The Phisix Amidst the Korean Peninsula Stand-Off

Domestic headlines continue to banner on the verbal showdown and belligerent artifice between the US and North Korea.

DPRK’s Declaration of War and War Posturing

While I think that this seems more a vaudeville than of a real threat, geopolitical brinkmanship can always deteriorate into a real thing. Inflated egos of political leaders may impulsively react on events that could push posturing into a full scale war. All that is needed is an event that may serve as the Casus Belli[1].

North Korea or Democratic People's Republic of Korea (DPRK) has already declared a “state of war”[2] with its wealthier kin, South Korea or Republic of Korea (ROK) last March 30, 2013. But through the week, all that has occurred have been the mobilization or a show of force from contending parties. 

Yesterday North Korea reported to have moved its two medium range missiles, the Musudan missiles, which has a range of 1,865 miles and has the capability to strike at South Korea, Japan and US bases in the Pacific, supposedly for a missile test[3]. 

Yet despite all the North Korean rhetoric and propaganda about launching a nuclear war with the US, her nuclear missiles hardly have the range and capability to reach the US[4].

On the other hand, the US has transferred anti-ballistic missile defence system to Guam[5] along with several B-1 ("Bone") Lancer strategic long-range bombers.

The US has also “secretly” deployed the E-6 Mercury “Doomsday plane” which has been reportedly “tasked with "providing command and control of U.S. nuclear forces should ground-based control become inoperable" and whose core functions include conveying instructions from the National Command Authority to fleet ballistic missile submarines and also to further command post capabilities and control of land-based missiles and nuclear-armed bombers”, according to the Zero Hedge[6].

In other words, should there be a full scale war, such may include the use of nuclear weapons. The outcome, hence, is likely to be devastating and cannot be compared to any previous conventional wars.

Thus any comparisons with modern wars as the 1982 Falklands War between the UK and Argentina[7], the 1991 US-Iraq Gulf War[8], the 1999 Kargil war between India and Pakistan over the Kashmir region[9], the 2003 US Invasion of Iraq[10], the Afghanistan War[11] or the 5 day South Ossetia war between Russia and Georgia[12] represents apples-to-oranges.

South Korea and the US will have to deal with North Korea’s 12-27 nuclear weapons with a TNT yield of 6-40 kilotons[13]. The atomic bombs that leveled Hiroshima “Little Boy” gravity bomb and Nagasaki “Fat Man” gravity bomb had TNT yields of 13-18 kilotons and 20-22 kilotons respectively[14].

Why is War Unlikely; North Korea’s Geopolitics of BlackMail

In 2010 I expressed doubts that a war in the Korean Peninsula will take place. I still maintain such skepticism.

Why?

North Korea is an impoverished state whose weapons are mostly dilapidated and obsolete, and whose vaunted millions of soldiers are likely to be starving, ill equipped and poorly trained[15].

And in spite of the North Korea’s vaunted war machinery, wherein much of the misallocation of the nation’s resources had been directed, the North Korean army is in a state of dilapidation and obsolescence: they seem ostensibly good for parades and for taunting, but not for real combat…

Thus, based on socio- political-economic and military calculations, the North Koreans are unlikely to pursue a path of war, because the odds are greatly against them. And their political leadership is aware of this.

And as I previously pointed out, North Korea is the embodiment of the environmental politics of known as “Earth hour”[16]. Except for the North Korea’s capital, Pyongyang, satellite photos reveal that at night, the entire country has mostly been dark or without light, which is in stark contrast to South Korea (left window).

Moreover, North Korea has recently been plagued by hyperinflation[17]. 

Since July 2010, price inflation as measured by rice prices has pole-vaulted by 5x. So we can’t discount that such war histrionics may have been meant to divert public’s attention from internal economic woes, and instead, like typical politicians North Korean leaders have used foreigners as scapegoats for policy failures.

Except for nuclear weapons, North Korea isn’t likely to win a conventional war against South Korea, even without US support.

