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tv   Politics and Public Policy Today  CSPAN  June 1, 2016 1:25pm-3:26pm EDT

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are about as expected. we had a conference about this in new york a couple of months ago. the challenges of communicating around the dots are substantial. people do tend to take them more as promises and sort of not see the conditionality. i'm not saying you're doing that, jonathan, but they're not without challenges. >> very nicely put. who would like to go next? please, the gentleman over there. >> thank you. i'm the ambassador of mozambique. i want to thank the peterson institute for providing the opportunity and also for this illuminating presentation. in your presentation, you mentioned i would say by passing the geopolitics, the
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geopolitical events, and i wanted to hear a bit more about the impact of politics here in the united states. this is an election year. what effect, what impact that will have on the economy? because there was quite a lot of economics in the presentation. i understood most of it but, i mean, part of it -- not most of it. i'm not an economist. but i wanted to understand the impact of the politics on the economy. >> so i'm now in my fifth year. i'm one day, frankly, into my fifth day at the fed. so this will be my third election cycle and i can say that politics plays absolutely no role whatsoever in our deliberations or in our decision. so we -- you know, the focus inside the fed is very much not partisan politics or elections. it's very much economic
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fundamentals, so it can be very jarring to emerge from the fed and talk to people who think of politics -- think of economics in political terms, which i referred to earlier. honestly, it has no effect. you know, we announced a quantitative use program in september of 2012. we just don't think about it, and i can say empirically, i find that to be the case, not just the rhetoric. >> please. >> my name is joe marie greasegrabber. i'm with new rules for finance. i wanted to ask you about the hollowing out of the middle class of the united states and how that syncs with your view that wages are rising and the real level of employment is going up, how are we going to return the middle class to a demand engine? >> let me first echo that there's a ton of research that supports what you just said,
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which is it's really the middle-skilled jobs that have suffered. david arter at m.i.t. has done a lot of work. so have many others as well. it's been partly related to the globalization and related to the sort of plateauing of u.s. educational attainment compared to our competitors. it's a serious problem. it's not really in the wheelhouse of monetary policy. we have one tool, which is monetary policy. and it supports demand at the aggregate level. it doesn't support distributional policies or, you know, or policies that might provide training or might address all of the issues that you talk about. those are really matters for the elected branch of congress and they're more important than the management of demand, which is really what we're focused on. but it's not something we can take a role in other than by
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maintaining stable prices. >> can i follow up on one piece of that? you mentioned globalization and a relatively competitiveness. i think david and other people would suggest technology has played a role. leaving that aside, clearly part of what you describe when you're talking about monetary policy and any good central banker would talk about essentially how much you worry as you said that if we fall behind the curve will inflation accelerate or will expectations become unanchored. does it enter your own personal views or your expectations that labor really is weak now? that for whatever variety of reasons, labor just doesn't have the bargaining power it did, so maybe the risk of an inflati inflationary spiral is less, or is that just not something that would come up in a discussion? >> it comes up indirectly.
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if you look at the relationship between slack in the economy and price inflation and then look at the relationship between price inflation and wage inflation, both of those relationships have weakened very substantially over the past 20 years. so to say it differently, wage inflation, which has been weak, no longer affects price inflation as much as it used to, and price inflation is no longer as responsive to, you know, the economy getting tight. so you can be at full employment and you don't see much inflation. this is very different than the world we grew up with wage spirals and such. all of that is i think consistent with a world in which companies maybe substitute capital for labor and labor share of income goes down. and it's not something we can -- i mean, it's in the numbers but it's not something i feel we can target directly. >> great. at the back, mike, and then over
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there. >> hi. from voice of america. thank you for your comments. i've got sort of a three-part question. the first one is are we now seeing a coordinated effort by members of the federal reserve to signal a possible rate hike soon? the second would be how would you vote in june 15th about -- for a rate hike in june, and what do you see as the risks of not acting quickly enough? >> ok. concerted effort, no. i mean, adam will confirm that we scheduled this speech i think it was -- >> two and a half, three months ago. >> wasn't even that. it was late last year, a while back. so there was no thought at that time. it just happens to be now, and that's a coincidence. you don't see -- i think i'm the first board member to say anything about this, actually.
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a lot of the bank presidents have been talking and some of the other board members will be speaking next week. but no. how i would vote. the great thing is i don't have to decide until june 15. and i think you discard the opportunity to evaluate incoming information when you decide too early. so i really do legitimately and not just in theory think that there's important incoming data not just about the real economy but about the balance of risks that will come in between now and then. so i don't know. the risks of waiting are frankly not so great. this doesn't feel like an economy that's bubbling over or threatening to break into high inflation. at the same time, i think you have to balance -- really, i think the right plan, as i said, is a gradual set of rate increases over time, and you have to balance the risks of, you know, the relatively modest risks of running the economy too hot and having to move more sharply, perhaps causing recession, and you've got to
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take into account the fact that we've made tremendous progress. we're close to full employment. again, you don't want to wait too long, but neither do you want to be in a hurry. >> rate hike in june? >> wait and see. doug and jason and then we'll go to the back. >> thanks. international capital strategies. jay, sort of a two-part question. you mentioned the international applications and how those weigh on your thinking. i wanted to ask you to expand on that. one thing that you didn't mention is the concept of financial stability and a broad question for you, just how do you think about financial stability concerns as they relate to monetary policy? >> on international concerns, i was rereading a paper by barry ikengreen where he talked about the history of the federal reserve. and its relationship to international concerns. it does sort of come in and out of focus. i think there -- here lately i
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think our public communications have had more than the usual amount of communications among them about international factors and i think that's because of the situation we're in. the u.s. is in position to consider removing accommodation gradually, and other major economies are not in that position. so we stand out -- i think global growth inflation are weak, so it's a time when those things are particularly important for us. in terms of financial stability, you may have seen in the last several minutes, if you don't have that much to do, you might have read the minutes and seen that we had a long discussion of financial stability and monetary policy at the last meeting. i think the conventional wisdom is generally that, you know, that macro prudential and other supervisory and regulatory tools are the first line of defense against financial instability and that monetary policy is for stable prices and full
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employment. i think it's not easy for many, including me, to be particularly comfortable with that. particularly at a time when the scenario is the one i mentioned in my speech, which is what if it's monetary policy that is over a long period of time, what if rates have to stay lower than we even think they will for a long period of time? upward pressure on asset prices and growth and it's because of monetary policy. there may be a tension between the dual mandate and stability. we don't see that today at all. the last thing i'll say is at the board and pretty much everywhere, you have a heightened focus on issues of financial stability since the crisis, and it's a very, very deliberate focused effort to build up the core of the system. i think it's made frankly great progress and more to do on that. >> great. jason here and we'll go to the back mike. >> jason cummins from brevin. i want to turn your attention back to your discussion of inflation expectations. which you briefly touched on.
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i detected, although i'll have to read the speech carefully, somewhat a greater measure of concern about risk to the downside on inflation expectations in the speech compared to some of the other discussions i've seen recently. that certainly reflects some of the same concerns i've had about the same subject. in your mind, when you think about normalizing monetary policy, as you've described you're trying to tighten overall financial conditions. how do you explain to the public as you're removing accommodation, that you're still concerned about maintaining the sanctity of the nauominal ancho when it's not clear, there's no one public out there, but there's the data, the surveys or what we're getting from the markets, there seems to be some concern about whether inflation expectations are as stable as they were in the past. it's never going to be an easy job to raise rates and get inflation to go up at the same time. we've never done that in monetary policy before in the united states.
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so what do you do alongside the normalization process to convince people that inflation will be going up and the fed will be concerned about that without promising an overchute, without repeating gradualism over and over again? >> so it starts with where inflation is right now. and core inflation is at 1.5% and is probably being held down by 30 or 40 basis points, by the effects of the strong dollar and a little bit by the effects of lower oil prices. so if you add 30 or 40 basis points in, you're at 1.8, 1.9. pro forma in my former world of pro forma finance, it was a context. pro forma, you're not so far from 2%. in theory all you've got to do is wait for all things held equal for inflation to return to that level. so that's why i have some comfort in moving at this time, is that i don't think on an
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underlying basis we're all that far. i also -- you know, we've spent time on this. the issue with inflation expectations, take -- if you take break-evens, market based, and there's a lot of decomposition of what's going on there and many make the case that it's about liquidity and not about people's expectations. i don't want to sound like i accept that at face value and -- i mean, i don't. i get that. when inflation -- when five year forward inflation expectations are down as much as they've been since the middle of '14 and stay there, then i think you should be worried about that. i think it's something to focus on. again, i do think that inflation -- i would still say they are -- they are anchored, inflation expectations, but i would say that it's important that the public see, as you've suggested, that we are committed to returning inflation to 2% and keeping expectations anchored. >> all right.
