Harold James's madman strategy

Harold James is a History Professor who believes that a 'mad man' strategy can work. Does History bear him out? Let us see-

In The General Theory of Employment, Interest, and Money, John Maynard Keynes famously worried that, “Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

Was Keynes right? Did any 'academic scribbler' envisage the reintroduction of slavery- through Gulags and forced labour camps- which 'madmen in authority' used to shore up their power? No. Marx never envisaged the methods of a Stalin. No monetary crank or votary of Henry George envisaged the gangsterism of the Nazis. Legitimating ideologies are a different matter. But they serve no functional purpose being shibboleths merely.

Yet even without prescriptive theories, feigning “frenzy” or madness can also be a plausible, powerful, and rather contagious negotiating strategy. In the early 1970s, US President Richard Nixon adopted the tactic to convince the North Vietnamese that he had his finger on the “nuclear button,” and that they had better negotiate a deal to end the war – or else.

WTF?! America lost the Vietnam war. Nixon even lost to Mrs. Gandhi who simply didn't believe his implied threat to 'nuke Calcutta'. But, Indira had made sure she was covered by the Soviet nuclear umbrella first.

And in 1986, President Ronald Reagan met with Mikhail Gorbachev in Reykjavik and surprised him by proposing that the United States and the Soviet Union both destroy all of their nuclear weapons.

That was perfectly sane. James is mis-remembering a false allegation about the early 'Star Wars' Reagan actually being a born again Christian who was trying to hasten 'the Rapture' by provoking Nuclear armageddon.

Whether a crisis is escalating or de-escalating, the madman strategy’s effectiveness seems to depend on the extent to which a political leader’s “insanity” is ambiguous – so much so that even historians won’t know where to draw the line between sincerity and artifice.

This is sheer nonsense. 'Insanity' only means that cheap talk loses salience and so correlated equilibria are not available. Thus parties fall back on the Nash equilibrium- i.e. tit for tat.

With President Donald Trump’s on-again, off-again approach to a nuclear summit with North Korea, along with his bluster over new sanctions against Iran, the madman strategy seems to have made a dramatic comeback.

Nonsense. South Korea has quietly changed its policy and China has prevailed. Trump does not matter. Similarly, Saudi Arabia and Israel are in the driving seat with respect to Iran. Nutters get disintermediated because they would rather play with their own feces in any case.

It is now being adopted by many other leaders, and quickly spilling over into new domains, including debates about reforming the European monetary and political system.

It is perfectly sane to want to 'reform the European monetary and political system'. Fifteen years ago almost everyone believed Capital was more mobile than Labour and thus the Eurozone would display, if not real wage convergence, then, at the very least, a universal ordoliberal 'social minimum' as the other side of the coin to 'price stability'.

Recently, the eurozone debt crisis, dormant since 2012, has looked as though it could erupt again. With interest rates so low, the Italian government’s massive public debt has appeared sustainable. But with financial markets increasingly jittery over political developments in Italy, it is easy to imagine a world in which interest rates rise and remain elevated, in which case the Italian debt could pose a serious threat to the eurozone, and even to the global economy.

Not really. All that will happen is that Italians will take a bigger haircut sooner rather than later. Everyone else has already hedged their position.

Investors’ fear of another eurozone debt crisis have been spiking since the populist Five Star Movement and right-wing League party failed to form a government after months of post-election gridlock. The M5S/League coalition, which won a combined parliamentary majority in the March 4 election, have clearly taken a page out of the Trump playbook, hoping to use Italy’s debt to extract concessions from the EU.

How is Trump relevant? This is the silly Syriza playbook whose outcome is already known. The coalition will preside over a massive haircut and perhaps some capital controls which will redistribute wealth within their own country. Well, it is their democratic right to hurt their own people- so nobody will stop them from doing so.

What concessions will Europe make? Will it pay every Italian a 'Basic Income'? Of course not. Don't be silly. No doubt some Italian debt will get written off but the biggest impact will be on Italian savers.

Will it work? The first, and most basic, component of the madman strategy is an ability to introduce a level of uncertainty that is damaging to other countries.

But everybody saw this particular madman coming from a mile away and has hedged accordingly. Some Italians, however, are trapped and will have to put up with this lunatic shitting all over their life-chances.

This is why the strategy doesn’t really work for smaller countries, as Greece’s new government in 2015 quickly learned after dabbling in brinkmanship with its European creditors.

It doesn't work for anybody at all. China had its crazy Cultural Revolution. So what? It only managed to hurt itself. Size doesn't matter. A big lunatic will shit all over his big house. A small lunatic will only be able to shit all over his small house. Either way, all you get is a house full of shit- which only matters if you have to live there.

Assuming a country is big enough to rattle global markets (as Italy clearly is), three other factors determine the success of a madman strategy.

Don't be silly! There is such a thing as an optimal tariff policy or an optimal currency area. There is no such thing as an optimal, size dependent, madman strategy.

For starters, its government must be able to convince everyone else that it is being driven toward “insane” acts by voters.

Hitler may have been able to convince Stalin that he had been driven to break the terms of their treaty because his voters were insane. Stalin would still have tortured the fellow very slowly and excruciatingly. That is why Hitler ate a bullet.