South Korea can afford to defend herself with a modern well equipped well trained army given the wide difference of her economic growth[18], capital surpluses and wealth disparities. But the problem is that she may have substantially relied or delegated to the US much of the home or national defense duties.

Given such reality, political leaders of North Korea have long used nuclear weapons as bargaining chips to indulge on the geopolitics of blackmail. 

So unless North Korea’s Kim Jong-un has gone rogue and suicidal, the odds are that North Korea’s Kim will unlikely take on this war path. 

Besides, Kim’s wife Ri-Sol-ju has reportedly given birth to their first baby in secret[19]. A war would mean sacrificing both their political privileges and their lives. And they know this.

Yet a conventional war may perhaps open the gateway for ordinary North Koreans to make a mad dash out of their highly repressive country. 

And it isn’t also far fetch to think that a war may inspire many of North Korea’s military to immediately surrender or pledge allegiance to the South or mount a mutiny, given the horrors of the North Korean dictatorship. Just recently a North Korean official was executed by mortal shell for infringing on the rules covering the 100 day mourning period for the late King Jong il[20].

Of course such faceoff hasn’t been all about North Korea’s fault.

Aside from the sanctions imposed by the UN due to DPRK’s third missile tests, North Korean leaders may have been traumatized by recent US military air exercise involving heavy bombers[21].

Notes the historian Eric Margolis[22],

During the 1950-53 Korean War, US B-29 heavy bombers literally flattened North Korea. That’s why North Korea reacted so furiously when US B-52 heavy bombers and B-2 Stealth bombers skirted its borders late last month, triggering off this latest crisis. The B-2 can deliver the fearsome ‘MOAB’ 30,000 lb bomb called "the Mother of All Bombs" designed to destroy deep underground command HQ’s (read Kim Jong-un’s bunker) and underground nuclear facilities.

The real threat from a realization of a full scale war really hasn’t really been just about North Korea’s nuclear missiles but about the possible involvement of other nations as China, whom has long been North Korea’s key ally, and of Russia whom has had on and off relationship with the DPRK[23]. Although recently China’s leaders have expressed concern over the bellicose rhetoric of North Korea’s leaders[24], events may turn out differently once the shooting war begins. 

Remember the Casus Belli of World War I had been the assassination of Archduke Franz Ferdinand of Austria[25], which invoked the assembly of opposing alliances that lead to the outbreak of war[26]. The opposing alliances then consisted of the Allies (based on the Triple Entente of the United Kingdom, France and Russia) on one side. And the Central Powers (originally the Triple Alliance of Germany, Austria-Hungary and Italy; but, as Austria–Hungary had taken the offensive against the agreement, Italy did not enter into the war), on the other side.

The US Military Industrial Complex and Stock Market Scenarios

Lastly the US seems to have been itching for a war either with Iran or with North Korea. Yet North Korea has long served as a useful public bogeyman which benefited of the US military industrial complex and the neoconservative politicians who support them.

The existence of a “bellicose” and “provocateur” DPRK has justified US military power build up in Asia. Jack A. Smith writing at Anti-War.com[27] 

Washington wants to get rid of the communist regime before allowing peace to prevail on the peninsula. No “one state, two systems” for Uncle Sam, by jingo! He wants one state that pledges allegiance to — guess who? In the interim, the existence of a “bellicose” North Korea justifies Washington’s surrounding the north with a veritable ring of firepower. A “dangerous” DPRK is also useful in keeping Tokyo well within the U.S. orbit and in providing another excuse for once-pacifist Japan to boost its already formidable arsenal.

Not only “war is the health of the state”[28], war signifies as good business for the politically anointed since defense industry benefits from subsidies or wealth transfer from taxpayers to politicians and military industrial complex.

So how the Korean Peninsula standoffs affect the domestic and the regional stock markets?

I see four potential scenarios with different outcomes. 1. No war. 2. Limited conventional war. 3. Limited war but with use of nuclear weapons. 4. World War III.

