this time for the third and final installment on this topic. If you missed the first two they are here and here.

I don’t have anything new to say in regards to US economic power in the Pacific. We are highly interdependent with Asia and everyone reading this has heard that at least a dozen times a year for a decade or more. If you don’t believe it then just look at the items around you. For myself, I’m writing this on a Samsung laptop, while drinking imported green tea, having driven here in my Kia. As I stated at the start of these posts, the economic aspect of the rebalance to Asia is less about the future and more about catching up to our past. So once again: is the US making a rebalance to Asia? No, we are not rebalancing because we are already there and have been there for some time.

If it sound like I’m being harsh toward this rebalance or playing down its importance I assure you I am not. Let’s talk about the third arm of US power: diplomatic. At the start of the Cold War we formed NATO to address the threat from the USSR. It was a tight diplomatic/military alliance with strict responses from all members if any members were attacked by the USSR. The Washington response to a problem is the NATO response. The London response to a problem is the NATO response. The Brussels response to problem is the NATO response.

Is the Tokyo response to China the same as the Seoul response to China?

Maybe?  Probably? Not necessarily? Regardless of which of the previous answers you choose, how sure are you of that answer?

The politics of the Pacific are far more complex than those in Europe of the 1950’s. As an ally, Europe has proven to be highly skilled at developing institutions, forums, and international bodies. These can be very useful in addressing issues or at a minimum make a joint statement about what a solution should look like.

The Pacific is highly disjointed. While Europe might have spats between its regional bodies, the Pacific lacks many of those kinds of bodies to begin with. Organizations like ASEAN have proven to be the exception instead of the rule. In the case of ASEAN, in has a large membership but mostly of the smaller players. The large powers like South Korea, Japan, and Australia lack memberships in regional bodies that allow for the kinds of cooperation, dispute resolution, and joint statements that are sorely needed for soft power to work.

Many of the divisions and security issues in the Pacific are solvable and we have seen these kinds of issues turned into minor technical details or settlements between European nations participating in larger institutions while all their other neighbor were looking on.

Of course there are additional complications and ambiguities in East Asia today when compared to a post WWII Europe. Is the rise of China a threat to East Asia equal to what the USSR was to Europe? For many nations China is both a military concern and an economic opportunity. China’s sea claims have cause even Vietnam to request American military help. If these concerns are true do we need a PATO (Pacific Alliance Treaty Organization) much like we have NATO?

Due to governance issues and demographics, many see China as a rising power but only in the medium term with India following soon behind it but is a sustainable manner. These analysts see India passing China in dominance starting around 2030. If this is the case, should our rebalance in Asia be built around an Indian Ocean nation instead of a Pacific nation?

What about Taiwan? There are significant pros and cons to both including them in any process as well as leaving them out of any process.

This is where I completely agree with President Obama and the rebalance to Asia. In terms of military and economic power this rebalance is not a rebalance, it is a classification change at best and misleading statement on resource distribution at worse. In terms of diplomatic institutions and the State Department’s priorities it is a long overdue call to action. We need a massive push for institution creation and clarity in the Pacific and later across Asia as a whole. I have to contritely call this a “diplomatic surge” simply because of the abuses the word “surge” has received in the current lexicon but it is also an accurate phrase and this diplomatic surge would prevent many fixable problems if it could be achieved.

What makes this surge odd is that it can’t have an objective in mind, at least not in the early stages. The fact of the matter is this situation is murky enough that a clear and present danger is not fully agreed upon by all and there is still great mistrust between necessary players. We can’t walk in and demand a PATO or expanded ASEAN or India/Japan centric alliance with lesser partners attached or any other predetermined structure.

The best approach will most likely to be multifaceted, creating and supporting a mix of organizations; however at some point a lead organization will need to be determined. If a lead organization can be determined, even if imperfect, it forces others to play along within that framework or proactively seek a bilateral agreements outside of that framework.

The rebalance to Asia is a diplomatic necessity. We do not need to see more soldiers in fatigues but more diplomats in suits. We can measure its success not by increasing the N strength of destroyers or fighter jets but by counting the number of regional organizations and the number of times we see nations using the same language to describe specific issues. If we only see a few more troops then this shift is no more than a classification change to describe actions that have been happening for decades.

Well, a classification change and a missed opportunity for America to do some good.

I hope to see you all at the beginning of next month for a completely different topic.

Is the U.S. Actually Rebalancing to Asia? Part 2

Thanks for coming back. If you missed last weeks you can find it here.

