The Deep State (14 page)

Contractors, the offspring of the Deep State, now have such impunity that they can threaten and intimidate their own paymaster, the very
government that created them. And they get away with it! If a crude and gangsterish upstart like Blackwater is able to back down the senior cabinet agency in the government with criminal threats of violence, it does not require much imagination to theorize why the Justice Department felt unable to bring criminal indictments against the executives of a half-dozen megabanks whose assets make up more than 50 percent of the country's GDP. To sum up, there is literally nothing that the Deep State does not contract out to the corporations that provide campaign donations to the political figureheads nominally in charge of the whole enterprise: the Arlington, Virginia–based contracting firm CACI is facing a federal lawsuit for its alleged involvement in torture at Abu Ghraib prison. Privatization has been great for contractors, not so good for taxpayers or winning wars.

The Military-Industrial Complex: Seeing Crisis as Opportunity

The military-industrial complex is, alongside the financial industry, one of the largest and most powerful of the special interests that keep our politicians well provisioned with cash. The fact that national security spending reached a post–World War II high in 2008, precisely at the time when American living standards were under the severest stress since the Great Depression, is no coincidence.
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Already during the early 1980s, economist Seymour Melman documented that high levels of military spending depressed overall economic productivity, and that heavy involvement of a specific industrial sector (such as the machine tool industry) in defense contracting rendered its commercial activities less competitive internationally.
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The “cost plus” mentality that inevitably arises from dependence on DOD contracts turns a business enterprise into a hothouse plant that cannot withstand the cold winds of the marketplace, where efficient production is imperative. Even defense industry executives have conceded the truth of Melman's thesis. In 1991, William Anders, CEO of General Dynamics, told a group of industry executives that “most weapons manufacturers don't bring a competitive advantage to non-defense business. . . . Frankly, sword makers don't make good and affordable plowshares.”
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Former Pentagon insider Franklin C. “Chuck” Spinney has picked up where Melman left off, arguing that the mutually dependent interaction between contractors and the DOD has evolved into a system in which the primary objective is cash flow rather than military effectiveness. More ominously, he goes on to say, “Continuing small wars (or the threat thereof) are essential for the corporate component of the MICC [military-industrial-congressional complex]; these companies have no alternative means to survive.”
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Perhaps that total dependence explains why in March 2014, during the week that the Russian government announced the annexation of Crimea, I learned that at a fund-raiser for Representative Mike Rogers (R-MI), the chairman of the House Intelligence Committee, the atmosphere among contractors in the room was “borderline euphoric.” By coincidence (or not), the following Sunday, Congressman Rogers, appearing on
Meet the Press,
became one of the first major political figures to advocate arming Ukraine.

Six months after this incident, members of Congress had just returned from its August recess to confront the calamity over ISIS. A close friend who previously worked in Congress and at the Pentagon told me he was accosted at a fund-raiser he attended at that time by defense industry lobbyists urgently inquiring as to whether the new blowup in the Middle East would force Congress to exempt the DOD from the spending caps of the Budget Control Act. Following the old Chinese proverb, every crisis is a lucrative opportunity.

Fear Feeds the Beast

Nearly a decade and a half after the September 11, 2001, attacks, the Deep State's operatives continue to exploit them. On July 23, 2014, the members of the original 9/11 Commission released a review assessing the government's progress in implementing the findings of the panel's original 2004 report. The commissioners—permanent Washington fixtures like Lee Hamilton, Thomas Kean, and the other 9/11 panel members never really go away—predictably interviewed current and former high officials in the national security establishment, and just as predictably discovered from them that the government was doing a pretty darn good job in combating terrorism. “The government's record in counterterrorism is good,” the report states, and “our capabilities are much improved.” Is it time to breathe a sigh of relief? No, or this wouldn't be a Washington report.

Despite all this good work, the threat from terrorism is, in the words of one of those interviewed, FBI director James Comey, “an order of magnitude worse.” A 2011 study by Brown University's Watson Institute for International and Public Affairs found that, counting all agency costs across the government, the war on terror cost up to that point about $4.4 trillion, and deficit financing costs for that expense could add another $1 trillion by the year 2020.
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Is Comey suggesting we need to spend an order of magnitude more money than that to meet the threat? During my tenure in government, the solution to any agency's problem was always a bigger budget. The commissioners agreed with his hyperbole, writing darkly about the American public's ostrich-like ignorance: “On issue after issue . . . public awareness lags behind official Washington's.” To counter the “creeping tide of complacency” that has overcome the American people, the report, reading like a televangelist's sermon, urges the government to make clear “the evil that was stalking us.”

