Friday, December 19, 2008

Counter-insurgency (COIN)

General Petraeus is nothing short of a genius. I won't bother recounting all his achievements and virtues here; rather I will cut right to the chase.

The new US counter-insurgency strategy (COIN), which Petraeus was instrumental in developing over the last several years, identifies a counter-intuitive, but critically important, strategic issue.

The main idea is that increased short-term risk for American soldiers, tactically, reduces longer-term, strategic risk.

In a traditional, symmetric war, civilian deaths and collateral damage in the short run can shorten the overall war. This is essentially the paradigm of shock & awe pioneered by other brilliant men, such as Colin Powell. The ultimate in shock & awe, and the inspiration for the strategy in many ways, was the atomic bombing of Japan. It killed civilians, but it probably saved lives by shortening the war.

In asymmetric, insurgency/counter-insurgency war, under-reacting and overprotecting civilians, while remaining out and about, allows intelligence gathering and turns civilians against insurgents.

Imagine the alternative. You're out there, trying to pacify terrorists in Iraq. You could easily think, "I'd better keep US troops from dying and find the insurgents." "If I don't keep US troops from dying, public opinion will turn against the war, even if I'm winning." "If I don't find insurgent bombers, I will not be accomplishing my mission or protecting the new nation of Iraq."

But Petraeus argues for exactly the opposite. He argues for a war focused on defense. He argues that such operations to catch terrorists alienate the population. The collateral damage creates more terrorists. This is NOT obvious. It seems obvious, but only if you have never understood the shock&awe strategy in the first place. Traditional thinking is that it's better to over-react and and kill too many civilians at first, because it will decimate the enemy and shorten the war.

Lest you think you understand what I'm saying, think about this... "Did Rumsfeld send too few troops to Iraq?" If you think so, then you think we should have engaged in MORE activities early on. But, that would have made MORE people affected by US troops and probably resulted in MORE collateral damage. Even if you don't realize it, people like Gen. Shinseki and Colin Powell, who have criticized the war, were arguing for THAT. They were saying we should have sent more troops in and been a blunter instrument. We could have stopped the looters and crushed the insurgency early on and we'd be in a better position now. It's the opposite of the strategy Petraeus is advocating. He's advocating that we send more troops NOW, but that we had the right number at the beginning. He's arguing that what we need to do now is go out and put US soldiers in harm's way. We need to tell them to make protecting civilians their priority, even if it results in more US casualties in the short run.

The reason we need to do this is because it will reduce the quantity of terrorists created and turn more of the populace against the terrorists. This will ultimately do more to shorten the war than will hunting down the terrorists.

Don't confuse this argument with the idea that we should simply not be there at all, because then we couldn't alienate people. That is 100% wrong. What Petraeus is arguing is the opposite. We *should* be there, because if we don't protect civilians, then we can't be seen as the better alternative to Al Qaeda. When we abandoned the Afghani rebels and the Shi'ites in the early 90's, we did exactly this - we left them alone. We caused Zero collateral damage, and we earned nothing but the hatred of Iraqis and Afghanis during that time. We said, "We're not helping you; you're on your own." And nobody thanked us for it. Instead, they spent the 90's plotting against us. Understanding that problem is a basic precursor to understanding what's going on in the world today. The terrorism problem we have now built up during the 90's, when Clinton was President and we did little to nothing to stop Al Qaeda or Saddam Hussein.

Wednesday, December 17, 2008

Tuesday, December 16, 2008

Rice on Piracy

A quote from Secretary Rice at the UN, speaking about piracy:

"To make piracy costlier and more difficult to undertake, the United States, with the agreement of the Somali Transitional Federal Government, believes that the Security Council’s authorization today that states may pursue pirates into their places of operation on land will have a significant impact. History has demonstrated again and again that maritime operations alone are insufficient to combating piracy."

Pirates!

Piracy has become a problem that's so big it's now almost comical. The problem runs far deeper than the loss of a few ships off the coast of Somalia. There are several reasons why piracy is such a big problem:

1) There are many other areas around Africa where piracy is rampant. There are even more historically active pirate hotspots in and around Indonesia.

2) Piracy is connected to terrorism. It's not that the pirates are terrorists, exactly. But consider this: the people who shot up Mumbai recently came in on boats. In fact, they hijacked a fishing boat somewhere near India, which they used to get into port. This is a colossal problem.

Imagine if a hijacked tanker were blown up at the mouth of the Port of Long Beach. This could disrupt the flow of imports and exports to and from the entire US west of the Mississippi for days or weeks.

Right now, there is a hijacked Ukranian boat in the hands of pirates loaded with tanks and other heavy weapons. There is also an oil tanker. It would be simple to cause an Exxon Valdez-caliber disaster in an incident of eco-terrorism.

