Last week, two specialized reports were independently released. At first glance they both appear to be mind-numbing texts filled with boring and esoteric information that is of little interest to the general public. But these two were different. And not because of their literary elegance, but for their disturbing conclusions.
One warns that “the security and well-being of the United States are at greater risk than at any time in decades.” The other concludes that “speculative excesses in certain financial markets may be reaching a level that threatens global economic stability.”
These are not simply alarmist reports that can be easily dismissed. The institutions that sponsored them and the credibility of their authors make them difficult to ignore. The first, entitled “Providing for the Common Defense,” is the result of more than a year’s work by the National Defense Strategy Commission, a panel of 12 well-known American experts on national security (six appointed by the Republican Party and six by the Democratic Party). Thanks to a rare bipartisan agreement, these experts were appointed by Congress to evaluate the country’s military readiness and make recommendations.
The second report comes from the International Monetary Fund (IMF) and is entitled “Sounding the Alarm on Leveraged Lending.” It is difficult to know which of the two titles is the most awkward and clumsy, or which one more effectively eliminates any desire to read the text that it precedes. Yet, in fact, both contain data and prognoses that are well worth noticing.
The IMF research discovered an increasing risk of financial instability from a host of factors including the economic fragility of emerging markets, the fallout from escalating trade wars, greater uncertainty about future economic policies across the globe, and the upward trend of interest rates. The agency also highlights the fact that the global banking system is now stronger and better regulated than it was when it crashed 10 years ago.
However, the report also highlights a new problem: the potentially destabilizing levels of indebtedness by many large companies. The IMF illustrates the gravity of the problem by noting that a gigantic and growing global market has emerged for loans to over-indebted companies, to which groups of banks, acting in concert, continue to lend. Not only are debt levels rising dramatically, but there has been a simultaneous and dangerous degradation of lending standards, says the report. Just in the US, this type of debt is twice as high as it was before the financial crisis.
According to the economists who authored the report, this market is not only very large and expanding but also not very transparent, which should sound all kinds of alarms and flashbacks to 2008. “Having learned a painful lesson a decade ago about unforeseen threats to the financial system, policymakers should not overlook another potential threat,” the report alerts.
Although the IMF and the National Defense Strategy Commission reports are addressing very different problems, the latter also draws attention to the dangers of complacency in decision-making. While the IMF is concerned about economic policy makers and financial regulators’ complacency with respect to this threat, American experts are equally concerned about their nation’s inadequate military preparedness to deal with a rapidly changing set of security threats.
This is very surprising since we are talking about a country that spends $716 billion on its armed forces. That level of expenditure is four times more than China and 10 times more than Russia. Despite this, the authors maintain that: “Rivals and adversaries are challenging the United States on many fronts and in many domains. America’s ability to defend its allies, its partners, and its own vital interests is increasingly in doubt. If the nation does not act promptly to remedy these circumstances, the consequences will be grave and lasting.”
The report emphasizes that the US has spent decades devoting most of its attention (and resources) to the War on Terror, thus allowing its preparedness for conflicts against powers such as China and Russia to fall short of what is needed. “The US military could suffer unacceptably high casualties and loss of major capital assets in its next conflict. It might struggle to win, or perhaps lose, a war against China or Russia. The United States is particularly at risk of being overwhelmed should its military be forced to fight on two or more fronts simultaneously.”
It is easy to dismiss this report as one more in a long list of similar warnings that every few years call for a massive and urgent increase in the budget for national defense. The critics’ answer, of course, is that the Pentagon doesn’t need more money, but rather drastic reforms in its procurement process, to reduce waste and, in general, to spend its resources more efficiently. In theory, these changes would free the resources needed to address the nation’s strategic challenges.
With the same regularity as the reports recommending budget increases and those demanding a less wasteful military, the Pentagon launches reviews aimed at cutting costs and containing its budget’s growth. In some instances some painful changes have taken place but, despite the efforts, the budget continues to grow. It is obvious that the forces that resist change in this area are far more powerful than those that want change.
The authors of the report are aware of these difficulties to make tough decisions. It is indeed one of their main conclusions: “Due to political dysfunction and decisions made by both major political parties […] America has significantly weakened its own defense.”
The inability of governments to make hard decisions has become a sign of our times. The consequences of this inability are visible in most countries and in a multitude of areas that are in need of change – from containing global warming and managing immigration, to reducing poverty and curbing inequality, or, as these two reports argue, stabilizing global finance and enhancing America’s security. Inaction and complacency have become the norm and it is easy to see political leaders around the world keep kicking the can further down the road.
But crises do not wait, and the current tolerance for denial, postponement and inaction may soon prove to be too dangerous a habit.