This is just awesome: a data-driven assessment of strategies for the board game risk. I haven’t had a chance to dig into it yet, but I like it.

From the WSJ regarding China 2011Q4 growth numbers:

Even if Beijing wanted to step on the gas, the potential growth rate of the Chinese economy isn’t what it was. A labor force that has already plateaued and will soon start to shrink in size, and diminishing returns to further investment mean the double-digit growth of the precrisis years are likely a relic of the past.

Such is the difficulty of the first inflection point. Many countries would have been delighted to have grown at 8.9% in the 4th quarter. But since that is the lowest reading for China since 2009Q2, during the global recession, the relative deceleration colors the number.

Ackerman has a thoughtful piece on the potential negative long-term consequences for Iran if it were to try to close the Strait of Hormuz. He rightly identifies Iran’s relationship with China as critical for the Islamic republic’s continued ability to resist international pressure. China might not be so quick to kick Iran to the curb, however. I kept expecting China to get fed up with the DPRK in 2010 as KJI’s mischief kept provoking crisis after crisis that China really could have done without. But China’s preference for the status quo kept trumping North Korea’s mischief.

Now, China may have less tolerance for Iranian mischief since Beijing can tolerate instability in the Gulf better than instability on its northeastern border. It would certainly be a coup for the U.S. to strip Chinese support away from Iran. Wen’s visit to GCC states (and not visiting Iran) might be an indication of China trying to find alternatives to Iran. Or then again, maybe it’s just China trying to make deals with everyone.

Iran recently cut crude oil prices, but whether this is a reaction of sanctions (Iran drops prices to attract buyers on the fence to replace lost buyers) or a facet of sanctions (the idea has been floated that Japan could still buy oil from Iran, just at a lower price) remains unclear.

Paul Roderick Gregory has an article posted at Forbes that makes a stunning number of errors in an incredibly small space.

These errors lead him to conclude that “Within less than five years, the United States will no longer be the world’s dominant military power. China will be our equal.” Given the gravity of this claim, let’s consider the evidence Gregory offers.

Officially, China’s defense budget currently stands at 1.4 percent of GDP. Even dovish independent analysts place it at 2.2 percent of GDP.

Setting ad hominem aside, serious analysis has estimated that Chinese military spending will likely remain below 2.3 percent of GDP. Therefore, it should not be treated as a lower bound, but rather as a reasonable estimate.

Given that China’s armed forces are already two and a half times ours (soon to be more than three times),

I can only infer that Gregory is speaking about relative manpower here, which is a misleading comparison. The PLA has shrunk its forces as it has modernized, a telling recognition that number of people in the military is not the most important variable in 21st Century military power. Also recall that Iraq has nearly a million men in its military in 1991, which didn’t save it from being decimated by a U.S.-led coalition that was vastly better trained and equipped. In short, claiming that we’re already behind China is confused at best and misleading at worst.

its defense budget does not include R&D, and as its tanks and submarines are roughly equal to ours,

This is absurd. Chinese submarines are not equal to American submarines. Even the forecast quieting capabilities of the Type 095 would barely exceed the capabilities of early 1980s-era Soviet SSNs and SSBNs (see CRS [pdf]) over which USN SSNs of the era had a significant edge. I’m less versed in armor, but I’ll just point out that military capability involves more than just matching specifications (see, for example, Biddle). Gregory ignores a host of other platform-to-platform comparisons where China also lags behind the U.S.: fighters, bombers, aircraft carriers ,and UAVs. But that isn’t even Gregory’s main error. Military power is a complex result of the interaction between personnel, training, doctrine, strategy and equipment. Evidence-free assertions about the equivalence of different platforms aren’t helpful.

I would guestimate China’s current defense spending at almost three percent of GDP.

Given the flaws with Gregory’s evidence, this is simply a bald assertion that Chinese spends 3% of GDP on defense.

I don’t have time to correct all the other flaws in the article, but I’ll point out one more very misleading assertion: “Currently, China produces an annual output about three quarters of the U.S.” Gregory must be making some sort of PPP comparison here, because at exchange rate conversions China was only at about 2/5 of U.S. output in 2010. Exchange rates matter because China does still buy military hardware on the global market. PPP comparisons can be misleading because, last time I checked at least, the basket of goods used to calculate them didn’t include nuclear submarines, jet fighters or active electronically scanned array radars. An omelet may be cheaper in China than in the U.S. I’m not convinced that quality jet engines are cheaper there.

This is, in short, not a serious treatment of an important issue. We have important decisions to make as a country. Amateur articles like this only serve to confuse us.

This is just too good. Ships from the Stennis CSG apparently saved thirteen Iranians who had been held hostage by pirates for more than a month. That’s the same strike group that Iran has been so worked up about for the past few weeks.

Happy Friday, all.

A CEO of a political risk analysis company writes the FT to say, in effect, stop enabling Iran’s attempts to spook the global oil markets.

Amen.

A great quote from the FT coverage of the ongoing protests in Wukan:

The Communist party leadership, often lauded for the speed with which it builds airports and highways, has had no coherent response.