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we have quite the lineup at the back mike. go for a couple there. >> hi. thank you very much for being here. this is an excellent panel. >> who are you, please? >> my name is goodman. i would like to ask you a question regarding the data dependent monetary policy. so we know that the monetary -- the effects of monetary policy comes with legs. it takes time to see results after the decision. so that's why we hear that the monetary policy should be forward looking. and at the same time, we hear the members emphasizing the data dependency in every opportunity they get. so i'm just curious how the fed can achieve forward looking monetary policy by looking at
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past data as their main factor in deciding, you know, the monetary policy. and also, my second question is, last year at this time we were talking about the possibility of a june rate hike and it didn't happen. the fed had to wait until december and i was just curious, what is the likelihood of having a deja vu this year and what can cause it? >> should have stuck with one question. >> do me a favor. remind me of your first question. >> how can you be data dependent and forward looking? >> ok. thank you. so as you probably know, we -- each member of the flmc, each participant, all 17 of us, gets to write down a forecast, a three-year forecast of the economy. and so -- and then write down what we think appropriate monetary policy is to achieve that path.
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for the economy. so that's -- so it is very -- it is forward looking. policy is always forward looking. really. and it's dependent on incoming data, too, because that tells you the state of the economy. it confirms or doesn't confirm your expectations going forward. but policy is of course completely forward looking. in terms of what will happen, i don't have any projections for you. i've told you how i think about the problem and what i expect will be appropriate given what i expect for the economy and for risks and if it doesn't pan out, if the conditions i have laid out don't happen, then i suggest the committee could move faster or slower. >> very good. >> thank you. >> second question in the back. then we'll come to the front. >> jeremy quinn at uc berkeley. in your presentation you showed us the decline in the growth
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rate of potential gdp. you also mentioned the decline in the neutral rate of interest. and so i was wondering how much of that decline in neutral rate of interest you think is linked to the decrease in the potential growth rate of gdp? >> i think they're fairly closely linked. i don't have all the potential models in my head this afternoon. but i think it's almost a one for one decrease in the neutral rate from estimates of potential growth going forward. certainly close to that. >> over here, please. >> thank you, jay. i wanted to ask you -- >> identify yourself, please. >> christian gutob. i wanted to ask you about the upcoming brexit vote and how it influences how you think in the near term about your policy choices and the benefits of
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making a decision at one meeting relative to another meeting. is it your view that if the odds of a brexit vote were declining and markets were therefore responding in a risk positive way in the run-up to your meeting, that would essentially allow the committee to set aside that consideration and focus only on the domestic data and so forth, or would you need to see the risk fall to an immaterial level in order to be comfortable making a policy call at the next meeting? >> let me piggyback on that question. one of the things coming out of the spring imfo bank meetings g7, g20, fed, all this was some repeated statement that brexit was a systemic risk. now, don't get me wrong. i love the united kingdom probably as much or more than any other american. but i've never understood how this becomes a systemic risk. so in your view, why is that a
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concern? >> i would -- taking christian's question for a second, i would break it into two questions. the first of which is how does the vote come out, and the second of which is in the event of a leave vote, what are the consequences for financial conditions, for economic conditions, and ultimately for the u.s. economic outlook? it's still some weeks until our decision on june 15th. it is possible that we would learn important information between now and june 15th on the first question. i don't really think it's possible we would learn much about the second question, which kind of goes to adam's point. and that is, you know, you -- i mean, there's a modal expectation maybe that there would be some financial dislocation, but it wouldn't necessarily in my view, i don't think you're looking at a systemic event in the sense of something that could lead to
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broad contagious. i do see the possibility of a hit to economic growth both in the uk and in the eu. if you boil that all together, again, it's -- don't have to decide this today, and i certainly haven't decided, but i can imagine the upcoming brexit vote as presenting a factor in favor of caution about raising rates in june. >> interesting. at the back, please. >> thank you. i think from your analysis, mr. powell, there seems to be a disconnect from the real side and the financial side so there's capital dipping and we don't see capital deepening labor productivity growth. and don't you think that perhaps monetary policy might be contributing to the direarth of
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that investment and to that kind of situation allowing the companies as you say to make the numbers without investment? >> i do not think that is the case. i think that monetary policy is supporting demand in the face of, you know, still significant risk aversion and headwinds in the wake of a global historical economic event called the global financial crisis and the resulting recession. i think we're still digging our way out of that. i think it's still echoing down the years and i think it will do so for some time. so i don't really think -- i think monetary policy on net is contributing to the recovery not holding it back. >> thank you. >> thank you. another question from the audience. >> dave stockton peterson institute. i want to return to the longer run themes of your remarks and the observation that we're seeing slower potential output
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growth and that's probably associated with a decline in the equilibrium or natural rate of interest. i think given that, the implication that we're going to be running in the low nominal interest rate environment for quite some time if that's going to persist, is it time for a more serious reconsideration of the 2% inflation objective? >> i think in theory and in -- you know, that is a logical margin upon which to adjust. it's not at all something that we're considering at this time, and i frankly think that, you know, jerry yellin took that question on in great detail, dave, you may remember in a speech i want to say late last year about inflation dynamics and came down strongly that you know, when you embrace an inflation target and expectations get deeply anchored as they clearly are now the costs of trying to move that are uncertain and potentially high.
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so it's not something that i would be looking at doing in the near term. >> it's interesting. when i got to co-author with bernanke a book on inflation targeting now, a while ago, then future chair bernanke signed on to passages in the book that indicated the inflation target should be movable, that we would expect it to move as conditions changed. now, i have since said publicly that that was a mistake on our part, not from a normative sense that we were wrong, but that we were foolish. we should have realized like an exchange rate target zone that once you put in the number people are very scared to get off of it. but that's obviously a very different place than what you're citing chair yellin's speech
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saying that it would be bad to move it inherently. i mean, i'm not trying to press you on this. it's just very striking how ex-post the profession seems to have decided it's risky to move the inflation target where -- they were designed to be reset. >> yeah. i mean, again in her telling it and many people's telling of it, it took many, many years to get inflation expectations settled down and anchored. when they weren't, we knew what would happen. there would be a shock and inflation would go up. they would just move around. it's a very costly thing. getting then anchored was a costly thing and took a long time and moving them around is something that, you know, if you -- it kind of undoes the whole psychology of them being anchored and you have to go through the process again. i get that. but at the same time that was all done in a rate of 4% to 5% nominal federal funds rate and equilibrium. this is not that world.
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>> thank you. >> question here, please. >> thank you. i'm from goldman sachs.you. the last, in the last couple of years we have seen increasing amount of operation that the the feds communicate with markets and all of the rest of the data and the s and p and increasing the speeches and comment of the success coming from participants, if you take for example the reaction of the markets to the march meeting or the reaction of the markets to the minutes of the april meeting the other day and you do a capital funds calculations, you can see that they were very large surprises from the point of view from the market reaction. so do you worry about this and what are we collectively missing
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in terms of understanding the feds thoughts and pucfunction os it just a fact of life. and we have to live with it. >> so, i have thought about the fact of are we doing too much communication and also about the difficulty of doing less, which there is not much track record of people reversing gears on that, so i think my main point would be that you're still at a time of extraordinary a accommodation and decisions are highly fought and attract a lot of attention. that is part of the issue. the next interest rate increase will be the second one and it will be important and it just gets a lot of attention. i will say, though, that the march sep as you're sure aware had two rate increases this year. i think any number of bank presidents were out saying, you know, that two rate increases
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and things have probably gotten better on balance since march, two rate increases are what the committee thought. yes, the market was surprised by the minutes but i think it was there in a way. it is not easy to nor is it essential that the market understand every word that we give. >> thank you for that. well said. >> we have to do what is right for the economy and let the chips fall within reason, we need to be doing that and not focusing too much on, you know, short-term reactions. >> please tweet that. at the back mike. >> jacob gal guar from the peterson institute. i want to commend you for putting up the rates in your data in your presentation. if i'm not mistaken, the fed mandate talks about maximizing employment and your data clearly shows that the situation is
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abysm abysmal. there is no other word for it in my opinion, so i guess i just would like to have your comment on that. i mean, when you correctly point out the prime age employment in the united states is below that or participation is below that of a number of european countries, that is historically unprecedented. so how do you basically, how do you square that with a policy outlook that suggests that you are close to meeting your employment mandate? i would suggest that you're pretty far from it. >> well, some of this is addressable on monetary policy and some is not. decline in participation from prime age males has been a trend for decades now. and you know, it is, what we can do is support, as i suggest that we should.