While the report makes heavy weather of the breakdown of security in Iraq during 2014 as the Next Big Threat, it says not a word about how persons in our government, having used fear and exaggeration to exploit public emotions after 9/11 and hijack the war on terror by invading Iraq
for the sake of their own agenda, created the very circumstances that led to that breakdown. Nor, when decrying the terrorist breeding ground of the Syrian civil war, do the commissioners acknowledge the decades-long role of U.S. allies like Saudi Arabia in fomenting and subsidizing jihadist movements.

Finally, the panel does not ask the most fundamental question: has America's distinctive style of fighting the war on terror, with its full-dress military invasions, drone strikes, secret prisons, torture, and special renditions, created more terrorists than it is capable of killing or incarcerating? As an inquiry into the complex subject of international terrorism, the 9/11 Commission's tenth-anniversary reprise was a slipshod farrago of circular argumentation, faulty reasoning, and naïve gullibility. But as an example of how the Deep State and its operatives exploit a witches' brew of fear, selective amnesia, and agency agenda setting to entrench the interests of both the governmental and corporate segments of the Deep State, the report was a standout.

The blockade had become by that time a very perfect instrument. It had taken four years to create and was Whitehall's finest achievement; it had evoked the qualities of the English at their subtlest. Its authors had grown to love it for its own sake; it included some recent improvements which would be wasted if it came to an end; it was very complicated, and a vast organization had established a vested interest. The experts reported, therefore, that it was our one instrument for imposing our peace terms on Germany, and that once suspended it could hardly be re-imposed.

—John Maynard Keynes, on the 1919 post-armistice economic blockade of Germany, in his book
Two Memoirs—Dr. Melchior: A Defeated Enemy; and My Early Beliefs
, 1949

“We have heard that a half million children have died. I mean, that's more children than died in Hiroshima. And, you know, is the price worth it?”

“I think this is a very hard choice, but the price—we think the price is worth it.”

—Leslie Stahl interviewing Secretary of State Madeleine Albright on the subject of economic sanctions on Iraq,
60 Minutes,
May 12, 1996

The Crony Capitalist Warfare State

When it was not unleashing the restless spirit of capitalism, the Reagan revolution called for an unprecedented peacetime military buildup. The genius of the architects of Reagan's policies was to recognize that the superficially disparate interests of Wall Street and the Pentagon could in
fact be harmonized. For public relations purposes, the Reagan team claimed that the expensive military buildup and tax-cutting deregulation were both natural, patriotic impulses desired by the real America. The evident contradiction between a budget-busting military policy and the small-government, balanced-budget sloganeering of business conservatism could be smoothed over by constantly pounding on the theme that both were expressions of old-fashioned American freedom.

For the next thirty years, tax law, trade treaties, and national security policies were to be coordinated in such a way as to prioritize the varied needs of Wall Street and the military-industrial complex. With the collapse of the Soviet Union, the United States most likely did not need to maintain its military spending at a level greater than the next ten countries combined; but this hypertrophied military machine, together with a forward-deployment strategy that stationed U.S. troops in some 150 countries, became the ultimate backstop for what the Pentagon described as “maintaining global stability” and “shaping” the international environment. Ever since the dissolution of the Warsaw Pact, a series of Pentagon strategic reviews has emphasized the military's global role in a nebulous and coded fashion. During the days of U.S.-Soviet rivalry, the rationale for America's then-unprecedented global buildup was straightforward: to resist the advance of a purportedly monolithic and expansionist global communism. However much this was an oversimplification of the geopolitical situation, it was at least plausible in view of the Soviet Union's rough nuclear parity with the United States, its huge conventional military forces, and the existence of several Soviet client states.

