American Interest Pre-Publication Copy Vacation (July/August) 2008 (Vol
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American Interest Pre-Publication Copy Vacation (July/August) 2008 (Vol. III, No. 6) The following article, in whole or in part, may not be copied, downloaded, stored, further transmitted, transfered, distributed, altered or otherwise used, in any form or by any means, except: • one stored electronic and one paper copy of any article solely for your personal, non-commercial use; or • with prior written permission of The American Interest LLC. To subscribe to our online version, visit www.The-American-Interest.com To subscribe to our print version, call 1-800-767-5273 or mail the form below to: THE AMERICAN INTEREST PO BOX 338 MOUNT MORRIS, IL 61054-7521 J BEST OFFER! Yes, send me two years (12 issues) of J Yes, send me one year (6 issues) for only $39*. I’ll The American InteresT for only $69*. save $5.75 off the cover price. I’ll save 23% off the cover price! Name Address 1 Address 2 City State Zip Country E-mail Credit Card Exp. Name on Card Tel. No. Signature Date *Please allow 4-6 weeks for delivery of first issue. Add $14 per year J Payment enclosed for shipping & handling to addresses outside the U.S. and Canada. J Bill me later A84PPC CONTENTS Th e Am e r i c A n in T e r e s T • Vo l u m e iii, nu m b e r 6, VA c at i o n (Ju l y /Au g u s T ) 2008 Dollars & Sense 8 A Nation in Debt by Barbara Dafoe Whitehead The subprime mortgage debacle has deep roots in the decline of thrift. 18 Size Matters by Richard Rosecrance Power still depends on aligning political scope with economic reality. 43 27 The Return of Malthus by Jørgen Ørstrøm Møller What if the “limits to growth” are real after all? 37 A Conversation with Helmut Schmidt by Thomas Kleine-Brockhoff The former German Chancellor does his global ciphers. After Bush, Cont’d 43 Life after Easy Oil by Charles F. Doran 62 A plan for escaping the tightening noose of energy dependency. 53 Selling Out by Gal Luft The mass transfer of U.S. wealth to oil-exporting countries bodes ill. In Black and White 57 A Law of Unintended Consequences by Michael Barone The irony of the Voting Rights Act. 79 62 The Re-Segregation of Rock and Roll by David Kirby The long, strange trip from Little Richard to Dr. Dre. China Futures, Cont’d 72 Olympic Art and Artifice by Geremie R. Barmé Inside the “imagineering” of the Beijing Olympics. VACATION (JULY /AUGUST ) 2008 3 79 Tibet’s Last Stand? by Warren W. Smith The March uprising appraised. 86 Full Court Press by Jacqueline Newmyer How the Chinese press muzzles itself. Adam Garfinkle, editor Daniel Kennelly, senior managing editor Thomas Rickers, managing editor Reviews Noelle Daly, assistant editor 96 Republic of Pretense Executive Committee by H.W. Brands Francis Fukuyama, chair A new history of the Civil War era looks closely at America, Charles Davidson Josef Joffe and doesn’t blink. Walter Russell Mead 100 The Troubles We’ve Seen Editorial Board by Mitchell B. Reiss Anne Applebaum, Peter Berger, An insider’s account of the Northern Ireland peace process. Zbigniew Brzezinski, Niall Ferguson, William A. Galston, Bronislaw Geremek, Owen Harries, Samuel Huntington, 104 Innocence Abroad G. John Ikenberry, Stephen D. Krasner, by Scott Carpenter Bernard-Henri Lévy, Glenn C. Loury, Robin Wright thinks the Middle East is changing for the bet- C. Raja Mohan, Douglass North, ter, but neglects to say why. Ana Palacio (on leave), Itamar Rabinovich, Ali Salem, Lilia Shevtsova, Takashi Shiraishi, Mario Vargas Llosa, Wang 108 Get Happy Jisi, Ruth Wedgwood, James Q. Wilson by Kenneth Minogue The secret to happiness is...still secret. Erica Brown, Michelle High, editorial consultants Simon Monroe, R. Jay Magill, Jr., illustrators 115 A Tortured Argument cover photo by Getty Images by Jeremy Rabkin cover design by Damir Marusic Taxi to the Dark Side loses us en route. Charles Davidson, publisher & CEO 118 Retroview: A Natural Man Noelle Daly, subscriber services by Gale E. Christianson Damir Marusic, associate publisher Loren Eiseley fused science and the humanities like no one else. Jamie Pierson, circulation & operations ADVERTISING SALES Damir Marusic Notes & Letters [email protected] (202) 223-4408 124 To Cast a Fly Perry Janoski by Richard Anderson publishing representative Sport? Hobby? Art? Toss your line in the river and find out. Allston-Cherry Ltd. (212) 665-9885 129 Here’s to You, Harry SYNDICATION by Adam Garfinkle Damir Marusic Three decisions that define Harry Truman as a pragmatic moralist. [email protected] (202) 223-4408 Subscriptions: Call (800) 767-5273 or visit www.the-american-interest.com. One year (6 issues): $39 print; $19 online; $49 for both. Two years (12 issues): $69 print; $38 online; $98 for