The picture for the US Air Force is probably the most complex among the military services. The first issue is what the US Air Force provides the military as a whole. Most people think of the Air Force purely in terms of fighters and bombers. The fact of the matter is the tactical side of the Air Force, including maintenance and direct support functions, accounts for only about half of the Air Force in terms of personnel and equipment.

The Air Force refers to this other half as “enablers”. This group includes things like two of the three elements of our nuclear triad. It also includes airlift, satellite operations, command/control functions, ISR (Intelligence, Surveillance, and Reconnaissance), and now cyber operations.

The old adage “amateurs study tactics, professionals study logistics” has never been truer than in the modern age where the world is more interconnected and interdependent and thus the US finds itself in far flung places. The airlift required to deploy those very heavy Army vehicles is critical to any ground operation. So is the ability to continuously provide fuel, ammo, and other supplies to countries around the world, many whom are lacking in transportation infrastructure.

If the US military has an Achilles heel it is our dependence on satellites. Planes, ships, tank, and JDAMs (which is the smart-bomb that we use the vast majority of the time) are all reliant on GPS satellites for navigation. As we have been pushing harder and harder for more integrated actions between services and access to better intelligence and control for commanders on the ground, our key communication asset is ever shifting away from the local, service centric radios and more to satellite based communications.

Now to place all of this in the NATO context and then the current force structure. Most European nations run small but advanced, high quality, tactical centric Air Forces. They have flown with American forces time and time again. They have performed very well and have integrated into an American “enabled” force very well.

However, the enabler side of many NATO members is greatly lacking. Many European army units in Afghanistan and both times in Iraq were dependent on the US for delivering not only supplies but also their heavy armored units as well. In the 2011 air campaign against Libya, originally France and the UK attempted to jointly command the operation. After a few day the US, via NATO, took command. European nations still provided the majority of the tactical assets and performed those roles very well. The disjoint command structure mixed with a lack of enablers meant that Europe could not even maintain an operation across the Mediterranean.

Frankly, many European leaders were very embarrassed by this turn of events. The Libya campaign has served as a call to action across Europe to address this question that has been lingering for over a decade. The roots of this problem are as complex as the answers. Although the continent has grown closer together over the years, it has done so in a cross-sectional fashion.

The EU, commonly favored by liberal parties within countries, often sees itself as a friendly counter weight to the US. NATO, commonly favored by conservative parties within countries, see itself as jointed directly with the US in all critical matters of foreign affairs. Given these fundamental differences in views, NATO and the EU don’t work that closely together… if at all. Member states may be highly engaged with both, but they are approached as independent efforts and there are few leaders who do both.

The best way I know to describe this problem is the following: image if the US constitution specified both a Secretary of Defense and Secretary of State but made it illegal for both of them to attend the same meetings. That sounds funny but remember that both NATO and the EU are based in Brussels, are ran completely independently from each other, and don’t engage in either joint planning or joint policy making.

Some efforts have been made in recent years to improve this relationship, mostly via high level members either fostering personal relationships or attending a few key meeting of the other in an informal capacity. However these events are still novel enough that they make the news.

The closeness of modern Europe has largely been accomplished via the EU. Its ability to generate soft power has greatly improved. Unfortunately this new unity is not reflected in an increase in the capacity of the military enablers need for Europe (via NATO or the EU) to project their currently military power. The enablers needed in modern warfare are complex and benefit greatly from economies of scale. This makes it very difficult for a single small nation to provide all the capacities needed.

Merging these complex system across multiple nations has also proven to be difficult and requires a tremendous amount of coordination across NATO. Multiple efforts have been tried to address these issue. In some areas we have had success in standardization across the alliance but thus far the larger enablers fall short. This leaves Europe’s various militarizes dependent on the US and its Air Force enablers for any significant operation. This is recognized on both sides of the Atlantic as a major concern.

Back to the question at hand: the US rebalance to Asia. Much like US Army units, there are many who no longer think Europe needs large numbers of tactical air asset from the US. However professionals in NATO recognizes that US enablers are still needed. The US Air Force’s tactical assets are already split between Europe and the Pacific somewhat evenly.

In the case of the Air Force overall balance is less critical as redeploying aircraft is very simple, deploying support elements is manageable, and both are far simpler tasks than heavy armor lift and other similar difficulties that the US Air Force address daily. It is also worth noting Japan, South Korea, and Taiwan fly (and thus maintain and repair) the same tactical aircraft as the US Air Force.