Beginning in the early 1990s, our military strategy became more ambiguous, more oriented toward hazily defined global economic objectives, and ultimately much more ambitious than the cold war strategy. Early in the Clinton administration, defense committees on the Hill would frequently ask the chairman of the Joint Chiefs of Staff, Colin Powell, who the new enemy was supposed to be. “The enemy is instability,” was his gnomic answer. This formulation met with very little controversy at the time because it was so vague, but it implied a vast expansion in the
Pentagon's assignment of strategic threats. Subsequent strategy reviews have given more specificity to Powell's statement. In a strategy document released at the end of President George H. W. Bush's administration, the Pentagon declared that it was now fighting for an “open economic system”—that is, a global economic model suitable for U.S. investment and financial penetration.
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This policy was further refined in the 2002 edition of the
National Security Strategy of the United States of America:
“The great struggles of the twentieth century between liberty and totalitarianism ended with a decisive victory for the forces of freedom—a single sustainable model for national success: freedom, democracy, and free enterprise.”
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Apart from the uncomfortable fact that feudal monarchies like Saudi Arabia and dictatorships like Egypt were linchpins of the U.S. national security strategy, it appeared that evangelizing on behalf of a particular economic model had become a key component of America's national strategy. The military had become the coercive instrument of a U.S.-led global economic order whose aim is to maintain unfettered access to raw materials and buttress a favorable climate for U.S. investment.

The free enterprise system—or, more accurately, its doctrinaire neoliberal interpretation—is not just a throwaway talking point in a national security strategy document that no one bothers to read. The United States uses its military muscle to sustain its economic model and dissuade other countries from deviating from its orthodoxies. For decades, a popular criticism of U.S. foreign policy has been that it is all about oil. But oil is just one component (albeit a major one) of a larger objective: the maintenance of the U.S. dollar as the world reserve currency.

Dollar Recycling as National Security Strategy

The United States emerged from World War II with the world's largest economy and a powerhouse industrial base, so it is unsurprising that the dollar soon became a near-universal medium of international exchange. But why, in view of the last forty-five years of economic history, was it not
displaced by a basket of leading currencies at the very least for international transactions like commodities purchases? Beginning in the mid-1960s, the United States experienced persistent and ever-worsening trade deficits, exacerbated by the heavy expenditures of the Vietnam War. Since the country was still on the gold exchange standard, it suffered a relentless “gold drain,” which threatened the basis of the world system of fixed exchange rates.
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In 1971, President Nixon suddenly took the country off the gold exchange standard: the dollar became a fiat currency whose value could now float. In actual fact it sank: over the course of the 1970s the U.S. dollar steadily dropped in value relative to most major currencies like the Swiss franc, the yen, or the deutschmark. It did not seem promising over the long term as a global store of value, particularly after the “oil shock” of 1973 further added to the U.S. trade deficit.

Normally, under such circumstances, a country will attempt to increase its exports and improve its balance of trade if it wants to have a viable currency. This was not the U.S. strategy. The bankers and financial engineers who were beginning to displace industrialists at the helm of our economy didn't particularly care about exports; they focused instead on manipulating the value of the currency. If commodities, especially oil, were no longer priced in dollars, the American system could no longer crank out cash and maintain some semblance of stable exchange rates. In fact, the dollar could maintain its status as the world's reserve currency
only
if the countries we paid in dollars were obliged to find a use for them, such as buying commodities or engaging in the types of financial transactions that are officially denominated in dollars.

This peculiar loop explains why the United States has been able to run up large trade deficits year after year and still maintain the dollar as the world reserve currency. It also allows the government to operate a
fiscal policy based on imprudent tax cuts and budget-busting military spending without having to worry about an eventual day of reckoning. Finally, it allows policy makers to neglect domestic manufacturing and ignore the consequent steady erosion of wages for hourly workers. After all, Americans can still maintain more or less the same level of personal consumption thanks to the availability of cheap imported products. The “Walmart effect,” whereby employees are paid such low wages that they can only afford to shop at places like Walmart that stock cut-price imported goods, is one result.

As for exporting countries like China, the dollar recycling system gives them a strong incentive to run a trade surplus with the United States, so that they can accumulate the dollars they will need to pay their oil bills. Thus the whole international system of recycling overseas U.S. dollars has become a giant perpetual motion machine. But aside from creating huge domestic economic distortions, it is a precarious system and it will only work if all the major players are obliged to play the game.

America's Double Standard in Foreign Policy

This dollar recycling system is one reason why even if U.S. dependence on foreign oil continues to decline, the Deep State will feel compelled to maintain military forces ready to intervene in the Middle East. An interruption of supplies will not only cause industrial slowdowns in affected countries, it will render untenable the jerry-rigged financial system on which U.S. fiscal and monetary policy is dependent.

