Capítulo 4
Five Challenges for a New National Strategy
While America was deeply engaged in the Middle East, the Asia-Pacific region became the new center of economic power and growing risk. Half of humanity lives in the region from India to Japan, home to the world's second and third-largest economies, America's largest creditor, and major greenhouse gas emitters. East Asian economies grew rapidly while America accumulated $14 trillion in debt fighting Middle Eastern wars.
We must address five qualitatively different challenges that are multinational, interrelated, and require long-term perspective: terrorism, cybersecurity, the US financial system, China's rise, and climate change.
Terrorism against civilian targets remains a significant threat despite our decades-long fight. From the 1993 World Trade Center bombing to 9/11, the threat has transformed and migrated but persists. The terrorist threat has spawned a massive "terrorist-industrial complex" with 1,200 government organizations, 1,900 companies, and 854,000 people with security clearances. Americans have accepted unprecedented privacy intrusions and surveillance, with technologies from battlefields now deployed domestically.
Cybersecurity threats closely accompany terrorism, involving both espionage and theft. America is uniquely vulnerable because our economy and infrastructure are deeply connected to the internet-with some 500,000 infrastructure-related targets available for attack. Identity theft has evolved from lone hackers to organized crime, with major breaches exposing millions to data theft.
Beyond financial theft, data theft poses even greater problems. Industrial espionage targets businesses' proprietary designs and engineering, with defense contractors suffering major breaches traced back to China. These intrusions not only compromise national security but systematically undermine America's economic advantages in technology and R&D.
Even more alarming is the potential for destructive attacks. As I witnessed in 1994 while at the Joint Chiefs of Staff, cyber weapons can target critical infrastructure nodes without conventional bombs. Our power grid has likely been compromised with malicious software that could devastate electric systems in a crisis. Despite awareness of the problem since the 1990s through various presidential initiatives, America has failed to adequately protect the private sector.
The US financial system represents a unique vulnerability beyond cyber-attacks. The financial sector's lobbying efforts paid off handsomely-between 1999-2008, they spent $2.8 billion on lobbying and over $1 billion in campaign contributions, successfully dismantling regulatory protections.
The sector grew explosively, with debt held by financial institutions soaring from $3 trillion in 1978 to $36 trillion by 2007. By 2006, financial profits constituted 27% of all US corporate profits, up from 15% in 1980. The largest banks doubled their market share, with the top 10 holding 55% of industry assets by 2005.
Despite some reforms after the 2008 crisis, the Dodd-Frank Act remains incompletely implemented. Many provisions have been weakened through industry lobbying. The financial sector's growth has contributed to persistent unemployment, low job creation, and rising inequality. Business dynamism and entrepreneurship are in "troubling secular decline," undermining core American values of opportunity and social mobility.
China represents a major systemic risk as the largest foreign holder of US debt and the world's second-largest economy. As China shifts from its previously humble stance to a more confident, assertive phase, it is now prepared to emerge in its "full stature" toward "its rightful position in global leadership."
The challenge posed by China isn't purely military, as engagement occurs across multiple dimensions-private, commercial, scientific, educational, and diplomatic. China has a voice in US security issues including terrorism, cyber-threats, and the global financial system. Crucially, China must be engaged on climate change as the world's largest carbon emitter.
Climate change represents a fundamental national security challenge, with scientific consensus now established that the earth is warming primarily due to human activities. The IPCC's projections are deeply concerning: continued temperature rises, ocean warming and acidification, increased contrast between wet and dry regions, shrinking sea ice and glaciers, and rising sea levels.
The Stern Review details severe impacts from even moderate temperature increases: flood risks during wet seasons, reduced dry-season water supplies affecting one-sixth of the world's population, ocean acidification damaging marine life and fisheries, and agricultural impacts from droughts and heat.
These effects are already manifesting. In 2010, droughts in Australia and Russia drove up wheat prices, affecting countries like Syria, which was simultaneously experiencing drought. Climate change represents a "threat multiplier" for instability, especially in countries already struggling to provide basic needs.
The most alarming aspect may be potential "nonlinearities"-discontinuous effects and positive feedback mechanisms not fully captured in climate models. These could include sudden collapse of ice sheets causing dramatic sea level rises or the release of vast methane stores from Arctic permafrost and seabeds.
Capítulo 5
American Power at an Inflection Point
America stands at a critical inflection point, signaling a potential shift from superpower status to waning influence. To halt this decline, we need a coherent national strategy, policy changes, and new economic tools. The "unipolar moment" and Pax Americana that began in 1945 are rapidly ending, with regular indicators-from educational achievement to economic growth rates-showing America sliding relative to global competitors.
By May 2014, the US national debt reached nearly $17.5 trillion, exceeding our GDP for the first time since World War II. Interest payments on this debt ($220 billion in 2012) could double or triple if rates return to normal levels. With mandatory spending on entitlement programs growing as the population ages, projections show that interest payments plus Social Security, Medicaid, and Medicare could consume the entire federal budget by 2030.