This gets to the heart of the false comparisons that talking heads make between the Chinese and American systems. Yes, the Chinese have pursued infrastructure investments with dramatic speed but the very system which enabled that speed has weaknesses that Americans never worry about. Discussions of our falling behind China tacitly assume that China has all the strengths of the U.S., in addition to building infrastructure faster. And that assumption is incorrect.

Worrying about falling behind China can be useful if it spurs the U.S. to be more disciplined. Worrying will not be useful if it feeds premature triumphalism on the part of the Chinese and excessively pessimistic forecasts of American decline.

Back in April Zenpundit brought up the idea of a Grand Strategy Board (I just came across the post now).

The idea is intriguing, especially for those who fancy themselves grand strategists or aficionados of grand strategy. Who wouldn’t want to kick around big ideas with that crew?

The fundamental, curmudgeonly issue is this: we already have lots of boards for assembling big name thinkers. The Defense Science Board [pdf] and the Defense Policy Board Advisory Committee, for example, already pull together such people to provide guidance on high-level DoD policy issues. People inside the beltway, whatever the faults, aren’t idiots. These sorts of ideas have been proposed and implemented numerous times throughout history.

The influence of these sorts of boards depends massively upon relationships and timing. Senior leaders have tight schedules and must makes decisions with whatever information they have at hand. If the SECDEF or the National Security Advisor knows and trusts someone, even if they don’t have a formal role in government, then an informal conversation with that person might be able to help. But what the senior leader needs at that point is cogent and focused advice, which is why the relationship (does the leader trust the adviser? does the adviser understand what the leader really needs?) and timing (can the right advice be delivered at the right time?) matter so much.

Strategy, fundamentally, cannot be routinized. It cannot, therefore, be broken down into a bureaucratic process. Thus, any attempt to improve strategic thinking through bureaucratic reorganizations misses the point. That reality is unsatisfying and messy but accurate.

Addendum
Other proposals to make uberanalysis cells suffer from related oversights.

Steven Rattner had an op-ed in the NYTimes that I just read. Most of the article is standard op-ed assertion but I will dig into some of the only data points

Not unlike the United States in the 19th century, China’s early stage of industrialization has brought with it an unsavory wild West flavor, from cronyism to fraudulent accounting, that justifiably worries investors. But behind those distractions is a country that is investing substantially in its future — about 46 percent of its gross domestic product, compared with 12 percent in the United States.

And while total government debt in China is high — by some estimates, higher than in the United States — much of the Chinese debt was incurred for investment rather than consumption, far better for longer-term growth. Notwithstanding accounts of “roads to nowhere,” China has vastly improved its core infrastructure. Its government arguably does better than ours at allocating capital.

The antipathy of Chinese households toward personal debt (a quarter of homes are bought with cash) has resulted in a savings rate of nearly 40 percent of income, compared with less than 5 percent for Americans.

Talking about a “Wild West” flavor of the Chinese economy sounds almost romantic. It sounds less romantic when you hear about gutter oil, pollution so bad it grounds flights and organ harvesting from political prisoners.

What about investment levels? More investment is not always better. As this analysis explains, investment to GDP ratios this high raise questions about how efficiently the money is being spent (especially since investment ratios have only increased in the four years since that analysis). Resources inefficiently spent on infrastructure could have gone to other uses (like addressing the pollution mentioned earlier). China, however, is addicted to investment. The money and credit deluge released in response to the global financial crisis disproportionally went to state-owned enterprises and infrastructure because these destinations had the political connections and speed of implementation necessary to rapidly boost the economy during a time when foreign demand was drying up. It is very possible that much of that lending went towards uneconomical processes. All of which seriously questions Rattner’s claim that these high levels prove that China is investing in its future. This investment to GDP ratios show that China is desperately spending to maintain current economic growth and isn’t thinking about the systemic consequences of that spending.

Talking about the PRC’s efficiency in allocating capital relative to the U.S. is a spurious comparison because the U.S. government, by and large, does not allocate capital. We have markets for that (which have had recent well-publicized problems with their efficiency and stability). The Chinese government, in contrast, does have a hand in allocating capital and therefore must pick winners to a greater extent than the U.S. No American government official chose to allocate capital to Google, for example, yet somehow Google found the capital to grow and become a major pillar of the American economy. An enduring American strength is our economic system within which the Apples and Googles of tomorrow can grow. And it doesn’t have anything to do with the ability of our government to allocate capital.

Finally, while the high savings rate of Chinese citizens does reflect frugality, it also reflects the limited social safety nets available in that country as well as the dearth of investment opportunities. Part of what fuels the Chinese housing market is Chinese citizens looking for a better return on investment than the interest rate from state-owned banks. Furthermore, given the problems created by overly high investment to GDP ratios, the PRC actually wants its citizens to consume more. Perhaps not so much that their savings rates shrink to 0%, but certainly so that consumption makes up a large enough share of the Chinese economy that it can better weather periods of time when the West is in recessions.

I’m a bit shocked that someone with a background in economics ignored these factors. I understand that it was an op-ed, but this just seems sloppy.

China’s commerce minister, Chen Deming, says that China wants to invest in American infrastructure. Sounds good. China needs a place to park its reserves where they can earn some sort of return, we’d welcome the investment.