The George W. Bush administration trotted out all manner of excuses for its invasion of Iraq, but it was clearly mindful of the fact that Saddam Hussein's decision in 2000 to denominate the country's oil sales in euros rather than dollars could hardly set a good precedent.
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Former treasury secretary Paul O'Neill revealed in his “as told to” memoir that finding a way to forcibly get rid of Saddam was Topic A at the Bush administration's very first National Security Council meeting, a mere ten days after Bush's inauguration.
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That urgency may have been increased by the
fact that the euro gained 17 percent in value against the dollar between 2000 and 2003, the year the United States invaded Iraq. Once Iraq was under U.S. control, the medium for oil sales switched back to the dollar.

Prior to the 2011 U.S.-backed intervention in Libya that toppled Muammar Gaddafi and killed him, the Libyan strongman had developed a plan to quit selling Libyan oil in U.S. dollars, demanding payment instead in dinars (a then-notional African regional currency based on gold). Gaddafi's regime, sitting on a mountain of gold, estimated at nearly 150 tons, was urging other African and Middle Eastern governments to follow his lead.
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This scheme could not have made Gaddafi popular in Washington. His regime was one of the world's few governments with a 100 percent state-owned central bank unconnected to other major central banks. Curiously, the ragtag band of U.S-backed Libyan rebels created their own Western-style central bank and appointed its director months before they even formed a government, while the fighting was still continuing. In hindsight, the alleged humanitarian rationale for Gaddafi's overthrow has begun to look awfully thin, especially in light of the subsequent behavior of the thugs who replaced him.

So Gaddafi was brought down, but countries with the most appalling human rights records get a pass. Saudi Arabia, which still beheads people after kangaroo trials for adultery, apostasy, and sorcery, and whose subsidization of foreign jihadists has caused no end of lethal mischief, remains unmolested by any threat of sanctions from Washington.
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In the days after 9/11, several dozen Saudis, including relatives of Osama bin Laden, were whisked out of this country on charter flights arranged by the U.S. government. They received FBI escorts, but the Bureau did not even interview them.
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One reason why the 9/11 Commission's report reads like a cover-up disguised as an exposé may be that twenty-eight pages from the draft report about the Saudi relationship with al-Qaeda were excised on
order of the Bush administration. President Obama promised to declassify them, but so far he has not.
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Saudi Arabia's deep complicity in terrorism gets a “never mind” from the Deep State's leadership. The kingdom's role as a leading producer of fossil fuels is not the only thing that gives it immunity from official censure. It is worth considering what the kingdom does with all those dollars (estimated at $405 billion during 2014) that it accumulates from its oil sales.
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Under the aegis of the United States–Saudi Arabian Joint Commission on Economic Cooperation, the kingdom dutifully recycles its huge petrodollar overhang back into U.S. investments, buys U.S. Treasuries, and stocks up every few years with multibillion-dollar weapons purchases. In short, the feudal tyrants of the Arabian Peninsula are one of the bevel gears that make the whole global money machine function.

In January 2015, we got a glimpse at just how important the U.S.-Saudi relationship was. That month, Obama could not be bothered to attend the mass gathering of international leaders in Paris in a rally for solidarity against terrorism—an assistant secretary was the highest-ranking American present. Yet two weeks later, when Saudi king Abdullah died, the president broke off an official visit to India, where he had lectured an audience on women's rights and religious tolerance, in order to make a beeline to Riyadh. Obama was hardly alone: his secretary of state, national security adviser, and CIA director joined him. Senator John McCain and House Minority Leader Nancy Pelosi, who hardly agree on anything, agreed this time that they had to go to Riyadh, and even former U.S. government officials like James Baker and Condoleezza Rice felt compelled to attend. This pilgrimage of American luminaries occurred just as the Saudis were sentencing Raif Badawi, a Saudi blogger, to ten years in prison and one thousand lashes for criticizing the regime. The reaction of the U.S. delegation, many of whom have long been sanctimonious champions of human rights, was muted to the point of dead silence.

The same indulgence applies to other Persian Gulf countries. Qatar has an abysmal human rights record: its kafala migrant worker system is comparable to slavery, and it has financed violent insurgent groups in
Syria, making a mockery of the U.S. government's alleged puzzlement at the explosive growth of ISIS. Yet Qatar is considered to be a member in good standing of the U.S.-dominated “international community”; its capital, Doha, has even been host to the most recent multiyear round of World Trade Organization negotiations on trade and tariffs.