The stock markets will hardly be affected given the first two situations: no war or a limited conventional war. I lean towards the first scenario.

Nonetheless if the second condition occur, central banks are likely to inflate more. US monetary base surged during World War II, and also climbed during the Vietnam War.

If nuclear weapons will be used, the stock markets may be affected. But this will largely depend on the location and the extent of the damages.

Remember if DPRK’s Kim will go berserk and become suicidal then he may wish for retribution or make a statement against the West. Thus we should not dismiss the possibility that the DPRK may target nations with the least anti-ballistic defence or nations who are most vulnerable to their missiles. This puts Southeast Asia on such a list.

In this nuclear age, World War III means that we can kiss the stock markets goodbye and pray that we survive the nuclear holocaust.

Ignoring all these would signify as “denigration of history” or the false assumption that one is immune from misfortunes or disasters.

---

[1] Wikipedia.org Casus belli

[2] Bloomberg.com Mongolia Seeks to Play Peacemaker as North Korea Declares ‘War’ March 30, 2013

[3] Guardian.co.uk North Korea readies missile launch as fears of a covert cyberwar grow April 6, 2013

[4] Foreign Policy Blog Battle of the maps: North Korea's actual missile capability vs. North Korea's threatened missile capability March 29, 2013

[5] Reuters.com Extra line of defense – graphic of the day April 4, 2013

[6] Zero Hedge US Secretly Deploys B-1 Strategic Bombers, E-6 "Doomsday" Planes Near North Korea April 5, 2013

[7] Wikipedia.org Falklands War

[8] Wikipedia.org Gulf War

[9] Wikipedia.org Kargil War

[10] Wikipedia.org 2003 Invasion of Iraq

[11] Wikipedia.org Afghanistan War

[12] Wikipedia.org Russia-Georgia War

[13] Wikipedia.org North Korea and weapons of mass destruction

[14] Wikipedia.org Nuclear Weapon Yield

[15] See Will A War Break Out In The Korean Peninsula? November 28, 2010

[16] See Earth Hour: North Korean Version March 31, 2010

[17] Steve H. Hanke, North Korea’s Hyperinflation Legacy, Part II Cato.org December 7, 2012

[18] Washington Post Kim Jong Il’s economic legacy, in one chart December 19, 2011

[19] CSMonitor Did Kim Jong-un and his wife have a baby? March 5, 2013

[20] Daily Mail North Korean official is executed by MORTAR SHELL for drinking during 100-day mourning period for late 'Dear Leader' Kim Jong-il October 24, 2012

[21] Bloomberg North Korea Vows Military Action Against More U.S. B-52 Flights March 20, 2013

[22] Eric Margolis War in Korea April 6, 2013

[23] Wikipedia.org North Korea–Russia relations

[24] Washington Post China expresses concern over North Korea’s rhetoric April 7, 2013

[25] Wikipedia.org Assassination of Archduke Franz Ferdinand of Austria

[26] Wikipedia.org World War I

[27] Jack A. Smith, Behind the US-North Korean Bluster Anti-war.com April 4, 2013

[28] Randolph Bourne War is the Health of the State Bureau of Public Secrets

Charts of the Day: World Military Spending and Arms Trade

Two related charts of the day

First world defense spending

The Economist speculates that if the current rate of growth persists, China will surpass the US in terms of military budget. 

AMERICA still spends over four times as much on defence as China, the world’s second-biggest military spender. But it has been clear for some time that on current trends China’s defence spending will overtake America’s sooner than most people think. What is less clear is when that date will be reached. It all depends on the underlying assumptions. The 2013 edition of the Military Balance published by the London-based International Institute for Strategic Studies (IISS) shows convergence could come as soon as 2023. That is based on extrapolating the rate of Chinese military spending since 2001—a 15.6% annual growth rate—and assuming that the cuts in the America's defence budget required under sequestration are not modified. The latter is more likely than the former. The latest Chinese defence budget is based on spending increasing by a more modest 10.7% annually. That would mean that China overtakes America in 2032.