both. Please add $14 per year for print-subscription delivery outside the U.S. and Canada. Postmaster and subscribers, send subscription orders and changes of address to: The American Interest, P.O. Box 338, website Mount Morris, IL 61054. The American Interest (ISSN 1556-5777) is published six times a year by www.the-american-interest.com The American Interest LLC. Printed by Fry Communications, Inc. Postage paid in Mechanicsburg, Pennsylvania. ©2008, The American Interest LLC. Editorial offices: 1730 Rhode Island Ave. NW, Suite 617, Washington, DC 20036. Tel.: (202) 223-4408. Fax: (202) 223-4489. Email: ai@the- american-interest.com. 4 THE AMERICAN INTEREST AFTER BUSH, Cont’d Selling Out Sovereign Wealth Funds and Economic Security Gal Luft n the past half-century, sharp increases in ereignty in the form of lost control over major oil prices have been harbingers of most of economic assets. IAmerica’s economic recessions. Today is no With annual oil revenues in excess of $1 exception: The quadrupling of oil prices in just trillion, the 13 members of the Organization six years is a leading cause of America’s current of Petroleum Exporting Countries (OPEC) economic predicament. But in addition to the already wield tremendous economic power. As traditional dislocations associated with high oil recent multibillion-dollar bailouts of major fi- prices, the current spike is also driving a struc- nancial institutions like Citigroup and Merrill tural shift in the world economic balance of Lynch show, these countries are not just laugh- power. Trillions of dollars are migrating from ing all the way to the bank; they now own the industrialized and developing nations to the bank (or at least part of it, anyway). The bailout coffers of a small group of oil-producing na- of America’s prime symbols of economic prow- tions, most of them authoritarian and many of ess signals not only the vulnerability of the U.S. them unfriendly to the West. And unlike previ- economy but also the ascent of sovereign wealth ous price spikes, this one is likely to last a long funds as new power brokers in international re- time, so it is high time that we think about the lations. These government-owned investment longer-term implications, and what to do about funds, whose combined assets currently surpass them. $3.5 trillion, are pouring billions into hedge funds, private equity funds, real estate, natu- ral resources, media conglomerates and other High Stakes nodes of the West’s economy. Distressed finan- cial institutions facing liquidity problems often or developing countries, many of which find cash injections offered by sovereign wealth Fstill carry debts from the oil shocks of the funds the only way to stay afloat. 1970s, $100-plus oil is in effect a regressive tax Some experts dismiss the concern about for- that slows economic growth and exacerbates eign acquisitions of Western assets as a new form existing social tensions. It also makes them eco- of jingoism. They deride the “fear mongers” as nomically and politically dependent on some disciples of those who stoked the anti-Japanese of the world’s nastiest petro-regimes. For the hysteria of the 1980s. Sovereign wealth funds, United States, with its net foreign debt in excess they believe, are a boon to our economy, pro- of $3 trillion and with oil spending at $1 bil- viding the capital and support for the tumbling lion per day, the current wealth transfer heralds dollar that hold back a financial meltdown of geopolitical decline and eventual erosion of sov- historic proportions. Furthermore, such rescue packages create an incentive for even the least Gal Luft is executive director of the Institute for friendly foreign governments to protect their the Analysis of Global Security (IAGS). investment by ensuring America’s prosperity. VACATION (JULY /AUGUST ) 2008 53 After Bush, Cont’d These claims may prove true if tensions shifting the economic balance in OPEC’s direc- between the United States and some of the tion. Imagine, for instance that OPEC members investing countries eventually subside. If they are corporations and a barrel of oil is a share. At do not, as is most likely, then soaking up Arab $100 per barrel of oil, OPEC’s market capital- wealth (or Chinese, for that matter) could ization, based on its proven reserves, stands at mean trouble, because there is a fundamental the time of this writing at roughly $92 trillion. difference between state and private owner- This is about the total value of the world’s stock ship. Lack of transparency allows many inves- and bond markets. Saudi Arabia’s oil alone is tor governments to blur the fine but clear line worth $27 trillion, seven times the total value of between government and private economic all the companies traded in the London Stock activity.