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we can support economic activity with a monetary policy as long as inflation expectations are stable and inflation is close to target. so we can do that and i'm pretty confident we will do that. that is not going to turn around these long run trends. it is not. as i mentioned in my speech, you know, there are things that need to be done on the policy side, much more important things by congress, frankly and maybe at the state level, that we don't have responsibility for. now, we don't do, we don't do fiscal policy or partisan politics, so i don't want to roll out my personal suggestions here today but there is a lot that can be done. if you look at all of the margins of potential growth and productivity there, is a lot to do in terms of education, in terms of encouraging labor force participation rather than punishing it for those, for example, are receiving benefits from the government. there are things to be done with pft, with basic research. every one of those areas has
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things that can be done which is why the focus on the next interest rate increase, it is just not that important compared to the long run potential growth of the economy and that is what we ought to be talking about. >> unless you're a fed governor. >> unless you're a fed governor. >> anyone else? this is a rare opportunity. okay. you get a second shot. if anyone else wimps out -- i would like to ask you longer. when you look at the market implied path for fed rates, going a very, very long with forward real rates and so forth. and compare that with the trajectory envisioned broadly speaking by most participants in the sep, allowing for difference in the base case outlook and risk adjusted path priced into market, it seems like the market
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is saying that the neutral rate is lower today than you think it is, and it is going to rise much more slowly than you expect it will rise over the coming years. that is the only way i can really make sense, not of the june versus july type debate but of this broad difference going out several years. what makes you and your colleagues confident that given the experience of the last few years where we've over forecast the recovery and the natural rate, what makes you confident that the broad sep world view is a reasonable based case as opposed to the market implied view? >> to make you feel better, before you respond, i've already been hoisted on my own on this when i was on the monetary base. i kept saying you can't believe these crazy low productivity numbers. it is not like every worker in
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britain work up with their left arm missing. it doesn't make any sense but then we get to year six or seven of low productivity numbers and i had to start saying, well, maybe it is not going to pop back up. just to say this is genuinely hard and lesser beings like me have certainly screwed this up, so what do you think? >> so, you're right. of course there, is a significant gap between the committee's most recent p dot plot median expectations and between what the market is saying, i would -- i haven't looked in the last few days but i would imagine it was close just a tiny bit. that can be the function of a couple of things. one would be, there is term premium as you're further away from zero which would account for some of the difference. you mentioned the difference between what we're showing the mode and that is a risk weighted means. there seems to be, for good reason. there seems to be, people seem to be looking at, you know, the
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long underation securities as down sight cases because they're very nicely correlated with those outcomes. so you're seeing more of that and that explains a part itself. another part itself has to be im policitly or explicitly a lower estimate of the end point at the end of the cycle which is our start. none of that is in the nature of making anyone or making me comfortable with the difference and it is hard to know. we have to do our jobs. i have to do my job and the market has to do its job and i'm one who is, you know, inclined to think that one should listen to what the market is trying to say, not that the market is always right but that there might be something worth saying. those are some of the explanations and we'll just have to see. >> great. anyone else? >> yes, please.
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>> thank you very much. as you know, as the federal reserve you're talking about raising the interest rate, as you know the bank introduced a negative interest rate. this difference is set to be the leading causes of stronger dollars, so my question is, to what p extent if any, do you take into consideration of monetary proceeds of outside the u.s. and marginally, to what extent do you take global economic outlook in the chinese
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economy into consideration. thank you. >> so we're charged with stable prices and maximum employment in the u.s. economy. that requires us to take into consideration all of the factors, both financial and real that would affect that, and so certainly in this environment as i mentioned earlier, that does include, you know, financial developments around the world and the fact that other major central banks are adding a accommodation at this time, so all of that gets, you know, is under consideration. international concerns are particularly high here in the last year or so, but that is simply because i think of the divergence of growth patterns between the u.s. and big parts of the rest of the world. so, but i think, so our job, we're not assigned with anything but stable prices and maximum employment in the united states
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and ultimately, that is our focus but of course, you can't do the job without engaging with all of the global factors that you mentioned. >> well, we had a bit of an exchange about whether there has been, for whatever reason, too much communication out of the fed, but such a calm, clear, sober and informative speech, certainly is the kind of communication we want to retain from the fed, so on behalf of the american public, but also on behalf of the peterson institute, let me thank you very much for your time today. this was terrific. thanks again. >> i really appreciate it. >> thank you. while congress is on break this week, we'll show you some of the american history tv programs normally seen only on
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the weekend. tonight, the 50th anniversary of the vietnam war through retrospective put together by the lyndon johnson presidential library. american history tv prime time tonight at 8 eastern here on c-span 3. on c span this ran. iraq's ambassador talks about what he sees for the future of u.s. iraq relations. they're hosting the program in washington d.c. c-span live coverage begins at 7 eastern. at 8 eastern, john roberts talks about finding consensus on the court. he also gives his opinion on having elite attorneys argue cases before the nation's highest court. here is a portion of what you'll see tonight on c-span. >> so, is the appellate bar particularly before the supreme court becoming too elite and too ingrown in your judgment? >> you know, i actually gave a
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talk before the supreme court historical society on just that subject 12 years ago. some of you may have missed it. but at that time, it talked about that very trend and you dwoe ba go back to 1980, i think there were two or three people that argued more than one case that term. maybe a couple more. now it is pretty much routine. the lawyers we see quite often, you know, in a single case. one has done ten arguments, one has done 30 arguments. that was unheard of back then, so it is a change. the bar is more specialized. i think supreme court advocacy was not recognized as a specialty until fairly recently. it is quite a good thing. arguing before the supreme court is specialized. it is not like even arguing before the courts of appeals and it is good to have people there
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who know that and who have done it before and understand what we're looking for when we ask 100 questions in a half hour as has happened and understand that although the case involves a bankruptcy statute, it is probably not in the supreme court because of bankruptcy issues. it is there because of how we view statutory interpretation. so it is good that those people know that and it is good that they're repeat players just as in any other court. they know that they're going to be up there again later and will be circum inspect about how they -- circumspect about how they analyze the record and explain the cases to you. i think many of my colleagues also do miss the opportunity for something of a, you know, mr. smith comes to washington moment where you have the sole practicer with the battered briefcase coming up and you get
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a good sense of what his practice is like and his understanding of what the court is like and they often do a very good job, but it is just so hard these days. you do have to spend months focused on the supreme court case and it is hard for a sole practicer to do that and it is, to that extent, i think it is disappointing. you lose a little bit of the color of and texture of the argument when it is the same people. although we benefit a great deal from having experts before us. >> i think today, we catch up with the 20th century. we've been the invisible half of the congress for the past seven years. we've watched our house colleagues with interest, at least i have with interest, and the tv coverage members of our colleagues in the house. >> today as the u.s. senate comes out of the communications dark ages, we create another historic moment in the
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relationship between congress and technological advancements and communications through radio and television. >> 50 years ago, our executive branch began appearing on television. today marks the first time when our legislative branch in its entirety will appear on that medium of communication through which most americans get their information about what our government and our country does. >> they are televising the senate chamber proceedings represents a wise and warranted policy. broadcast video coverage recognizes the basic right and need of the citizens of our nation to know the business of their government. >> thursday, c-span marks the 30th anniversary of the live gav yell agavel. it features key moments from the senate floor for the past 30 years. >> i will show to you the body of evidence from this question.
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do you trust william jefferson clinton. >> we have witnessed something that has never before happened in all of senate history. the change of power during a session of congress. what the american people still don't understand in this bill is there is three areas in the bill that in the next five years will put the government in charge of everybody's healthcare. >> plus an interview with senate majority leader mitch mcconnell. >> i'm sure i've made a number of mistakes but voting against having c-span televise us is one of them. >> watch 30 years of the u.s. senate on television. beginning thursday on c-span. and to see more of the 30 years of coverage. go to c-span.org. international and foreign policy experts now on the arms
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trade in east asia and the u.s. strategy for the asia pacific region. the program hosted by the woodrow wilson center features remarks from thomasberger. this is about an hour and a half. >> good morning on the first day back from a long weekend. i trust many of you spent some time elsewhere and maybe at the beach. i'm bob hathaway. i'm a possibly policy fellow here at the wilson center, having spent a good many years as the director of the asia program here prior to retirement. i'm delighted to be sitting in on this program today where we talk about some very serious and maybe even worrisome issues, having to do with east asia. for those of you who might be watching live or otherwise
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remotely, i would simply welcome you to the woodrow wilson center. we are the nation's official memorial to the 28th president of the united states. our goal is to commemorate both the scholarly depth and the public policy concerns of president wilson. the title of our program today is "east asia on the brink?" . it begs the question to say on the brink of what, aisle expect we'll have an opportunity over the next 90 minutes to ask and maybe even answer that question. i would like to thank the organizers of this program, the wilson center's asia program,
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kissnger institute. i have been asked to make an announcement about which i have not a clue but i'm sure most of you in the room do, at least those of you who are younger. you are invited to tweet from this program @asiaprogram, for those of you who know it. some of you may not know what i'm talking about either etch east asia is a region in turmoil. it is characterized by rapidly rising defense budgets, escalating arms race, the think tank out of stockholm reports that six of the world's ten largest arms importers are from asia and oceana.
