THE ENTERPRISE--A FORECAST FILLED WITH UNCERTAINTY
"The only two things that are certain are death and taxes."
Most readers probably have no recollection of how THE ENTERPRISE came into being. It was right after 9/11 and everyone was wondering, "what is coming next," and "what is going to happen with the economy?" Enough of my friends and colleagues posed this question, that I quit answering them individually and created THE ENTERPRISE, as a tool to answer them collectively. That was over 8 years and 400 editions ago. Once again, we all wonder what is coming. What will happen and how will it affect us. Perhaps the line that best describes the current situation was "things are getting worse at a slower rate." In some cases, maybe it could be the "worsening has stopped." First let me say this: I don't know quite where we are in the cycle--so, like everyone else, I'll just "guess!"
Anyone who claims to know is wrong. The future is, by definition, uncertain; it is also volatile and unpredictable. So why should I devote the time to write, (and you devote the time to read) an edition of THE ENTERPRISE that guesses at the future and forecasts what might or will happen. The answer, quite simply, is that the more we attempt to understand what shapes the future, the better we will be able to see how things unfold, and then we can all make better, more informed guesses about what might happen next, and next, and next. From that, we can form our plans, make our decisions and take the actions that seem appropriate. Whatever you do, be sure you have a few plans: plan A, plan B, and plan C ... at least. Here we go!
PRESIDENT BARACK OBAMA--A POSITION
First of all, I disagree with Rush Limbaugh. I don't want Obama to "fail." I would like to see some of his plans and initiatives either fail—or be proven quickly to be the wrong ideas—the wrong policies. Then I'd hope he is smart enough to "course correct." He proved during his campaign that he is smart; he also proved he can change positions. He's done that enough during the campaign and now during his first 100 days in office to show that he can--and will--correct his direction(s) at times. He will also explain how what he did was just what he intended to do! I know I will disagree with a lot of his "solutions" and his "priorities" --at least half of the time--but then he got elected president—and I didn't, so that's the way it will have to be.
A wise man once told me to "never try to guess people's intentions, you'll always be wrong." The longer I live, the more I know he was right. However, one can generally guess at the intentions of all elected officials (most of whom are politicians).
1) They want to do their job well, as defined by either their own ideas, or the wishes of their constituents and supporters.
2) They want to grow in power and influence since it feels good, and enhances their ability to do #1.
3) They want to get reelected (unless they decide they don't), since that is an affirmation that they are succeeding in the eyes of a majority of voters.
4) They do not want to be crucified in the media, tried and convicted of a crime, put in jail or otherwise have their lives and those of their families and loved ones disrupted and/or ruined.
5) Too many of them want to be (sort of) "above the law", and have rights and privileges that us mere mortals seldom imagine.
(Charlie Rangel and Ted Stevens for a couple of quick bipartisan examples.)
Bottom line: they are fallible human beings with all the same needs that Abraham Maslow so aptly defined decades ago--the most important of which, resides at the top of Maslow's pyramid: self-actualization. I believe that it is this, above all else that drives Barack Obama. That's not all bad--in fact, it might be very good. (What else would drive a man to write two books of "memoirs" at a relatively young age.)
I would also like to draw another metaphor for the Obama presidency and hope that Obama is astute enough, and open to change enough, to cope with it. Obama's VP, the "safe pick," was Joe Biden. It turns out that Joe may be a veteran of Congress, and a fine pick for the election--but he, like a lot of Congress, is an anachronism and a liability. More often than not, when Joe opens his mouth for very long, his foot ends up in it. The recent swine flu comments were another case of forgetting that he is now in a position where he must carefully consider the consequences of his "blurted out" statements. Such is the case with a lot of Congressional "veterans"--of both parties.
I don't agree with many of policy positions, but oddly enough, most of his first 100 days have been more about continuity than radical change. Iraq, Afghanistan, TARP, even Intelligence decisions (surveillance) and many other initiatives have more closely followed those of his much maligned predecessor, George Bush. (Attached at the end of this is a thoughtful analysis by Stratfor, a leading non-partisan "intelligence service" to explain this further.)
As President Obama embarks on his more radical departures from past practices and tries to shape a new America in his own image, he might be wise to pause and consider whose advice and counsel he listens to. He might also be wise to consider that his "resounding victory" in November was achieved in spite of the fact that 47 million Americans DID NOT VOTE FOR HIM. He should consider how we feel about him too.
THE US ECONOMY
Yes, it is in recession, Minus 6% growth for a couple of quarters in a row, and over a year of little or no growth defines that clearly. How long will it last? And what will the recovery look like. The recession, either technically defined or measured by how it feels, will last another year give or take a bit. We'll have "bumps"--little upticks in the 2Q and 4Q of 2008, but the 3Q will be weak and overall employment and economic growth will be equally poor. Unemployment measures are notoriously flawed. If I had a full time job, making $25/hour and lose it, and in the desperate need to feed my family, I get one or two new part time jobs, making $15+/- per hour (total), I am not technically unemployed. BUT..it sure feels different--doesn't it?
---Unemployment: Job losses may be bottoming in some areas, but the the national unemployment has far from peaked. Plus, employers will be slow to rehire people once they are done cutting back. That is just the way it works. As long as employment is soft, consumer confidence and spending will stay soft except for brief interludes of "small binges" like Christmas or Back-To-School, when needs or wants overrule rational decision making. Expect unemployment to blow past 10%. Employers (excluding the government, who is spending our money, not its own) are slow to rehire after a recession. Unemployment could go as high as 12%, and millions will be "uncounted but underemployed" too. Government stimulus spending (again, of our money) will eventually pump new jobs into the economy in both private and public sectors. That won't be much of an effect until 2Q of 2010. There will be a bump pre-Christmas of 2009--there always is--but retailers will be cautious, risking lost sales rather than carrying over too much unsold inventory. Then 1Q 2010 will be ugly. The media will hype it because it should be an improvement over 1Q 2008 which was double-ugly, but it will still be flat and uninspiring.