Even worse, a large boat makes the perfect mobile weapons laboratory. If kept in the right place, there would be no one who could even legally board/search it.

For all these reasons, and many others, I was excited to see this story today, about how the UN has authorized operations at sea and on land to get at the pirate menace.

3) Piracy creates a need for rapid-reaction forces to interdict sea traffic. India, China, the US, Japan, Great Britain, Australia, and others will obviously need to plan how they will deal with a remote hijacking five thousand miles away. Will pirates be able to hijack Chinese missile shipments near China and then get into Indian waters? If so, will the Chinese try to attack the ships? Will the US be able to push India to board a Chinese flagged ship full of military equipment? The potential for international military and political incidents is immense.

Monday, December 15, 2008

A Bonds Primer

It's time for another super-condensed lesson on bonds...

Bonds are a loan to a company. The traditional type works as follows:
You loan the company $1,000 (you buy the bond). The company pays you interest (the coupon rate, or interest rate) every period. At the end, they pay you back the principle of the bond. In this sense, it is very similar to a CD. You loan the bank $1,000 for 6 months, they pay you a certain amount of interest each month, then they pay you back the $1,000 of principle.

Many variations exist.

Because the bond is tradeable and has a limited duration (for example, 10 years), the prices of bonds can change. You might buy one that has 2004's interest rate, and will only last for an additional 6 years. Someone else collected the first few years' worth of interest and then sold it to you. The YTM (yield-to-maturity) is an attempt to capture the value of the bond that's "left".

The price of a bond varies inversely with the prevailing interest rates. Here's why:
Let's say you buy a 10-year bond in 2005 for $1000 that pays 5% interest per year. Every year it pays $50. Now, let's say it's 2006 and the interest rate has gone down. Today, new bonds are offered for 10 years with a 2.5% interest rate for $1000 (the $1000 is called the face value or par value). If you bought bonds today, and you wanted to get $50/yr in interest, then you'd have to buy TWO of the 2006 bonds, because each one pays only $25/yr. Therefore, your bond from 2005 is now worth TWICE as much as the bonds from 2006. If you sell your 2005 bond on the open market, it will have a price of roughly $2,000 (actually, there are other factors that go into the price, but that's the main idea).

So, you can make money in 2 ways from bonds: 1) the interest payments, or 2) the price of the bond goes up and you sell it. The price of a bond can go below $1,000, but you will still get $1,000 if you hold the bond when it's due (the end of the bond, also called the "call date").

The interest payments for most bonds are paid quarterly, yearly, or twice-yearly. The interest is often taxable, but not always. There are also "zero-coupon" bonds, where instead of receiving interest every year, you buy the bond at a discount and get a larger lump-sum back at the end. It's as if all the interest is lumped together and thrown into the principle. These kinds of bonds have two main differences: 1) they do not generate income in the short-term 2) you do not pay taxes on the interest as regular income every quarter or year.

In general, bonds give you a higher return than cash, but with a higher risk. They will generally give you a lower return than stocks with a lower risk than stocks, because if a company goes bankrupt, bonds are paid off first, before stockholders get anything.

Here is a list of types of bonds, with descriptions of each. I have made a chart that summarizes the main types; and specifically the types in which you might be interested. One key thing to remember is that bonds can be taxable, or tax-free. Mostly only government bonds are tax-free. These tax-free bonds look like they have much lower interest rates (or yields), but they may be better or worse for a given investor, because you don't have to pay taxes on them. How valuable the tax-free bonds are depends on what tax bracket you're likely to be in while collecting the interest and how the rates compare to the taxable bonds.


Here is a chart that explains the bond ratings. The rating is a measure of the risk. The higher the rating (like AAA), the lower the risk. Bonds with ratings of BB+/Ba1 are generally considered speculative, higher-risk (AKA "junk") bonds. This doesn't mean they are bad. It means that they carry more risk and pay higher interest rates than the higher-rated or "investment-grade" bonds. Like with stocks, if you want to buy these higher return bonds, you should probably not pick individual ones, but should pick some kind of junk-bond fund or mixed bond fund. Such a fund might also be called "speculative" or "high-yield."

Two other interesting notes:
Callable bonds can be "ended" early. Some are callable by the company (seller), and some by the owner (buyer). If you have a long-term bond with a very high interest rate, it might seem like a great investment, but if it can be recalled by the company, you will get your money back, but you may not be able to continue receiving that interest for the life of the bond.

Although there are many choices, they are generally priced very fairly. It hardly matters which you pick because they're all roughly worth the same amount, given that people have bid up or down the prices for you already. The factors that are most important for most people are: 1) taxable or non-taxable, 2) interest-bearing or zero-coupon, 3) risk level (rating) - higher risk, higher reward.