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asia is the home of territorial disputes involving most of the principle players of the region of unrevolved historical questions that continue to stock tensions in a surge of nationalism throughout the region. the region is experiencing considerable, political and diplomatic churn as well. last week, president obama visited vietnam and japan during the course of this trip, he lifted a decades old embargo on the sale of lethal arms to vietnam and last friday he became the first u.s. president to visit hiroshima. recent elections in taiwan and
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the philippines have brought to power new leaders who's policies towards several regional flash points have not yet been fully articulated despite new united nations sanctions, north korea continues the drive for nuclear weapons in the means by which to deliver them. the transpacific partnership trade agreement long touted as one of the touch stones of president obama's asia pivot is now at least appears at the moment to be on life support. the next round of the u.s. china strategic and economic dialogue is to be held next week and in the united states, one of the two likely presidential
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candidates talks of rewriting u.s. alliances in asia and seems unfazed by the prospect of additional nuclear weapon states in the region. so we have our hands full indeed it is enough to keep asia watchers off of the beaches and at their computers all summer. to help us look at some of the regional security issues today, we're pleased to have two wilson center members of the wilson center family. we will hear first from thomthoma thomas berger on my right. tom is a professor of international affairs at boston university and has been spending the last several months as a fellow here at the wilson center. he is the author of several
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books including "war, guilt, and world politics after world war ii "and cultures of anti-militaryism, national security in germany and japan. . his project this spring examines u.s. grand strategy and the dispute over history and territory. after tom makes some brief introduction comments we'll hear from jonathan cavalry who just left us. we're delighted to have you back. when he is not at the wilson center, jonathan is -- teaches in the national security studies at mit. he is currently looking at how actors, particularly in the united states use the international arms trade in
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training of foreign militaries as tools of influence. his book "democratic militaryism, voting wealth and war" examined the description of the costs of security within democracies and the contribution to military aggressiveness. we're delighted to have both of you and tom, we'll turn things over to you at this point. >> thank you very much robert for introducing us and thank you all for coming up and showing. this is sort of, i feel like at the end of the semester when i was a kid, you would have to do a report. this is what i did during my summer vacation. this is what i did during my wilson fellowship and so, you know, here you go. let me just say that i've been looking at east asian security for quite awhile. i began looking at it about 30 years ago and at that time, the security agenda at that time, i was dealing with or we were
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dealing wg was quite different. we were dealing with the cold war and containing the soviet union and then i watched the security agenda transform itself and when i was writing my first book and doing my early doctoral research, we wofocused on regiol security. dealing with the flashpoints of north korea and taiwan straits and maintaining the institutional capacity for responding to those challenges, especially the alliances but also building institutional relations in the east asian region. i don't think i'm alone in feeling that once again, we are moving into a time period where we will be quite in a number of different ways, probably reevaluating what the security agenda in east asia is and i think there has been a great deal of discussion, many of you
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will undoubtedly reveal two years ago we had this whole debate about whether we will see a replay of great power politics. at the meeting in 2014, got a lot of attention arguing the 2014 was going to be a replay of 1914, we had allison talking about the trap, the propensity of great powers rising powers to come into conflict with the established order and that was even picked up by ping when he visited seattle in 2015. there was a great deal of debate about that. east asia on the brink of something like the great war. the up shot of that debate is not terribly likely. not yet. the gap in power abilities between the united states and the potential rivals including china were too large to make
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that sensible for the next few years at least. the risks in the nuclear armed world were too great of conflict and the political costs in the economy where the public is committed to have several high demand and expectation to improving the living. the political cost would be too high. we may not, and i think that debate and basic insights still hold. over the last couple of years, since that sort of round of discussions, we continue to see worrying trends and i think bob just referred to a number of them. i think, and just to get away to the thesis, we're not on the brink of great power warfare, but we're moving into a much more unstable period in the east asian region. one in which we'll be seeing continued crisis, probably an escalation of these kinds of crisis and unexpected
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possibilities for unexpected consequences and even greater escalation. and while we don't have the answer to to what the world will look like, both of us, jonathan and i, have been looking at different aspects of this, jonathan has been looking at the arms trade and strategy and i've been looking at the softer side of things, nationalism and the way in which it is shaping the political agenda of major players in the region, japan, south korea and china in particular. p what we'll begin to do is we'll switchback and forth so you don't have to listen to any one of us too long. a ping pong match and since it is good to start with the hard realities, i think jonathan is close with that. we'll start with jonathan talking about the arms trade. >> all right. thanks thomas. thanks, bob, and thank you to the wilson center. it has been just a delightful inelect yaul environment to work
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on some rather depressing stuff and so for that, i'm very grateful. i'm talk about the arms trade today but what i want to emphasize. when i talk about the arms trade. when we talk about a region like asia, it is, arms trade, basically you're talking about arms racing in the sense that there is some production capability. for the most part, the weapons that will be used in any maritime conflict and that is largely what we're talking about in terms of likely hot conflict breaking out. that is mostly imported with the partial exceptions of japan and china. when i say you have to care about the arms trade, that is because the weapons have to come from somewhere and they're mostly imported in the region. to understand the region, we do have to understand the arms market therein. weapons have a lot to do with things like gasoline, coca-cola and heroin.
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the demand rises and you can't do much about it. the other thing that is important, the united states plays a pivotal role in determining how the markets work for better or worse. even though this is about asia, the story of the armed trade is largely an american story. it is not a confidence that the clip art i have up here is the joint strike fighter and the countries that participated in the international program. the only remotely asian flag up there is australia and that is not a confidence in this global arms market. joint strike fighter, it is something of a dog. it is massive cost over runs and delays, a host of embarrassing glitches, make the performance questionable to say the least. i'm actually a relatively moderate fan of the fighter but it does have severe problems. one of the critics described it as the jet that aimed at the pentagon because of how expensive it is. if it is a an over priced white
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elephant, why does not lose the export competitions. denmark made a resounding decision and posted an enthusiastic on why they're picking the joint strike fighter over other competitions. what is weirder is if people are willing to buy the over priced gold plated paper weight, why are they unwilling to buy cheaper products. f-16s don't lose the competition. they're in the danger of going stagnant. it seems strange that the f-35 does really well and cheaper products don't and i argue that is not a coincidence. we fast forwarded. why should you care? okay. you missed my slide. first of all, arms sales of currency as bob pointed out. one of the major take aways of obama's visit to vietnam was the lifting, almost entire lifting of the arms embargainol to vietnam, that is a big deal.