However, if China’s headlong economic growth stalls or if more money is needed to serve the health and social needs of rapidly-ageing population, China might slow spending on its military by something like half its current projection. If that happens, the crossover point could be delayed by up to a decade. It is also possible (though at present America’s fiscal travails suggest otherwise), that as China rises, America will feel forced to start spending more if the security guarantees it currently makes to allies such as Japan, South Korea and Taiwan are to retain their credibility into the third decade of the century. Already, China spends more on defence than all of those three together. It is all very well for America to talk about a strategic rebalancing towards Asia, but if the money is not there to buy the ships, the aircraft and all the expensive systems that go with them, it will eventually sound hollow.

The Economist is right to suggest that this trend may not continue as this will likely depend on the state of the China's economy. Of course this will really depend on priorities of the Chinese government.

But what they sorely missed is of the real nature of “strategic rebalancing”, which is not supposed to be about military buildup but about trade.

They forget about Bastiat’s wisdom where “if goods don’t cross borders, armies will”

Second chart global arms trade.

The Reuters notes that China has taken the fifth spot in arms exports with Pakistan being the main recipient.

An arms race serves as dangerous signal for world peace. Such also functions as a thermometer of the desperate state of welfare-warfare governments, who by resorting to inflationism, attempts to divert domestic political economic problems towards geopolitics. And they do this primarily through nationalist overtones.

The sad part is that instead of the remedy of channeling resources into productive uses, an arms race means more economic hardship for society, aside from greater risk of war.

As the illustrious American author Ernest Hemingway rightly admonished,

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists

Unfortunately people hardly ever learn.

Chart of the Day: China’s Defense Spending

From Reuters (chart included)

China will raise military spending by 10.7% this year to 740.6 billion yuan ($119 billion). China’s defense spending is contained at about 5.4% of total expenditure, up from 5.3% last year, and remains at about one-fifth of the Pentagon’s spending 

This compares to the Philippines at $1.8 billion (2010) which represents .81% of GDP (Index Mundi) or $209 billion in 2011 or 1.08% of GDP (Wikipedia.org)

I am not suggesting that the Philippines should compete with China to bolster her military expenditures.

What I am also saying is that the Philippines lacks the capability to match China’s armed forces.

On the contrary the Philippines should cut government spending which should include that of the military’s. The focus instead should be on fostering trade relations with the every nation in this world. Trade relations will reduce the opportunities for conflict because trade promotes harmonious relations even among diversified interest groups.

Nevertheless expanding and nurturing a huge army will eventually take a toll on the economy as scarce resources are diverted for non-productive activities.

Moreover, huge armies become a temptation for adventurism and domestic instability. Japan’s pre-World War II political and economic policies which led to the dominance of the military in shaping national decisions should serve as example.

The ‘late’ al Qaeda leader Osama bin Laden once predicted that the overall strategy of guerilla warfare has been a war of attrition meant to bankrupt or financially bleed her foes, particularly the US. In the same way the Soviet Russia lost the Afghan War.

Developing political economic conditions in the US, predicated on the growing warfare and welfare state, have been indicating the path of such politics dictated internal decay.

And it must be remembered we are in the nuclear age, where the character of military conflict has changed relative to the 20th century.

As a final note charts of the US-China arms race in Asia I have previously posted here

Fiscally Pressured Governments go for Crony based Privatizations of ‘Public Goods’

Money pressured governments are looking to privatization of parts of politically sensitive functions such as security services.

The Telegraph reports,

Private companies will be running large parts of the UK's police service within five years, according to the world's biggest security firm.

David Taylor-Smith, the head of G4S for the UK and Africa, said he expected police forces across the country to sign up to similar deals to those on the table in the West Midlands and Surrey, which could result in private companies taking responsibility for duties ranging from investigating crimes to transporting suspects and managing intelligence.

The prediction comes as it emerged that 10 more police forces were considering outsourcing deals that would see services, such as running police cells and operating IT, run by private firms.

