I am sure Tom would be more than happy to discuss your three scenarios although 1 & 3 are not in any way exclusive.
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Fabius Maximus replies: I read his articles, and find them of interest. You might send this to him for comment (too self-promotional for me to do).

If this was the case, then there would be, e.g., more aversion to deficit spending.

In the short run, major deficit spending (a’la Reagan and W. Bush) is politically popular, but in the long run it is horribly destructive: If you cut taxes today but go into debt, you aren’t doing a tax cut, you are doing a tax shift, so that in the future you still have to pay the tax, but with interest.

Thus I think the short term (next election or less) time horizons of the legislature is well established. That it has worked for them in the medium term doesn’t mean they have been thinking in the medium term, just that the short-term thinking has worked for now, just as creating “Fake Alpha” worked for Bear-Stearns, up until the moment that it didn’t.
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Fabius Maximus replies: I understand your point about deficit spending, but disagree that most Americans — even most economists — consider this a bad thing. As in “we owe it to ourselves.” As in “in the long run we are all dead” (bastardized Keynes.). As in “we have heard how terrible deficits are for two generations, and they have not harmed us yet.”
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This results in my opinion from a paradigm crisis (per Thomas Kuhn) in economics. The aggregate debt load of a nation is not a factor in keynesian economics. Since 1960 we have added debt at an accellerating rate. When we hit the maximum sustainable debt load we will, I suspect, have proof that debt loads are a significant macroeconomic factor, and our dominant economic theory must change. Until then we party on!

Aahh yes ! as the US regards
the bogus GWOT namely as PORK
for the Military Idustrial
Congressional thinktank and services sector.

But, to treat 9-11 as the Oklahoma bombing was handled,
scaled proprtionaly.

You see most Europeans, Chinese, Japanese, S. Korea’s and elsewhere, these days, very foolishly live and work for “things” other than
insecent and insipid wars.

MaX

http://independent.org/newsroom/article.asp?id=2179

“The fundamental answer is that al Qaeda’s most important accomplishment was not to hijack our planes, but to hijack our political system.”

“For a multitude of politicians, interest groups, professional associations, corporations, media organizations, universities, local and state governments and federal agency officials, the War on Terror is now a major profit center, a funding bonanza, and a set of slogans and sound bites to be inserted into budget, project, grant and contract proposals.”

” For the country as a whole, however, it has become a maelstrom of waste and worry that distracts us from more serious problems.”

“CIA Chief Sees Unrest Rising With Population“, Washington Post (1 May 2008), Page 15, Excerpt:

Swelling populations and a global tide of immigration will present new security challenges for the United States by straining resources and stoking extremism and civil unrest in distant corners of the globe, CIA Director Michael V. Hayden said in a speech yesterday.

The population surge could undermine the stability of some of the world’s most fragile states, especially in Africa, while in the West, governments will be forced to grapple with ever larger immigrant communities and deepening divisions over ethnicity and race, Hayden said.

Hayden, speaking at Kansas State University, described the projected 33 percent growth in global population over the next 40 years as one of three significant trends that will alter the security landscape in the current century. By 2050, the number of humans on Earth is expected to rise from 6.7 billion to more than 9 billion, he said.

“Most of that growth will occur in countries least able to sustain it, a situation that will likely fuel instability and extremism, both in those countries and beyond,” Hayden said.

With the population of countries such as Niger and Liberia projected to triple in size in 40 years, regional governments will be forced to rapidly find food, shelter and jobs for millions, or deal with restive populations that “could be easily attracted to violence, civil unrest, or extremism,” he said.

European countries, many of which already have large immigrant communities, will see particular growth in their Muslim populations while the number of non-Muslims will shrink as birthrates fall. “Social integration of immigrants will pose a significant challenge to many host nations — again boosting the potential for unrest and extremism,” Hayden said.

The CIA director also predicted a widening gulf between Europe and North America on how to deal with security threats, including terrorism. While U.S. and European officials agree on the urgency of the terrorism threat, there is a fundamental difference — a “transatlantic divide” — over the solution, he said.

While the United States sees the fight against terrorism as a global war, European nations perceive the terrorist threat as a law enforcement problem, he said.

“They tend not to view terrorism as we do, as an overwhelming international challenge. Or if they do, we often differ on what would be effective and appropriate to counter it,” Hayden said. He added that he could not predict “when or if” the two sides could forge a common approach to security.

A third security trend highlighted by Hayden was the emergence of China as a global economic and military powerhouse, pursuing its narrow strategic and political interests. But Hayden said China’s increasing prominence need not be perceived as a direct challenge to the United States.

“If Beijing begins to accept greater responsibility for the health of the international system, as all global powers should, we will remain on a constructive, even if competitive, path,” he said. “If not, the rise of China begins to look more adversarial.”
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Fabius Maximus replies: I do not believe this article accurately reflects the General’s remarks, which sees these trends in a more balanced way — with both dangers and opportunities. See the new post today about this: “Experts, with wrinkled brows, warn about the future“.

In formulating scenarios for #1 and #2 you assume that policymakers actually have that kind of time horizon. Not to be overly cynical here but US political leadership seems to have a time horizon that goes out as far as the next election cycle, which is about 2 years. Given these circumstances #3 is the most likely scenario.
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Fabius Maximus replies: Proof? Most senior Representatives and Senators are re-election rates of 90%+ — terms longer than members of the USSR’s Politburo. With lush campaign chests, high name recognition in their districts, and professional (and government-funded) RP programs, they have little need to worry about the next election.
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Many Cold War strategies were planned for and executed over decades.

Just as those in charge of financial firms benefited greatly from creating “Fake Alpha” (Seeming to create an advantage but taking on excessive and uncalculated risk), those in power do not gain from initiating a crash program now, before the problem comes to the forefront, even if scenario #1 is reality.