The black swan event investors should fear is war, and the tapering that should concern them most is “geopolitical tapering.”
That was the impassioned message that economic historian and prominent conservative Niall Ferguson delivered on the closing day of Altegris’ annual investment conference in San Diego, a tough hurdle, Ferguson quipped, saying “it’s hard to explain to people sitting in California that life can ever get bad.”
But noting that an act of state-sponsored terror in Sarajevo in 1914 precipitated World War I, the Harvard historian emphasized that investors in 2014 have more to worry about than a monetary taper that is often talked about but hasn’t actually happened.
Indeed, Ferguson said the main talk in Europe these days is when European Central Bank President Mario Draghi will move into full-throttled U.S.-style quantitative easing.
Rather, the taper American should focus on is one that has already happened — America’s geopolitical tapering from its post-Pearl Harbor role upholding international peace and security.
The problem, he said, goes far beyond the reduction in defense expenditures even as entitlement programs are increasing as a share of GDP.
The scaling back of the U.S. military presence in the Middle East and North Africa has indeed been dramatic. Ferguson noted we had 180,000 active duty U.S. military personnel when President Barack Obama was elected in 2008 and virtually none today.
That rapid change was made possible by a broader rise in isolationism that he argues is making the world an increasingly dangerous place.
“Geopolitical tapering is a state of mind; it’s a view of the world as well as actual policy.”
That tapering was manifested in a speech Obama gave last September explaining why he would be taking no action in Syria despite Bashar Assad’s having crossed a red line that Obama himself drew regarding the use of chemical weapons. In the speech, the president twice stated that the U.S. should not be the world’s policeman.
As the author of a history of American empire, Ferguson says he was startled.
“If the U.S. is not the world’s policeman, who is?” he asked.
Similarly, the historian noted with alarm a New Yorker interview with the president last year in which he stated, referring to the strategic thinker who formed U.S. strategy vis-à-vis the Soviet Union during the Cold War, “I don’t really even need George Kennan right now.”
Similarly, in 2012 presidential debates, the president mocked his opponent Mitt Romney’s emphasis on Russia as a primary enemy of the U.S. by saying “The 1980s wants its foreign policy back.”
Given the geopolitical tension between Russia and the West over Ukraine right now, Ferguson commented that the president could indeed use a George Kennan right now.
But it’s not merely a leadership problem that Ferguson highlights but rather a problem rooted in shifting American attitudes about the U.S. role in the world.
Recent polling data show that the U.S. population has embraced isolationism and it’s no longer just the “campus left,” but across the ideological spectrum.
“We are so over 9/11; it’s like it never happened,” Ferguson lamented, noting that nearly half of Americans want their country to play a less active role in the world compared with just 14% who felt that way at the time of the Sept. 11 attacks.
“I think this is a more profound taper than any change we are likely to see in monetary policy this year or next,” he said.