Privatization of government functions are akin to Public-Private Partnership (PPP) enterprises on political controlled or regulated sectors. They really NOT about free markets but about cronyism.

As I previously pointed out

PPP’s signifies as politically privileged economic rent/concessions to favoured private entities that will undertake the operations in lieu of the government. They will come in the form of monopolies, cartels or subsidies that will benefit only the politically connected.

Since the private partner partnerships aren’t bound by the profit and loss discipline from the consumers, the interest of the private partners will most likely be prioritized or aligned to please the whims of the new political masters.

And because of it, much of the resources that go into these projects will not only be costly or priced above the market to defray on the ‘political’ costs, but likewise, they will be inefficiently allocated.

Moreover, PPPs risk becoming ‘milking cows’ for these politically entitled groups and could be a rich source of corruption.

In the US even Keynesian high priest, Paul Krugman, who I vehemently disagree with on most issues, resonates with our perspective over the issue of phony privatizations (in Krugman’s case he refers to New Jersey’s “new kind of privately run halfway house” prison systems).

From Paul Krugman (hat tip Bob Wenzel, bold emphasis added)

So what’s really behind the drive to privatize prisons, and just about everything else?

One answer is that privatization can serve as a stealth form of government borrowing, in which governments avoid recording upfront expenses (or even raise money by selling existing facilities) while raising their long-run costs in ways taxpayers can’t see. We hear a lot about the hidden debts that states have incurred in the form of pension liabilities; we don’t hear much about the hidden debts now being accumulated in the form of long-term contracts with private companies hired to operate prisons, schools and more.

Another answer is that privatization is a way of getting rid of public employees, who do have a habit of unionizing and tend to lean Democratic in any case.

But the main answer, surely, is to follow the money. Never mind what privatization does or doesn’t do to state budgets; think instead of what it does for both the campaign coffers and the personal finances of politicians and their friends. As more and more government functions get privatized, states become pay-to-play paradises, in which both political contributions and contracts for friends and relatives become a quid pro quo for getting government business. Are the corporations capturing the politicians, or the politicians capturing the corporations? Does it matter?

The point, then, is that you shouldn’t imagine that what The Times discovered about prison privatization in New Jersey is an isolated instance of bad behavior. It is, instead, almost surely a glimpse of a pervasive and growing reality, of a corrupt nexus of privatization and patronage.

Additional thoughts:

This is proof that governments have really been getting desperate over their state of finances.

But, privileges are hard to let go. Instead, politicians have used austerity from today’s crisis as opportunity to dispense concessions to friends, allies or favored special interest groups for political goals. This signifies a form of economic fascism

Politicians use accounting trickery to shield reforms.

Moreover, such privatizations represent fundamental admissions that even the most sensitive ‘public goods’, whether security or defense and prison services, can be delegated or outsourced to the private sector. This implies that these services can be depoliticized and delivered, through the competitive marketplace or (hold your breath) even without government.

The answer isn't to privatize (euphemism for fascism-cronyism) but to depoliticize and liberalize the sector.

Lastly, these are writings on the wall in favor of the growing forces of decentralization.

When governments become totally bankrupt then the de-politicization or decentralization process of political functions will become apparent.

Lessons from the Joint Resignations of the Chiefs of Turkey’s Armed Forces

Turkey’s highest ranking military officers has reportedly resigned en masse.

According to the SFGate,

The chiefs of staff of Turkey's military stepped down Friday as tensions dramatically increased over the arrest of dozens of officers accused of plotting to overthrow the Islamic-rooted government.

The resignation of so many top commanders, a first for Turkey, a NATO member, signals a deep rift with the government, which has confronted a military that once held sway over Turkish political life. The arrests of high-ranking military officers would once have been unimaginable.

The resignations of Turkey's top general, Isik Kosaner, along with the country's navy, army and air force commanders, came hours after a court charged 22 suspects, including several generals and officers, with carrying out an Internet campaign to undermine the government. The commanders asked to be retired, the state-run Anatolia news agency said.