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obama says it has nothing to do with china but i think we can be skeptical of the claim. and just more broadly for the obama administration, security cooperation, building partner capacity, whatever you want to call it. transferring weapons and other militaries is the cornerstone of the national security strategy in the post iraq, post afghanistan national security world. there are two other more global reasons why i think you should care about this. first of all, the argument that i'm going to make is going to affect how competitive the arms market is around the world and in asia in particular. this is a picture of the book, sa-11. this is the anti-air missile that shut down the malaysian airliner in ukraine. the better the united states is selling weapons, the less competitive the international arms market is appeared the less problematic pro lifeation problems become. i tell people in the defense
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industry, the military industrial complex is a rent seeking, threat mongering influence peddling bunch of sociopaths unless you compare them to other. the united states is relatively uncorrupt in a corrupt business. 40% of global corruption is associated with the defense trade. and i actually think that the argument i'm going make here is a way out of some of that. finally, specific to the region, imagine that p -- make it an anti-ship missile or perhaps what if a land based ship missile was fired at a tanker through which 30% of the trade passes. the arms trade matters greatly for this part of the world and as bob pointed out, asia is buying weapons, okay? and again, importing equals arming. two things i want to point out here, first of all, the top level here, that is global
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demand. the light gray is nonchina asia and the little beige area, that is china. the first thing to understand is that the level of arms imports is larger than the cold war for this region. okay? as you can see, globally, we're not even close to catching up to the peak of the cold war in the mid-80s but in asia, that is not the case. in asia, we've surpassed the level of arms transfers from the mid-80s. the other thing i point out is the that china is a relatively small part of this demand because it is making large weapons on its own. the other thing i want to point out is the margin in terms whof sells what to whom looks different in asia than any other place in on the planet. the united states has a commanding lead in p nonasia and again, i'm excludeing china from this for a host of reasons. it has a smaller market share in asia and russia has a larger market share compared to the
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position. china is much more successful in exporting weapons to the neighbors. i would not go so far to say that china is an outstanding skporer exporter of weapons. 80% of china's arms have been to three countries. pakistan, mianmar and bangladesh. i don't think it is a coins that they're bordering india. and again, the united states market share is declining. we're about 32%. middle east shares 34%. so even though we've pivoted to asia as a national security interest, we're still much more competitive or at least, i would say we're dominant in the middle east as opposed to asia. this is puzzling because the united states should be a world leader when are it comes to weapons. mid sequestration, procurement
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budget was $100 billion. 15% larger than the entire russian military budget. we spent a lot of money on militaries and that gives us a tremendous economy as a scale. at $5 billion. the financing program, that is about the size of venezuela or denmark or cue wait's military budget. the amount of money the united states spends helping other countries buy weapons is bigger than venezuela's military budget. we fight a lot of wars. one way to show that your stuff works is to use it operationally and business has been good. how many people here use microsoft word? how many people like microsoft word? okay. two hands are up. there is a reason why you keep using microsoft word even though you hate it is because everyone else does. it is a network good. right? bill gates, the gates foundation is doing well because it sells the software at a premium because everybody has to buy it. if you use it, it becomes that
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much more valuable. weapons are like that as well. especially items like the f-35. the reason the u.s. is successful in selling this thing is because it is more valuable the more people buy it. it leads to monopolys. just tell bill gates or mark zuckerberg. the united states can take all of this rent, when we talk about monopolies, the super profits you collect and we use those things to sweeten the pot. this is just your standard pitch when you're trying to sell weapons to a country, this happens to be norway. we were going to give you four billion dollars. now we'll give you five billion dollars worth of transfers. the joint strike fighters is a trillion dollar project. is this a rounding error. but for norway it is a lot of money. so the united states just has these tremendous structural advantages in selling weapons okay? and the reason why the united states likes is it gives the united states tremendous influence.
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i can give you asia examples but i like this one. israel accidently sold uav part to china. they were removed from the joint strike fighter program temporarily and sure enough, israel reviewed the export controls to china. south korea has an f-16 knock off called the 250 golden eagle. quite good plane. it is good for attack and fighter. the united states said no because there is too much technology on it. so here we are. we go back to my puzzle for the next three in minutes. if united states has an advantage, why is the united states losing market share. my argument is that there are two different types of weapons out in the world today. there has been a divergence that some countries acquire and other countries acquire. if you think about weapons and the ambition of a weapon,
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running the world projecting power anywhere on the planet and how much it costs, it goes to the right. the more squist indicated, the more expensive it will be. things like air craft carriers and nuclear submarines, this tar heels are the tools of the command of the commons. these protect the communication, these are the things that protect free commerce, protect the transit of trade p. these are the things that the united states probably unique to any other country specializes in. most of the countries just want to be left alone, snok this is the weaponry of the closed fight. snok american naval thinkers call it anti-axis area denial. the chinese use counter invention. the bottom line is you don't have to be as sophisticated. you don't need f-35s.
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anti-air missiles, anti-ship ballistic missiles will be just fine. it is cheaper to build an anti-axis weapon and more importantly and what i'll argue you here is this area will be much more competitive. this area is dominated by the united states. if you want to buy an amazing fighter, there is really only one thing, one place you can go. not everybody wants an f-35. they just want something to control the air space. okay? i try to tell people the difference between the united states and any other country. the united states doesn't just have an air force. the navy has an air force and not only that, the navy's army has an air force. this is crazy. this is beyond the scope of any other country out there on the planet. like i said, most countries just want to be left alone. so my colleague came up with -- used a term from business school much abused by clay
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christianson. many of you may be familiar with it. it has been used a lot in the defense department, not always correctly. he called it an innovator's dilemma. there were two major motorcycle companies, harley davidson and bmw. this beautiful creature, this is a harley davidson soft tail deluxe. it is awesome. okay? it costs a ton of money. every couple of years a new model comes out. more luxurious and powerful. that is because harly davidson sold their best product to the highest margins. honda became honda because it figured out it could sell inferior products to a bunch of people who wouldn't normally buy a motorcycle who thought it would be tool around the quarry of the house. that is the classic innovators dilemma. if you're serving your best customer, smaller can sell a
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cheaper product for a smaller price and create a market share. this goes on all of the time. the philippines, the philippines, which is very interested in tying itself to the united states right now found that used f-16s. the cheapest fighter planes we can produce, they were too expensive and bought the south korean model. you can talk about the lotoral combat chiship. the united states demands a superlative product and they rationally supplies the best customer. okay? so what does this mean? okay? the united states wants weapons, all right, that other states don't want, okay? and if that is where the money is, okay, then you're going to see what clay christianson will call disruption in the market. i prefer bifurcation. there are two markets. the one in the high end. japan buys some of the stuff,
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south korea, certainly australia. a lot of where the politics, a lot of where the conflict will be is in the lower end, it is in the anti-axis area, the cheaper part and there are lots of people willing to supply that. just as a quick example, i'll turn to deliveries of missiles. there is an anti-ship proliferation problem, the united states doesn't compete in this market. you can see in the data, this is how many units of missiles the united states sells. a four year moving average to asia, not including china, we're at 15% market share. in terms of the quality, what sipri calls the trend indicator value, we have a third of the market share. we sell better weapons. we just sell fewer of them. that should be fine. what is important though, and this really supports clay christianson's argument is the key that american firms do this because they're making a ton of money. as you can see here, this is the
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revenue from missile exports to asia. it is sky rocketing this is the ratio of revenue. this is a ratio of revenue to quality of missiles sold. even as we're making sky rocketing profits as a country, okay, the price to quality ratio is escalating, okay? so we're really dominating the top end, the top right end of the market. that is not what people want to buy. all right. let me wrap up. so what i'm arguing here is that if we're talk being two trends here, nationalism could be the oxygen and then weapons can be the fuel, okay? and the price of wood has gotten much cheaper, the united states is not selling it. and given how useful and how clear the united states is about certain public goods such as transit, free transit of international waters, which a place like vietnam does not necessarily care as much about, this is a trend to be watched
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very carefully. with that, i'll turn it over to thomas. >> all right. well, as they said in monty python. now for something different. or rather, i'll be talking about the oxygen. i've been focusing a great deal on nationalism. let me begin with a simple observation that the terminalism is much used and abused and it has been discussed to a great deal as a common troupe appearing in various analysis including some from the wilson center and being used widely in the media. i don't have pretty pictures. i'll simply have to hold you entle enthralled with my narrative here. we have a hydraulic vision of nationalism. it is viewed as kind of a basically negative force that comes in, that rises like the tide, it ebbs and flows. if you look at asia from this
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simplicityic point of view not as much as changed you would think. if you look at japanese public opinions polls. the prime minister's office has regular polls. do you feel that you are japanese, are you proud to be japanese, and that number has been fairly static now for a couple of decades. we talk a lot about chinese nationalism but when i talk to my friends, very good friends who grew up in the cultural revolution in china that saying is nationalism new? we thought that is what it was all about in the 60s and 70s. we have to have more of a more different rated understanding of nationalism and understand that if we're going to stick with a liquid met fors here that it has currents and tides. it is linked and going over a surface where there are contours and features and we have to understand that nationalism is quite complex and we need to
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have more in depth analysis to understand it is going up or down in the simplicityic way and my basic argument here is that over the past, i would say two and a half, three decades, the character there has been a change in the way in which nationalism is discussed in different asian countries, japan, china, and south korea, the ones i'll be looking at in this could ntext, i'm a japan expert, i do not speak with authority on china or south korea but over the last few years and decades, i've been forced to deal a lot more. you don't look at nationalism in one country. otherwise you have a sort of biassed understanding on what is going on. i sometimes refer to it as the sound of one hand slapping. if you only look at nationalism in one country. in any case, the nationalism has changed the particular way in
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which it is linked to other issues in the political agenda has changed and the interaction between nationalism and between japan and the closest neighbors has changed in ways that i think are rather worrying and destructive. now, briefly, one should talk about nationalism as it is emerging. it is nothing new it is a form of political identity, collective identity and it has been the dominant form of collective identity in east asia since at least the early 20th century, arguely the late 90th century. japan, after the second war wore, we've second cleavage. two major currents fiegthing it out. trying to define -- fighting it out. trying to define what is japan all about. i only mentioned this because still in the minds of many of the political leaders in japan, these are issues which are not of the distant path. they're very live. on the left we had a left wing
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nationalism which tried to interpret japanese history and especially modern japanese history as a warning. it wanted to reject japan's imperial past. it was very critical of traditional japan and it linked the kind of japanese identity, the kind of nation that they wish japan to become to the image of japan as a peace nation. obama recently visited, if you like, the epicenter in multiple meetings of the term of that national identity, hiroshima the symbol of japanese, of japanese dedication trying to learn from the past, trying to not make war any longer, and to serve as a symbol to the rest of the world of a kind of principal. this vision of japan which is still not dead, by the way. if you talk to ordinary japanese, if you look at
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japanese writings, you still find these ideas are quite widespread there was a right wing nationalism. nationalism which emphasized, had a much more positive view of japan's imperial past. we use the term revisionist. it had a different understanding of what japanese policy should be about. it should return to being a great nation and it had a different approach to military and defense issues. it believed japan needed to become a strong military power, both to contain com incisimunis. both the right wing and the left ring, both had a historical view of japan as a victim. the left viewed japan as suffering from a victimization by first of all, the western powers who waged a cruel and
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brutal war against japan using horrible military technology, the atomic bomb but viewed japan as double victimization. it was victimized by its own military leadership and political leadership. the right viewed japan as a victim. the victim of the allied powers and continued to be a victim of the left who were trying to manipulate japanese public opinion and strip it of the masculinity of of the vigor, of the strength. most are not that committed and there was a broad spectrum of people in japan who basically, if you want to, japan just wants to have fun. dedicated to rebuilding, to enjoying a higher standard of living, and one of the very important mechanisms and the only reap i go into this the extent that i do, i think that that mechanism holds; that the left and the right and some ways cancelled each other out.
