An Evening With James Baker III

“We have 3,500 nuclear weapons left over from the cold war we don’t need, they take 20 seconds to re-aim, we’re not afraid to use them. And by the way, they’re already aimed at you.” That is the approach James Baker III thinks America should take with Iran, Ronald Reagan’s Chief of Staff and Secretary of the Treasury and George H.W. Bush’s Secretary of State.

At the same time we should be talking to the regime in Tehran, while doing everything we can to support the reformers, tighten sanctions, and enlist Europe’s help. Baker does not see a military solution in Iran, even though their potential to create instability in the region is enormous. This was one of dozens of amazing insights I gained chatting with the wily Texas lawyer during an evening in San Francisco.

Baker is happy to take on the “America Bashers”, pointing out that the US still plays a dominant role in the UN, NATO, the IMF, and the World Bank. It accounts for 25% of global GDP, and its military is unmatched. The US spread globalization, and the spectacular growth of China and India is largely the result of open American trade policies, raising standards of living globally.

But the US can’t take its leadership role for granted. The biggest threats to American dominance are the runaway borrowing and entitlements. US debt to GDP will soar to over 100% in the near future, the highest level since WWII. This is unsustainable, is certain to bring a return of inflation, and unless dealt with, will lead to a long term American decline on the world stage.

Massive trade and capital flow imbalances also have to be addressed. The 82-year-old ex-Marine, who confesses to being the only Treasury Secretary in history who never took an economics class, believes that the advantageous rates that the government now borrows at are not set in stone.

Baker is the man who engineered an end to the cold war with a whimper, and not a bang. He thinks that ‘even our power has its limits,’ and that there is a risk of strategic overreach.’ With the US politically evenly divided, Congress has degenerated from debating teams into execution squads, and consensus is impossible. The media are partly to blame, especially bloggers who propagate wild conspiracy theories, as confrontation sells better than accommodation.

Regarding the financial crisis, we need to end ‘too big to fail’ and embark on re-regulation, not strangulation. All in all, it was a fascinating few hours spent with a piece of living history who still maintains his excellent contacts in the diplomatic and intelligence communities.

James Baker

Atomic Bomb