In Brussels, a NATO spokeswoman declined to comment on the resignations. Turkey's military is the second largest in the 27-member alliance. It has about 1,800 troops as part of NATO's 140,000-strong force in Afghanistan.

The Turkish government responded by quickly appointing the remaining highest-ranking commander, Gen. Necdet Ozel, as the new land forces commander and the acting chief of staff, the office of Prime Minister Recep Tayyip Erdogan announced. President Abdullah Gul approved the appointment.

This puts to light the question “who protects us from our protectors?” when men in uniform try to exert political pressure on the civilian government.

Nevertheless, these events can present themselves as windows of opportunities for the Turkish people to even pare down on the vertical hierarchical structure of the world’s sixth largest armed forces that should free up resources for the private sector to use, and importantly, to reduce dependency on so-called ‘protectors’, who in reality signify as instruments of state initiated violence on her people.

Bluntly put, a shrinkage of government equates to the advance of civil liberties.

From Google Public Data

While it isn’t clear in the report on what has prompted for such an incident (except for the charges of plotting to overthrow government), my suspicion is that these protestations could signify adverse reaction to, or symptoms of a resistance to change, to Turkey’s recent transition towards greater economic freedom.

Evidence of this can be seen by the substantial decline of military expenditures as % to GDP.

And coincidental to the diminishing expenditures of Turkey’s government on her military, is the significant liberalization of the economy as shown by the chart above from the Heritage Foundation.

Of course the Turkish people may choose to consider the privatization of national defense route.

As Gustave de Molinari (1818–1912), a prominent Belgian-born French economist, student of Jean-Baptiste Say, and teacher of Vilfredo Pareto wrote in his article “De la Production de la Securité” of February 1849. (bold emphasis mine)

If there is one well-established truth in political economy, it is this: That in all cases, for all commodities that serve to provide for the tangible or intangible needs of consumers, it is in the consumer’s best interest that labor and trade remain free, because the freedom of labor and trade have as their necessary and permanent result the maximum reduction of price.

And this: That the interests of the consumer of any commodity whatsoever should always prevail over the interests of the producer.

Now in pursuing these principles, one arrives at this rigorous conclusion: That the production of security should, in the interests of the consumers of this intangible commodity, remain subject to the law of free competition.

Whence it follows: That no government should have the right to prevent another government from going into competition with it, or require consumers of security to come exclusively to it for this commodity. . . .

Either this is logically true, or else the principles on which economic science is based are invalid. (Gustave de Molinari, Production of Security, J.H. McCulloch, trans. [New York: Center for Libertarian Studies, 1977], pp. 3–4)

Read here for a multi essays or treatises of how national defense can be provided for by the private sector—The Myth Of National Defense: Essays On The Theory And History Of Security Production

Or as the letter below from US founding father Samuel Adams to militia James Warren

A standing Army, however necessary it may be at some times, is always dangerous to the Liberties of the People. Soldiers are apt to consider themselves as a Body distinct from the rest of the Citizens. They have their Arms always in their hands. Their Rules and their Discipline is severe. They soon become attachd to their officers and disposd to yield implicit Obedience to their Commands. Such a Power should be watchd with a jealous Eye. I have a good Opinion of the principal officers of our Army. I esteem them as Patriots as well as Soldiers. But if this War continues, as it may for years yet to come, we know not who may succeed them. Men who have been long subject to military Laws and inured to military Customs and Habits, may lose the Spirit and Feeling of Citizens. And even Citizens, having been used to admire the Heroism which the Commanders of their own Army have displayd, and to look up to them as their Saviors may be prevaild upon to surrender to them those Rights for the protection of which against Invaders they had employd and paid them. We have seen too much of this Disposition among some of our Countrymen. The Militia is composd of free Citizens. There is therefore no Danger of their making use of their Power to the destruction of their own Rights, or suffering others to invade them.