So now we get to the fundamental question at hand: is the US actually rebalancing to Asia? In terms of our military power the answer is this: “No, we are not rebalancing because we are already there and have been there for some time”. Yes, the previous statement is a bit of an oversimplification given the complications of Air Force enablers in NATO, but on the whole it holds true.

Thanks for reading. Next week we will be talking about the economic and diplomatic issues.

Is the U.S. Actually Rebalancing to Asia?

It is surprising how little debate there has been on the US rebalance to Asia proposed by President Obama. Despite the partisan nature in Washington today many Republicans have backed the President on the shift. For the Democrats, this rebalance is a moment of insightful leadership from a transformational figure. For the business wing of the Republican Party, it is our foreign policy catching up to our current economic realities. For the more hawkish elements of the Republican Party, it is the US finally addressing the rise of China head on.

But as an avid watcher of foreign affairs I have to ask myself: is this really a rebalance? That is not a simple question to ask. Anyone familiar with the operations of the Departments of State and Defense knows this is a large systematic question that will yield a tangled answer.

I will be defining American power along three lines: military, economic, and diplomatic. Remember that all of these are somewhat fluid. Military assets are designed to be redeployed, however some assets are far more difficult to redeploy than others. Markets and competitive advantage can shift between nations and subsections of economies fairly quickly, but long term investments and establishing new markets is key to any modern global business. Diplomacy is partially about treaties/organizations but also partially about personal relationships between heads of state and other officials. There is no perfect balance or optimal results in these kinds of shifting environments paired with long-term plans, just best guesstimates.

The most direct way to discuss military power is to do it by each service. Although the US military operates jointly most of the planning, positioning, and tactical developments are still done within each service. It is also important to note the different footings and interactions the services take in the world.

The US Navy and Marine Core are forward deployed. They are everywhere, all the time, and commonly are the first called on during quickly developing situations. If you take a hard look at their tool kits (weapons, forces, command structure) you will see that across the board they are general purpose, highly rugged, and self-sufficient. These forces are deployed first and then respond to whatever situation arises with what they have on hand.

For the US Navy the need for a shift to the Pacific was determined and achieved back in 1922. Since then the US Navy has maintained both a Pacific and Atlantic fleet with the Pacific being the larger of the two. For the Marines, the story is similar. The Marine Core didn’t really leave the Pacific Theater after WWII. Marines are forward deployed all over the world, at every embassy, and across the US Navy as a whole. They hold a major bases in Japan and Guam and are developing one in Australia. Like their parent navy, they are also already biased heavily to East Asia.

The Army and the tactical side of the Air Force operate large, complex, multifaceted forces. Some forces are forward deployed to a few key places but as a whole the bulk are based back in the US. Both have a number of specialized systems/forces to deal with specific threats. They tend to deploy what they need when they need it.

While the Navy/Marines deploy then react, the Army/Air Force determines how they want to address a situation, select specialized assets, and then deploys those assets with a specific mission in mind. Given how task specific the Army and Air Force can be we have to place them in their larger context within NATO and with other allies.

The Army has had two divisions in Europe (1st Armored and 1st Infantry) and one division in South Korea (2nd Infantry); however, remember that the Marines are also heavily deployed in the Pacific. In terms of total ground forces, Europe and East Asia have been on roughly equal footing during the Cold War and that is when you remove the Korean War and Vietnam War from the equation.

It is also important to note the effects of Desert Storm on NATO. The Iraqis were equipped with large amounts of Soviet armor, the very same Soviet armor that concerned Europe so much. Here in America the war was seen as a major success. This view is also shared by many in European about their own armed forces, both air and army, and rightfully so. Place this new European confidence in the context of the fall of the USSR and it is easy to see why many no longer saw a need for large numbers of US Army units in Europe. Europe felt secure dealing with Soviet armor on the plains of Europe because of how successfully they dealt with Soviet armor in the sands of Iraq and the transition from USSR to Russia led to a smaller sized army.

Since the end of the Cold War, the US Army has moved from a Division System to a Brigade System, i.e. a single large unit with centralized command/logistics into multiple medium-sized units that can now act independent of each other. A number of European based brigades were already being move back to the US by the late 90’s.

While gathering up the forces needed for Iraq and Afghanistan, US commanders worked to maintaining a strong force in South Korea due to the provocative actions of North Korea. These factors lead to a situation where Europe was already diminishing in terms of US Army numbers and Asia was already receiving priority in term of maintaining forward deployed brigades.

Thanks you for reading my blog. Next week we will continue with a discussion of the US Air Force as well as NATO.