Monday, December 01, 2008

Country Right-Sizing

Have you ever thought about whether it was "fair" not to let the South secede? We seceded from Great Britain. Why shouldn't the South have been allowed to secede from the north? I was thinking about this topic in the context of South Ossetia's and Abkhazia's relationships to Georgia.

These were semi-autonomous provinces, whose autonomy from the Georgian government was encouraged by Russia, which Georgia tried to pacify and re-conquer/re-occupy. Is that fair? Is it right to force someone to be part of your country?

Here, I explore this issue somewhat. A few notes...

A Country of One
The right size for a country, or a nation, is probably not one person. It's probably not just two people, either. Whether defining a nation-state as a collection of ethnically or culturally similar people who live in a common society with shared infrastructure and societal rules and norms, or as a group who individually participate in a social contract for their mutual defense and benefit, there will likely to be many people in the same society.

Why do we Unite?
Whether to manage the use of a pasture or water-supply, or to protect from invasion, the smallest size that makes sense is at least a whole village or town. As communication and transportation have improved, though, the much larger nations, with millions of people spanning multiple thousands of square miles, have made more and more sense.

But what about uniting cultural or ethnic groups? In the old days, there was much more overlap between cultural or ethnic group and mutual defense or common markets than there is now in Western countries. In other parts of the world, though, such as Africa, the Middle East, and Central Asia, there are still many who see ethnic or cultural similarity as the primary basis for participation in a common government.

The Case Against Secession Differs
The case against secession differs vastly depending on why you are united in the first place. If you're in a society that unites or conquers for common benefit and mutual defense (much like the 13 original colonies of the United States, or the Roman empire), then a secession that endangers or weakens the whole can be rationally (and perhaps legitimately) resisted. When Benjamin Franklin originally said, "Either we all hang together or we all hang separately" he was quite serious. It was literally untenable for the colonies to secede separately, because they were too small, in comparison to England. Disunity would endanger them.

The case against secession from an ethnic group or a culturally defined body politic, though, is quite different. The argument in that case focuses on two factors:
1) Whether or not people actually represent a distinct group, and
2) Whether being a distinct group entitles a people to self-determinism or autonomy.

The Nation State is a Fairly New Concept
Weird as it may seem, the nation-state is a fairly new concept. Multi-ethnic empires have been around for a very long time. Even the Akkadians and Sumerians were cognizant of the need (real or perceived) to incorporate other cultural groups into their "empires" for strategic (or sometimes just greedy) reasons.

While there were culturally defined groups which also functioned as political entities, these tended toward the city-state size until the 19th Century, when they had really outgrown the feudal model of control. It wasn't even until the late 19th Century that Germany or Italy was united as a single country.

One problem that we have had since about the 19th Century is that the Slavic world, the Caucasian world, and, in general, the entire area from Japan to East Germany, has struggled mightily with the tension between culturally or ethnically defined political entities and political entities defined more by what we might call a "social contract."

So, What Size is the Right Size?
The tension between these two notions of government comes into play when the East and West clash (as well as within the Eastern and Western worlds, separately). When we think about whether South Ossetia is more "Russian" or more "Georgian" what we are really asking, in some ways, is whether or not Georgia is a country based on an ethnicity or based on a compact between individuals for mutual benefit and their common defense. If the latter, we then ask, in which country are these people better off and to what extent are the different parties able to defend such claims?

Russia's position of advocating for South Ossetian and Abhkazian independence is ideologically nearly untenable. If Russia believes these people need to be part of Russia for strategic reasons, or that the benefits accruing from such a relationship outweigh those of unification for the tiny regions with Georgia, then it must complete its own (Russian) takeover to realize such gains. If Russia believes these peoples are ethnically similar to Russians, then they cannot pretend they want these tiny states to function autonomously. If they think that these people are ethnically similar to NEITHER Russians NOR Georgians, then it would make sense to encourage independence, but it would make even more sense to encourage the independence of many others who are currently part of Russia, but are less similar, ethnically.

Which Side Should We Take?
Whereas the American Civil War was largely about the right of self-determinism, state vs. federal control, and the disagreement over the economic and strategic viability of differently sized unions, with most of these issues taking the form of arguments about slavery, the situation in Russia is more of a conflict between a "nation-state" mentality and a "social contract society."

When we ask ourselves whether we should have supported Georgia more or less in the reconquista, we really must ask ourselves, "Are we advocating against the idea of nation-states?" When we compared stopping the ensuing Russian attacks on the Georgian capital to halting the German advance in the 1930's, were we really saying that we feared the (re-)surge(nce) of a Slavic nation-state?

Democracy is more than just self-determinism, because true and complete self-determinism is just anarchy. So, given that democracies limit self-determinism and individual liberties in key ways, we must ask, "for whom are these rights to be protected?" For ethnic groups? Or for societies organized willingly for the common benefit? Answering this question will help us frame our approach to the five-day war in Georgia this August.