We, like many others, have been watching the increasing turmoil in the Middle East, contemplating the effects recent events have been having the financial markets, as well as their political implications. Looking back on US involvement in the region, it’s hard not to get a salty taste in our mouths. After all the sacrifice by American military families, we’ve accomplished little more than the destabilization of the region.
Yes, in the course of our intervention we eliminated some very brutal dictators, but we did so without adequate understanding of how that part of the world operates. This naivety has prevented us from installing a stable government since toppling regimes. In the end, it’s hard to argue that we’ve made life any better over there for the average person.
Militarily and politically, the United States should absolutely be withdrawing from the Middle East. While this would almost certainly escalate local strife to an event greater magnitude (in the near term), US involvement in these regional conflicts is beginning to resemble Vietnam more and more.
The only problem with a potential withdrawal is that currently the US economy is in such a state that it can’t support returning troops. There would be disastrous results from a sudden influx of labor when unemployment is already high; or of consumers when prices are already rising.
However, these are not justifications for leaving troops on the ground in the Middle East. Rather, it is further evidence of the lack of intelligence on the part of US central planners.
Frequent readers of our columns and listeners to our radio updates know that we often talk about the law of unintended consequences. This, however, is the law of unforeseen implications. The problem arises when power is concentrated among a small group of people who are incapable of seeing past next week.
One of the primary benefits of free and open markets is that they have a smoothing effect. Radical swings are often prevented when millions of people are competing with each other in pursuit of their own self-interests, and things are far smoother than when power is concentrated among just a few market movers.
As an added benefit, the collective intelligence of crowds is almost always greater than small groups or individuals. However, studies have shown that when power is focused among just a few people, not only do those people demonstrate less intelligence than crowds, but they are also more confident in their abilities – even though that confidence is more often misguided.
We see examples of this all the time. In financial markets, the Federal Reserve is almost the only market participant that matters. Everyone else involved with the markets is constantly watching to see what the Fed does, even though they more often than not do precisely the wrong things.
Likewise, in recent decades political power has been more focused in the White House (as opposed to Congress or the courts). This has happened despite the inability of people who occupy the Oval Office to understand the dynamics of regions in which they meddle. The result has been that they do things that change the world without an adequate understanding of why things are as they are; obviously a poor recipe for positive and sustainable change.
Now, after years of unintelligent actions by poor central planners, the United States finds itself in a quagmire. We’re trapped in a series of conflicts, none of which we can win, with no clear set of goals or any end in sight. Our economy has suffered collapse and failed to see any significant rebound because those who guide our monetary policy have tried to keep inflation at bay, with the result that a whole new set of bubbles has formed in the meantime. This has placed our economy on the precipice of another collapse, except that we have nowhere left to fall and no tools left to stem the calamity, much less any ability to reabsorb the heroes we sent abroad to help a people we didn’t understand.