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but whenever you have the need to change japanese defense and security policy, you had the tendency for people in the center to makemake a passive alliance with those on the right. you needed to have people both on the right and on -- excuse me, on the center and on the right to create a winning coalition to push through changes in japanese defense policy. you had a pattern which established i think itself already back in the 1950s of whenever you have big changes in the japanese defense policy, you would have to move also to meet the needs of the right winged political agenda. visiting the shrine was one of the barometers of this. you often had very significant symbolic visitors to the shrine. it happened in 19 am 85, it
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happened in 1996 with hatuyama. kuzumi continued this not once but six times during his prime minister ship and i would argue that he fits into this pattern as well. we can talk more about this. this japanese pattern did not cause problems for much of the cold war. and that had a lot to do with the way in which national identity was being defined in east asia and the way it played out in the political hemisphere and east asian countries. in china, we had a forward looking view of history and of the nation based upon maliced ideology and without going into too much detail, the particular myth that was perpetuated by lyon and others in china is that world war ii and japanese militaryism had been the responsibility of a small cleat.
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and therefore, the japanese, and they, in some ways, fed into the japanese pattern of victimization. the japanese and chinese people as well alzheimer's the other people of the world and east asia were all the victims of militaryism, capitalism, colonialism and should all join together in the fight against that. so in some ways, japan got a pass on these issues until quite late. in south korea, there was something anti-japanese national identity from the beginning, the first president in fact, made anti-japane anti-japanesisms if you like. one of the central pillars together with anti-communism but they weren't in a position to push their agenda. starting with the father of the current president, you had the ability to, for the sake of
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national interest, to suppress protests and especially anti-japanese protests for the sake of building closer economic and strategic relations with japan. this gave rise in the korean context of insurgent version of korean history. this was what is referred to by korean scholars. this argues essentially korean authorityism is an out growth, a continuation of the colonial period. the japanese colonial period. and that the policies of the the hee government and other governments there after were part and parcel of colonial authorityism. this was contained until the 1980s. this began to change because of a number of secular trends.
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basically by. 1970s, early 1980s, you had a kind of equilibrium. this began to fall apart in the 1980s and it began with protests which broke out in korea, taiwan and china over reports that japan, was planning to revise japanese text books. it was going to move the japanese text books, especially history text books in a revision direction. instead of the japanese army invading north china in 1937, the japanese army advanced into china. and other sorts of changes. there is debate on whether that would really happen but you had the sharp back lash.
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this entered into a near period of japanese, east asian relations which was characterized among other things by the history problem, what the japanese refer to as [ speaking in a foreign language ] and the state department referred to as the history problem. why did this happen? this is the point which becomes quite interesting. we began to have changes in the way in which national identity was being defined. especially in south korea and china which made for this heightened sensitivity. in china, you had a post era where china was looking for ways for finding an id logical glue, a way of holding the country together and of legitimating the communist party. key point, patriotic education, taking pride in china's past, the glories, the accomplishments, but also along with the glories and
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accomplishments came questions about the tragedies so you had a more retrospective view of chinese history. one is the creation of the museum in beijing, there had been no memorial in china until 1982, commemorating in any shape or form the massacre. in fact, one of my friends who was studying chinese history at the university is now teaching at george washington university. he participates in oral history project where they were gathering stories about the massacre. about chinese history and in general, what was it like, food, customs, all of these things and one of the things they came across were memories of the massacre and when they wanted, they were able to publish their various findings, except beijing
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said you cannot publish anything about the nanjing massacre. that began to change in the 1980s and was a bi- patriotic e. now, this got picked up in china and you began to have a pattern where you have both on the social level which are history activists people who are interested in chinese history and sometimes using it to criticize the chinese government as well as the state trying to channel a more retrospective form of nationalism. it began to play a role in chinese factional politics. but you could see that the issue of japan and relations to japan informed by a sort of re-evaluation and increased consciousness of japanese imperial atrocities began to affect factional politics. one of the first victims of this was in 1985 who really suffered
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a great deal of damage because he was viewed as being too close to japan. and i think there's some signs that this continues to play a role today. now, japan began to respond to this change sensitivity. japanese business leaders, political leaders, members of the japanese foreign ministry believed that japan needed to respond proactively to this issue and in the 1990s we saw a series of efforts on the japanese government to try to take the bull by the horns and confront these issues, the asian women fund, the comfort women, the mariana statement on the end of world war ii in 1995 being some of the high points of that. and this had some effect. there were some real accomplishments. but unfortunately you continued to have this process did not
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move far enough during the 1990s and in the 2000s with the reemphasis on defense we began to see the traditional formation of an alliance between the left and the right and the japanese political spectrum to try to push through very necessary defense reforms and this had the unintended consequence of undermining japan's relations with its neighbors. and really i've been struck again and again over the last 15 years how difficult it has been for japanese policymakers to understand and respond to this policy. now, what is very disturbing is that in recent years, and this now pushes this up. one might be tempted to view this as a kind of tep -- sort of symbolic tempest in an asian teapot. these are sort of emotive issues, atmospheric issues, but they are increasingly tieing themselves -- attaching themselves to other kind of issues, ones which are more
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potentially more disruptive and of particular concern in this context and we can talk about others but i think of particular concern is the territorial issues. the territorial issues, the dispute that japan has with its neighbors are not anything new. they date back to the end of the second world war, but during the cold war they proved to be manageable. for a variety of reasons by -- in the 1990s these issues moved up in the -- became more salient in the diplomatic agenda and unfortunately they have become, again, very closely linked to these nationalist discourses. i think sort of key moments in this context include when japanese conservatives began to push for a forward-leaning position, reaffirming japan's claim to tack ka sheashima. and the response, again, a
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variety of factors played a role there. i'd be glad to sort of discuss them to sort of talk about takashima of being part of the defense of really the all? and relatively insignificant islands but as being a reflection of defending korean national honor and security from japan's unwarranted claims in 2005 and then while the chinese government had been resisting defining the east china sea's dispute in historical terms, though these ideas were certainly picked up a lot by chinese activists and nonstate actors going back all the way to the 1960s, in 2012 we had the chinese government very clearly linking this senkaku issue to the japanese century of humiliation that china has to defend -- it's unacceptable to the chinese people that japan continues to exert this control. so, nationalism now has been
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tied to territorial issues in ways that i think are taking the history problem to new levels of tension. what does this all mean? what are the implications of what we're talking about in terms of regional security? i will turn back to johnson cafferty to now talk about nationalism. >> thanks, thomas. i'll make some very quick points. some people might think these are two separate topics. i can think of three very important ways how nationalism and arming intersect and besides the fact that just cheap nationalism and cheap weapons is a volatile combination. and to do this in the firt of thomas' presentation i'll move further north, talking about the south china sea. and just think we really have not spent a lot of time thinking about what the implications for
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overlapping sovereignty disputes are when they intersect with what is becoming more competitive and available on the arms market. all right? so, at some level you could be pretty sanguine about the whole thing and say, well, anti-access, weapons, that's are defensive weapons, right? they should be stabilizing. everyone is just going to use them to hold on to their particular piece of territory and it should avoid miscalculations that lead to conflict. i'm less skeptical of that for, first, anti-ship missiles just as good for threatening someone's sea line communication and maritime trade as they are for defending whatever rock you think is important that week. the other thing i want to point out is that when china looks at the world when i was talking to you earlier, i was kind of talking about it's tough in the united states, we're building the very sophisticated weapons and the rest of the world is
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buying easier weapons that are designed to very effectively counter our very sophisticated weapons. china is trying to do both things at once. that's hard. china is trying to counteract an amazing american military which is a very demanding task to begin with, but it also is seeing is the proliferation of missiles and submarines in its backyard not just japan and south korea but it's definitely concerned about that but certainly the smaller countries as well. china is sort of trying to do what the united states and vietnam is doing at the same time and that's a tough problem. and when you have countries trying to do multiple things at the same time, no matter how defensive the weapon might be, when you get into this hypernationalist idea, people start mistaking defensive maneuvers for offensive actions, right in the offense, defense balance which is pretty old stuff in my business. no one's really thought about
