Sanity Injection

Injecting a dose of sanity into your day’s news and current events.

Pentagon holds first economic wargame

Posted by sanityinjection on April 9, 2009

Politico.com has a fascinating report on the Pentagon’s first-ever wargame that focuses solely on economics:

http://www.politico.com/news/stories/0409/21053.html

Economists and Wall Streeters were invited to participate in the secret strategic exercise in which teams representing various world economic powers, including the US, react to a series of scripted international crises.

The bad news?

“The savviest economic warrior proved to be China, a growing economic power that strengthened its position the most over the course of the war-game. The United States remained the world’s largest economy but significantly degraded its standing in a series of financial skirmishes with Russia…At the end of the two days, the Chinese team emerged as the victors of the overall game – largely because the Russian and American teams had made so many moves against each other that they damaged their own standing to the benefit of the Chinese….questioning one prevailing assumption about economic warfare, that the Chinese would never dump dollars on the global market to attack the US economy because it would harm their own holdings at the same time….the Chinese have a middle option between dumping and holding US dollars – they could sell dollars in increments, ratcheting up economic uncertainty in the United States without wiping out their own savings.”

The good news?

“The war game demonstrated that in post-Sept. 11 world, the Pentagon is thinking about a wide range of threats to America’s position in the world, including some that could come far from the battlefield. ‘This was an example of the changing nature of conflict,’ said Paul Bracken, a professor and expert in private equity at the Yale School of Management who attended the sessions. ‘The purpose of the game is not really to predict the future, but to discover the issues you need to be thinking about.’….the United States needs an integrated approach to managing financial and what the Pentagon calls ‘kinetic’ – or shooting – wars. For example [Bracken] says, the U.S. Navy is involved in blockading Iran, and the U.S. is also conducting economic war against Iran in the form of sanctions. But he argues there isn’t enough coordination between the two efforts.”

For one, I am glad that the significant portion of my tax dollars which go to national defense are being spent anticipating a wide variation of possible threats that don’t necessarily involve physical weapons. Read the full article, it’s fascinating.

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