The constraints on federal resources stem partly from America's increasingly fractious political landscape. During the twentieth century, the economic debate evolved from Keynesian economics advocating government intervention to the Chicago school's monetarist approach favoring limited government and free markets. These competing philosophies underpin today's partisan divide, with Democrats supporting stimulus spending and Republicans opposing deficit spending. This fundamental disagreement has escalated into an identity crusade, spilling over into national security matters.
America's weakened financial position and fractious politics have damaged its global standing. According to Pew Research, 53% of Americans believe the U.S. is less important than a decade ago, while 70% feel it's less respected internationally. Foreign opinion confirms this perception-only about 45% of global respondents view America positively.
Inflection points can be managed or reversed-America has done it before. During the Great Depression, capitalism appeared to fail and America seemed in decline. What ultimately revitalized the economy was rearmament for World War II. The industrial mobilization was remarkable-GDP grew 8% in 1939, 8.8% in 1940, and nearly 19% in 1942. By 1942, American war production equaled the combined outputs of Germany, Italy, and Japan.
Today's economy still has substantial untapped resources-corporations hold $2.2 trillion in retained earnings, private equity funds have nearly $1 trillion in investible capital, and hedge funds control another $2 trillion. With unemployment at 7% plus millions more underemployed, and industrial capacity utilization at only 79%, America has the slack resources to fuel significant growth if this capital were invested domestically.
Capítulo 6
Reversing the Inflection Point
The five strategic challenges facing America could provide enough common purpose to bring the country together without requiring an enemy. But addressing these challenges requires reversing America's relative decline and restarting its economic engine. Despite current challenges, America retains tremendous advantages: the world's largest economy, abundant natural resources, robust agriculture, low-cost energy, leading universities, technological superiority across multiple industries, and a safe business environment.
Energy independence could supercharge the U.S. economy without significant taxpayer cost. Currently, America's $200-300 billion annual oil imports function like a tax, removing 1.2-1.8% of GDP from the economy. Producing this fuel domestically would retain these billions within the American economy, generating $50-90 billion in tax revenue and adding 1.5-2% in real economic growth.
By energy independence, we're really talking about petroleum for transportation, as we're already independent in electric power production. Despite progress-U.S. oil production exceeded imports in October 2013 for the first time since 1995-we still import over 35% of needed oil. With oil prices estimated to reach $141 per barrel by 2040, we'll spend $5-7 trillion on imported oil over 25 years unless we change course.
To achieve energy independence, we need to produce 5-6 million additional barrels of liquid fuel daily beyond anticipated growth. This requires both private sector action and government support. The energy market is fiercely competitive-a $600 billion annual industry where oil companies battle each other, oil fights gas, both oppose electric cars, and nearly everyone opposes biofuels.
America's oil industry is the world's strongest, most flexible, and innovative despite facing periodic price collapses and OPEC manipulation. Billions of additional barrels could be recovered from existing wells using new techniques. Tight oil production requiring fracking has seen dramatic increases-the Permian Basin produces 1.3 million barrels daily with potential for much more, while Eagle Ford Shale production quadrupled between 2011-2012 and doubled again in 2013 to over 1 million barrels daily.
Kerogen trapped in shale formations across Wyoming, Colorado, and Utah contains an estimated 2 trillion barrels, with nearly 1 trillion recoverable. With oil prices near $100 per barrel and proper government approvals and incentives, this resource could yield 500,000+ barrels daily indefinitely.
Biofuels already provide approximately 10% of U.S. liquid fuel. Under the Renewable Fuel Standard, biofuels are mandated to increase until reaching 36 billion gallons annually by 2022-about 30% of the U.S. gasoline supply. By sticking with existing law, the U.S. could reduce imported oil needs by almost 2 million barrels per day.
Natural gas can be converted into liquid fuels like low-sulfur diesel through petrochemical processes. With U.S. gas prices predicted to remain around $5 or below while oil stays near $100 per barrel, these conversion plants could be highly profitable despite requiring billions in investment.
Implementing Energy Independence Plus requires balancing economic growth with climate change concerns. The solution lies in maximizing hydrocarbon resources now while establishing stronger incentives for renewable fuels and electric power.
This strategy requires a grand political compromise between two powerful interests: the oil lobby and environmentalists. Environmental impacts could be mitigated through additional clean-up funds, expanded oversight, and industry self-regulation. A carbon tax starting at $25 per ton with scheduled increases would effectively phase out carbon-intensive fuels while generating $25 billion annually in revenue.
Capítulo 7
New Tools for a New Era
America has many tools for global leadership from the Cold War era, but today's interconnected world demands new approaches. Economic interdependence has reduced the effectiveness of both military action and economic sanctions against major powers, as demonstrated in the Ukraine crisis where sanctions often harm those who impose them.