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that, you know, how ostensibly defensive how are the weapons and how do they interact with the sovereignty disputes. the second point i want to make about nationalism is what dick samuelsson and dick bitters call technonationalism, okay? weapons are not just weapons to most countries, okay? they're part of the national identity. the ability to build your own weapons and defend yourself. very powerful political tool. it's a source of modernity and pride. and japan, south korea and china are building -- are spending vast sums of money to build weapons that, "a," are competitively produced down here are approaching an area which they can't possibly compete with their ally the united states, so one thing that concerns me is hypernationalism as it does when we look at the presidential race in the united states hypernationalism can lead to
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turning inward and protectionism and devotion of your resources to your own production even though that results in more expensive weapons that perform worse. so, the continued emphasis of technonationalism of south korea and japan is going to be a problem if they actually want to build a military that works. and then the last point i want to talk about is american technonationalism, okay? one thing the united states should probably learn to live with is the fact that it's never going to build diesel submarines that will compete against french, russian, maybe japanese submarines in the future. it's probably not going to be great at building certain types of missiles and it should embrace t fact that its allies actually supply almost all the weapons around the world. it's not just that the united states dominates the international arms trade, other countries like israel and france and uk and even ukraine which is desperate to become an american ally at some level all produce weapons being sold in this
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region. my last recommendation i'll turn it over to thomas is if they're not going to buy the f-35 it's much better for a country in this region to buy a swedish weapon. it's chock-full with american technology and the united states needs to shift away from its own technonationalism when it comes to selling weapons and think strategically about what the countries around the world are going to buy and actually one of those will be having to swallow our pride and deal with the very strong south korean and japan technonationalism and satisfying the primal urge that's not going away. thanks. >> all right. well, and i guess i will just finally add my thoughts but very quickly. i'm going to try to do this because i'm sure there's a lot of thoughts and questions in the room. i think sort of the implications of this trend which i'm describing for u.s. security is in some ways quite obvious but
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they deserve nonetheless to be elaborated upon at least briefly. for much of the cold war japan was removed from the front lines of the conflict. japan was able to view foreign disputes or potential foreign disputes to use the japanese phrase the fire on the opposite shore, terrible, beautiful, and distant from japan. i think one of the things which has been happening in recent years is japan is now on the front line with regard to east china and the south china seas and at the very front of the front line, of course, is the senkaku, east china seas dispute. so one problem for the united states is, of course, that we now for much of japan's history had worried about being entangled with the united states in foreign conflicts and conflicts which it had no deep and direct interest in, for the first time the united states finds itself confronted with the possibility that it might get
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pulled into a conflict in which it has no interest. and that particular conflict is intractable. is difficult to manage and is the focal point of both japanese and chinese nationalism. a second i think problem for us is that we would like our allies and we are encouraging our allies and they themselves believe this is necessary to cooperate more among themselves. i don't think an eastern asian view of nato will appear anytime soon. nito, northeast asian treaty organization, but a greater possibility for cooperation is taking place. we see a greater cooperation taking hold and we would like to encourage it. but at least two of the most important players of any potential form of cooperation, south korea and japan, are deeply divided over the history issue and over the territorial issue. so, it creates problems for us.
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what should be done is the old question. well, there are all sorts of things which should be done in theory, but in practice it will be very difficult because these are deeply rooted. if you just reflect around the politics of obama's visit to hiroshima, you understand the difficulties involved with trying to appease and satisfy various types of domestic interest groups and i think the stakes are frankly higher in the japanese context and the korean context and the korean context than they are in the united states on these particular set of issues. in principle it would be nice to be able to promote reconciliation on these issues. but the requirements for doing so are extremely high. there is some potential and what do i mean by reconciliation? a good question. it means over time reshaping national attitudes towards one another. we have seen this
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internationally. we see this in european context between the french, the germans, again, recently just the other day merkel and hollande visited the military cemetery at verdun. we see this in terms impossibly difficult but nonetheless there's been some success between germany and the state of israel. we can see it internally in many countries. reconciliation can be done. it is not -- i disagree with my dear friend who argues that this rarely happens. it does happen. but it has high requirements. and i think it requires a number of things including mutual interest. we have to be realistic about what -- what are the conditions for which national -- which reconciliation can take place. it requires a readiness on both sides. not just one side unilateral
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apologies are rarely given and if they're given they won't last very long unless they are eventually accepted. it requires coordinated activities across a range of different political domains not just rhetorical but also requires adjustments in terms of educational policy, commemorative policy. and it requires above all else time. now, when you take a look at these kinds of requirements i think there is the possibility for promoting reconciliation between south korea and japan. they have done some of that. but at this particular moment in time they're very far apart. we can encourage and we have encouraged a great deal to get the japanese and koreans together. we had some success last fall, but there are two problems. first of all i think in some ways both -- especially the japanese side continues to labor under misconceptions about how this works. and second of all, by pushing it, neither side owns it. in some ways they both can blame the americans for pushing them
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and that they only did this because u.s. pushes it. it would have been far better and i think in the future it will eventually be necessary for governments on both sides to take ownership of the project. on the chinese side, i don't see any prospects at all at this point in time for any kind of reconciliation, reshaping of attitudes. however, in the long run, at least in the short run we should try to manage it. and i think one of the things which, again, on the practical policy level would be -- it would be useful to create institutions whereby it is possible for the united states as well as its other allies and not only japan and south korea, it may be useful to make it more acceptable by having a sort of broader range of countries involved in which these kinds of issues can be discussed. but i'm afraid that to be, again, honest with you and this is the pressing side of the story, things are probably going
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to get worse and will need to get worse before the political will to make things better is going to be found. so, with this happy thought, let me turn it over to bob and then to you. >> well, thanks to both our speakers for really good presentations. let me ask each of you what is meant to be a question that provokes only brief answers. and then we'll turn it over to our audience. jonathan, india is not simply asia's biggest arms buyer, but, in fact, it's the world's largest buyer of arms. what impact, if any, does this have, has this had on east asia or countries of east asia, including, of course, china, but maybe not simply china? tom, you've done work not only on asia but also comparative
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dimension of asia and europe. looking at this nexus of arms trade and nationalism on regional security, what's distinct today about asia? either in comparison to europe today or perhaps to europe and other more volatile times in european history? can you say anything other than simply that the situation in asia today is more combustible than in europe today? jonathan, you first. >> thanks, bob. it's a great question. so, one way i think about great powers versus not great powers is great powers are in the very privileged position where they -- the economic and strategic incentives for producing weapons at home are the same. all right? you have a huge economy of scale if you have a big enough budget, you have very strong security
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reasons for keeping as much of your technology and production in-house. and both china and the united states and, you know, you have a good defense industry that needs support and it creates jobs, blah, blah, blah. and both china and the united states are in that position. japan is not. australia is not. europe is not. they have to struggle with the idea, well, i can build a really good military or i can support jobs at home and build a not great substitute weapon rather than buying something off the shelf and then i'm going to bankrupt my foreign ministry schilling these around the world in order to create jobs at home, okay? in this case india is not a great power, okay? it just cannot seem to get its act together, although there's a strategic reason, right, india should be -- have a big enough economy, a big enough budget that it should be able to build its own weapons at home and the
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financial and strategic senses are aligned. but it's just not there. it's been a total failure. and india has very, very painful decisions to make where it buys its weapons from. does it buy it from russia. does it buy it from the united states. does it balance the two against each other. how on earth can it possibly develop an indigenous defense production system? for some reason it hasn't solved it and by the logic i was laying out in my presentation, time is running out for india. every year it gets harder and harder for india to actually accomplish this made in india program even as they're trying to develop a military to counterbalance china's. >> well, i mean, that's a huge question, robert. but i appreciate it. it makes me a little bit more concerned. look, the thing about europe today is that you have a consensus, an elite-driven
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consensus, which we don't want to go back to the past. i happen to have a euro with me today. i'll be in berlin in a couple of weeks again. if you look at the euro, it's nice kunks currency. it has no distinct features except a european flag and a distract sort of geographical and architectural features. you don't have any faechiigures. you don't have a colosseum or an eiffel tower or much less the german brandonburg gate. you can't do it in the european context. in some case it's at least a hollow consensus, but at least we can all agree we don't want to go back to what we had before. and there are all sorts of potential at least including in western europe of disputes that you could come up with including some territorial disputes, for example, between italy and austria. but europeans are determined,