If Italians are mad, we will only do business with Italy on a cash basis. Governments need to convince others that their people are sane- not gibbering lunatics.

The idea is that it is actually irrational for a democratically elected government to act prudently if doing so means inviting punishment from voters who are committed to myopic but deeply felt positions.

A country which does not act prudently gets slapped down. Mussolini found this out the hard way. It seems his voters were not 'committed to myopic but deeply felt positions'. He was. So they strung him up from a lamp-post and desisted ever thereafter from invading their neighbours or boasting of a Mare Nostrum.

In the case of Italy, populists capitalized on voters’ disenchantment with a center-left party whose pro-European stance had failed to deliver results.

Italians are fed up with an incompetent and corrupt political class. They are also unhappy about migration. One may not like it, but it is perfectly rational. True, the new bunch of jokers may be even worse than what went before. Still, what is important is that some Italians are going to take a pretty drastic haircut.

There must also be a visible division between “hawks” and “doves” within the madman government.

Such divisions exist in any democratic government. So what?

In any negotiation, the other parties will offer concessions to strengthen the doves, knowing full well that a failure to do so will enrage the hawks, who will then move forward with their doomsday plans.

Right! That's why Munich secured 'Peace in Our Time'.

With Trump, this dynamic exists within a single personality that is prone to violent, unpredictable swings between openness and anger. But it also exists within Trump’s cabinet, with John Bolton, the hardline national security adviser, playing the role of the hawk.

What has been the result? America has been disintermediated from a hegemonic role. In the middle east, Israel and the Saudis are setting its agenda. South Korea and China have recalibrated their relationship and, sooner or later, Abe and his cronies will have to play ball. Europe has to accept a tit-for-tat battle in which America initially wins because it is better placed to enforce an optimal tariff policy. However, longer term, it loses certain hegemonic traits in Capital and Intellectual Property markets.

In the case of the M5S/League coalition, a hawk was needed as a counterweight to Italy’s pro-EU president, Sergio Mattarella. That is why the populists’ choice for Minister of Economy and Finance was Paolo Savona, an 81-year-old economist whom the former Italian economy minister Vincenzo Visco has described as “radically and suicidally anti-German.” When Mattarella rejected the nomination, the M5S/League quit the talks, precipitating the current crisis.

Mattarella has nothing to do with the coalition which appears to have bluffing on the euro. The new Finance Minister, Giovanni Tria, is expressing formulaic anti-German sentiments but this is just bluster so as to have a scapegoat for the coming haircut and, perhaps, exchange controls which will corruptly entrench this new political class which will soon grow as fat and fatuous as the old one.

Finally, to succeed, a madman government needs to have a plausible war plan for causing a general disruption. For example, the M5S/League coalition suggested that it might issue a parallel currency, which lent further credibility to its threat of pursuing fiscal expansion in defiance of EU rules.

So, this is a play by play repeat of Syriza's debacle. The Italian Banking system is well and truly fucked. Not just bad debts, it will become the repository of funny money. Cool!

As more governments, parties, and leaders come to imitate the madman strategy, the scope for agreement in any negotiation will narrow, and will become more likely. In fact, hardline German economists have already responded to Italy’s political crisis by circulating petitions to block any eurozone reform that could be regarded as a concession.

A madman inflicts harm on those who have to live in his house. Everybody else keeps the fellow at arm's length. This means countries which won't play by the rules nor make timely reforms get forced to do so. Merkel is an example. She tried to pose as a Saint welcoming refugees but was forced to climb down from her high horse.

But exposing the dangers of the madman strategy will not be enough to defeat it.

There is no madman strategy to expose or defeat. Countries sometimes do 'stupid shit' and get punished for it till they stop.

Voters also must be convinced that better alternatives are available, and that European integration can still safeguard their interests. In the months before Italy’s next election and the EU parliamentary elections in May 2019, EU leaders will have some – but not much – time to show that European integration is about more than political paralysis and economic stagnation.

and getting swamped by refugees.

Otherwise, we might soon be reacquainted with the madman strategy’s grim side. Before his abdication in 1918, German Kaiser Wilhelm II did not need to pretend to be unstable; he really was. With a penchant for saber-rattling speeches and outrageous newspaper interviews, he had something in common with America’s Tweeter-in-Chief.

Teddy Roosevelt had a penchant for saber-rattling speeches and outrageous newspaper interviews. So what? He didn't lose a war. Neither did Churchill. What matters is winning.

In another disturbing historical parallel, he often boasted about his ability to reach agreements with the Russian and British monarchs, to whom he was related. In the event, as the crisis of diplomacy was escalating in July 1914, he suddenly announced a grand new peace initiative. But it was too late. The game of chicken had spread, and the world’s leading powers hurtled together toward catastrophe.

Why? The answer is because of the German General Staff's commitment to the Schlieffen Plan which in turn was the product of the French inability to formulate an offensive doctrine. The Second World War had the same cause. French military strategists weren't crazy. If anything, they were better trained that average. True, the febrile and corrupt nature of French politics did the country no favours but, au fond, Europe's two catastrophic wars were the result of a failure to develop an independent force de frappe type deterrent. Mutually assured Destruction is not a 'madman' strategy. It is the hardwired 'bourgeois strategy' found everywhere in evolution.