The United States needs more positive economic leverage. As Lebanon's Prime Minister Rafic Hariri advised: "You have to start with economic rights" - creating meaningful employment opportunities. While the State Department has emphasized "economic diplomacy" to help American companies abroad, our development assistance programs are complex and poorly coordinated across twenty-four different federal agencies.
Created in 2003, the Millennium Challenge Corporation provides grants and loans to developing and lower middle-income nations to reduce poverty, provided they improve government transparency and effectiveness. Despite early successes in motivating countries like Yemen and Niger to improve governance, the program has faced challenges. Funding has been much lower than anticipated-averaging under $1 billion annually instead of the expected $5 billion.
The logical next step for American economic statecraft would be creating a sovereign wealth fund that provides equity investments to US companies, joint ventures, and host-nation entities. Unlike existing mechanisms that focus on loans or guarantees, this fund would supply risk capital with management assistance while retaining the ability to reinvest earnings.
I witnessed firsthand how profit-driven development can transform communities when visiting an Israeli agricultural project in Angola. The Israelis had created moshav-style villages where individual farmers were responsible for their own production while processing and market access were handled communally. Former soldiers were earning $400 monthly, learning farming, educating their children, and hiring others-spreading prosperity through rural Africa.
Nobel Prize-winning economist Michael Spence's World Bank study demonstrates that escaping poverty requires attention to market dynamics with strong government support. His work argues for more strategic government approaches beyond just providing legal frameworks.
The three proposed tools-a US sovereign wealth fund, public-private partnerships abroad, and US-led strategic planning for national economies-would be "market-extenders" enabling American leadership in economic development where private investors cannot participate.
Capítulo 8
Answering the Strategic Challenges
With a reinvigorated US economy powered by energy resources, a carbon tax, and new economic tools added to existing diplomatic, economic and military resources, America can address its long-term challenges. But success requires substantial public support and simple, consistent strategies that become absorbed into public consciousness.
I propose an "Energy-Enabled Strategy for Growth, Responsible Development, and Security" (E2S) as the basis for a new national strategy. This approach leverages innovative energy production while implementing a progressively escalating carbon tax to transition away from hydrocarbons.
Using American strength gained through Energy Independence Plus and climate leadership can reverse our current inflection point without requiring major sacrifices. Renewed economic growth would reduce partisan tensions and raise American influence abroad, while carbon tax leadership would drive technology forward and demonstrate our political strength.
The 2011 US counterterrorism strategy is well-balanced, but we must better undercut the conditions enabling terrorist recruiting by: denying terrorists a free "home base," undercutting sectarian motivations, and promoting fair development in poorly governed areas.
Our new economic tools and energy-enabled resources would extend development into hinterlands, bringing opportunities to isolated individuals vulnerable to recruitment. Profit-motive developments would bring US entrepreneurial talent to partner with local businessmen, while sovereign wealth funds would seed major efforts and attract follow-on funding.
Despite increased awareness and the Cybersecurity Command's operations, our economy remains acutely vulnerable to cyber threats. Effective solutions require three approaches: technical improvements to the Internet itself, domestic regulatory changes, and international measures.
The financial challenge is protecting the US economy from another collapse when we have less capacity for additional debt than in 2007. We must review Dodd-Frank after its regulatory interpretations to determine if it provides sufficient protection against excessive debt and regulatory failures.
Our aim should be bringing China peacefully into the international system with responsibilities commensurate with its wealth and power. The foundation of our relationship with China depends on America's relative strength. Restoring economic growth, fixing unemployment, improving infrastructure and education, and demonstrating our political system works are crucial.
US adoption of a carbon tax alongside Energy Independence Plus will establish America as the global leader in tackling climate change. Though global oil demand will rise from 90 to perhaps 120 million barrels daily over fifteen years, increased US production will delay expansion of "dirtier" oil elsewhere. Our theme should be "Hydrocarbons now, as we transition beyond hydrocarbons."
A rejuvenated America will have important work to do in the world, leveraging its newfound currency of energy exports, global climate leadership, and new economic tools. Europe remains most closely linked to the United States in history, culture, and values. Under E2S, the United States could supply Europe with significant natural gas, liquefied and shipped to regasification facilities already being built, particularly helping the Baltics and Germany.
America's well-being depends on global engagement, providing stability and encouraging rule of law, but with different instruments than before. In our interconnected world, force is decreasingly effective-when used, it must be precise, with attainable objectives directed by diplomatic aims. The threat of force proves more useful than deployment, as the Cold War demonstrated.
Our economic potential is our most powerful tool. We must revitalize economic power by leveraging domestic energy resources, strengthening leadership in global energy markets and climate change initiatives, and developing positive economic tools to export entrepreneurship.
Our E2S strategy requires a historic political compromise: "Hydrocarbons now, as we transition beyond hydrocarbons"-reconciling immediate resource needs with climate realities. If we unite around this vision to restart economic growth, America can continue leading the world toward freedom, dignity, and opportunity.