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the west european leaders -- the east is different. the further east the more it becomes different and nationalistic. we don't want to go back in the nationalist direction. east asia looks a little bit more like europe in the old days. with the partial exception of japan, nationalism has not been discredited in east asia among the elites. again and again, you know, i see this nationalism stands for what it used to stand for, social solidarity, democracy, sovereignty, standing up of the people. in korea, china, philippines in vietnam and so forth. so, you have a fundamental different characteristic. if you go back in time, now history never -- there are also differences. history does not repeat itself, but as mark twain put it, it rhymes. there are certain similarities and we've seen in the european context many examples in the past where nationalism ties into territory in ways which are
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somewhat disturbing in the east asian case. france and its eternal quest to regain alsace. and germany and its idea of reuniting german people in the warm embrace of the fatherland. polish corridor. small countries. serbia, finding a totally unacceptable that a large serbia speaking population is under austrian rule. again and again we've seen disruptive patterns. if you push me in this direction, i become very disturbed. it does look more like 1914 except as i said at the beginning with my introductory remarks there are very strong structural factors which make it unlikely. here comes the intersection with jonath jonathan's point of view. one of the problems with the arms trade we are introducing new capabilities, new military capabilities and those military
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capabilities those of us who study international relations realize are often very difficult to predict. until you have a war, you don't have any real feedback mechanism and we haven't had a great power and especially a war involving naval and air forces involving significant players for quite a long time. the last time i could think of was 1982 the falklans war. and as the capabilities are acquired there's an increased danger of miscalculation and increased danger in which actors may project their desires driven by domestic political considerations including nationalist projections of what they think the military outcome is going to be and, again, that is not a healthy environment. i don't think those things are going to take place anytime soon, but they do increase the chance for miscalculation and for crises which if they repeat themselves will become more and more severe. >> well, i'm not sure you've
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cheered me up. let's go to the audience. we're going to start right here and then over here. if i can ask you to identify yourself and keep your comment or question brief since we've got a lot of people here and not a whole lot of time. >> all right. ken meyer, in line with mr. berger's comment that the united states might be dragged into a conflict that doesn't have much interest in because of alliances, in light of the fact that when we signed our mutual defense pact with japan the senkaku's were not under japanese administration and we were the ones who turned it over to japanese administration subsequently defight a strong claim to the islands from china. do you think it was a mistake to put them under the mutual defense pact? >> answer right away? it seemed like a good idea at the time. i mean, there was -- the
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japanese claim based on historical and other features -- look, on the senkaku islands i would say for the sake of even handedness that the japanese legal claim is quite good. you know? if you try to go to an international court of law. however, i would also say that the chinese historical argument has some per stwaceiveness as well, that it's not accidental that japan enforced its claim in 1894, 1895. you can understand the chinese have some reasons for that argument. in 1960 during the run-up, '68 to '72, when we looked at this and, again, i'm relying on other people's writings on this, it seemed that the japanese claim was legitimate and that u.s. had
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strong reasons to support it. we did not anticipate this -- >> but we don't support it. >> we take the position that -- right. we took this newance uanced pos which you undoubtedly no, we do not take a position on who the sovereignty belongs to, however, we would like any disputes over the control over of the island, over the sovereignty issue, to be resolved in a peaceful manner in accordance with international law. moreover, we had administrative control over the islands in -- after world war ii and we then transferred that control to the japanese as part of the reversion of okinawa. by the way, all of these things then quickly becomes additionally difficult issues because of the potential symbolic importance of the
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islands in terms of both japan's claims or its control over other parts of the -- the japanese nationalists and not just nationalists become concerned that if you turn back, give up on the senkaku islands that the chinese demands will not stop there. they will go and revisit claims to other parts of what's called the other islands which are and potentially back to the real que islands. and periodically the japanese have played with that as a potential question. so this becomes not just a question of the senkaku it becomes very quickly a question about okinawa's status. and the chinese are concerned about the islands for taiwan. when you start moving into this the waters become more and more troubled, not only murky, but -- and by the way, i've spoken with chinese academics including some who have been appearing a lot in
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the newspapers recently, if japan gave up on the islands an incredible act of generosity, if they gave up on the islands, would this solve the problem? and the answer is, of course, not. it just shows they are wrong and they are wrong on a whole bunch of other issues and it's time to push. if that's reflective of the way the chinese feel about these issues, i can't blame the japanese for being nervous about it. >> the corey economic institute, one thing that china and japan and korea all have in common are slowing economies, at least in relative terms. will lower economies or slowing economies lead them to spend less on defense because they can't aforwaford it or spend mon defense to offset the slowing economies? >> that's a terrific question. traditionally the tie between growth and defense spending is ironclad and with japan it's explicit.
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i would say knowing the south korean and japanese defense spending traditions, i see that as a very tight relationship still. i don't -- looking at their white papers and their strategic discourse, i don't see them having a strategic reason to necessarily increase more spending as the economy slows. china because of the fact that the defense industry is essentially state run, even the private firms, might actually turn to sort of a military keac so studying the chinese defense industry is very, very difficult. i don't pretend to have any real insight on it. i'm very uncertain about what would happen. but i suspect still to this day
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korea and japan will still be tightly correlated to their growth. >> got a couple questions on the -- got one over here and then one down here. we'll take two questions back to back. >> i'm from hong kong, i have a question for jonathan. you mentioned which you word carefully about the vietnam after president was in vietnam and the trend. what's your prediction of the trend of arm sales and will vietnam buy a lot more arms from the u.s. or what's your -- >> let's go ahead and take a second question here, joshua. and then -- >> thank you. my i'm a japan native. two questions. number one, what if south korea go nuclear? or japan go nuclear. what's going to happen?
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you talked about arm trade, but you didn't mention anything about nuclear arsenal, so that's number one. number two, i -- some people say the 21st century is going to on be done by india rather than china. can you comment on that a little bit, tom? thank you. >> jonathan, you want to start? >> yeah. so, at this stage what i know about vietnam's sort of explicit defenses and again not a very transparent regime when it comes to its security planning, there's actually very few products especially kind of the products, the name brand products that vietnam has an interest or frankly capability of operating. it's quite experienced operating soviet and russian weaponry. i don't see that changing. vietnam is very aware. it's a small country with a very big strategic problem. the united states is happy to
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help in the ways it can. i suspect a lot of this is designed for what i think is actually an american specialty. it might actually be a benign thing for the region is command, control, communications, these are very crowded waters and having the ability to work together and talk to each other is going to be pretty important. and that'sing? that the united states does very well and that's something every country along that spectrum is interested in investing in. but in terms of the hardware, i don't see much change is my personal opinion. speaking of technonationalism, nuclear, the decision to acquire a nuclear capability is as much a normative or nationalistic or ideological maneuver as any -- as buying a tank or fighter plane. they're fairly separate. and if having a south korean national project of making a quasi-stealth fighter, if that
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satisfies its sort of nationalistic intent on becoming a defensive target, i'd much rather have that than nuclear weapons. perhaps there's an exchange can be arranged. the taboo and the normative weight and the geopolitical weight is so massive. >> on nuclear weapons, just briefly, i mean in south korea there are polls which show, you know, that you can get -- depending on how you ask the question, when you can get majorities saying that south korea should go nuclear and there are some korean elites who think that that would be a good idea. most of the ones i talk to in private think too problematic. it just would be creating problems for them in terms of their relations with not only china but also and north korea, but also with the united states as well. and i think that we can probably find all sorts of ways of reassuring them. in japan i think the picture is
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even more clear. the japanese public has absolutely no appetite for nuclear armament. there is a strategic argument. you can come up with strategic rationales where japan should have nuclear weapons, that it should not have it because of its geography and density of the population and so forth is silly, frankly. lots of countries beginning with israel should not have atomic weapons if you think that day. but the political calculation is such that they won't do it. again, there's a range of things that the united states can do to reassure its allies and we have a long history. james gavin at m.i.t. has been researching these things and anybody who looks at this, there are lots of ways in which we can assure japan about nuclear deterrence and reassure south korea without them actually going full nuclear. now, india as a great power, i love india. i go tond

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