Then there are Obama's plans. Here are the impacts of some of them, and those lead to forecasts about what might be coming..
---Spending more than you have in income is a bad idea (March 2009: Federal spending = $321 billion;Federal income = $129 billion) The result of such conduct will be bigger deficits and higher interest payments (which ultimately translate into a hidden tax on us all) as we seek people to buy our debt and spend more of our budget on interest. China will complain, but will also keep buying because no other large debt instruments are better investments for them AND they need the US consumption to fuel their own economy, which will do quite well thanks to their simpler, more effective and more immediate stimulus programs. Corporate spending will stay cautious for a long time (a year or more) and capital spending will too. Big ticket sales (like autos) will be a "buyers market" for a long time too.
---Consumers will save more and spend less--just for a while--but their memories are short and credit/debit cards are so handy. Expect consumer spending to parallel consumer confidence which is starting up, but also to parallel employment, which is not starting up, and may just have bottomed. The stock market is a leading indicator, and when it climbs out of its current trading range, people will sign in relief and go back to their old bad habits. Unfortunately, that will not be until 2010, and the climb will be slow, arduous, full of stops, starts and scary dips. Those on fixed income, with reduced asset values are in for a long, tough haul. The government will want to help but is pulled in the opposite direction by problems with funding Social Security & Medicare as they are now--so it can't help much--until it raises taxes, which will happen all too soon.
---Bankruptcies & Bailouts of huge companies like Chrysler (and next GM) will roll through through the economy, hammering all kinds of suppliers and second/third tier suppliers of theirs. When the largest customer (or two) in an industry files bankruptcy, everyone involved takes a "financial haircut"--meaning they don't get paid all they are owed. They might get 50-60 cents on the dollar--if they are lucky. The rest of the losses fall in the "tough luck" category. Of course, since the government will be the largest creditor and perhaps the largest shareholder, it will have to fund many of the shortfalls. How will it raise that money? The only way it has--increased taxes--if not now, eventually. The loans and investments in companies like AIG will also have an adverse impact.
---Climate improvements are a dicey call. If it leads to "Cap & Trade" on CO2 credits, this represents a huge "hidden tax." Power companies, the largest energy users and polluters will be most affected. Their costs will go up. They will pass them on to consumers and businesses, creating, in effect a "Climate improvement tax." Companies will pass this on to their customers (assuming they can without losing the business to imported products) resulting in a secondary hidden tax. Even though Al Gore's allegations are proving wrong, we are fouling the planet. The problem is that no one is getting on the right "bandwagon" (nuclear power) fast enough. France got that one right. Wind, solar, geothermal, hydroelectric are all nice, but none have the capacity and economics to replace coal and oil fast enough.
---Foreign exchange in terms of what the dollar will buy abroad--less as the US Dollar is devalued by inflation--will become another hidden tax. When the government simply "creates new money" either by printing more dollars or by monetary policy and there are no more goods or "stores of value" backing those dollars, that is the definition of inflation. Dollars will be worth less, thus imported products will cost more--creating yet another hidden tax. Europe will suffer as badly--or maybe even worse than the US. Its banks are bigger and can do more faster--but haven't so far. The dollar's value will be helped by Europe's recession in some respects. Europe doesn't have an Obama, so it will wrestle internally with its problems.
---Housing will continue to recover--but ever so slowly--as the glut of houses must be sold or disposed of (bulldozed?) before new ones start to look attractive. There will be a recovery in new housing, as some people simply won't want to buy a "distressed" house and fix it up. As the government helps the irresponsible borrowers and lenders from feeling the pain they rightly deserve, this will result in another "backhanded tax" on responsible lenders and borrowers. Housing drives a much larger part of the US economy than most people realize since nearly everything sizable that goes into a new house is made in the USA. Roofing, bricks, lumber, concrete, flooring, paint, windows & doors, major appliances, HVAC, landscaping--and much more. All of these provide millions of jobs. New houses also drive secondary consumption. You can't put those old drapes in a new house, can you?
--Banking & finance are not yet fixed but will come along. Changing the "mark to market" rules was a big first step. The government will continue to meddle, finance, and generally muck up banking for a long while. New regulations will be passed. Managerial meddling will continue. The smart institutions will wriggle out from under the government's thumb as soon as they can. But that won't be for months--at least. At these very low interest rates and very tight lending restrictions, banks can't make as much on "rate-based" transactions, so they will make it up in fees on everything. The recent optimism about surprising bank earnings will be dampened by the reports on "stress tests," and the onset of credit card failures and a new wave of foreclosures just recently started. Perhaps a global financial crisis has been averted, but "it ain't over 'til the fat lady sings," and she hasn't even started warming up yet. If you don't believe me, go to a bank and try to borrow money "unsecured." If you don't need it, because you are very solvent, you might be able to borrow it, but the bank will want iron-clad security and collateral--something that most small businesses simply can't provide.
--Health Care is likely to heat up as a topic, but Obama's plans will not be re-run of HIllary care. He will start by extending government funded health coverage ala Medicare and Medicaid and increment his way into more government intervention.
--Education is another of his hot buttons. Teacher's Unions will have a big influence on the demise of vouchers. How Obama reconciles this to his philosophical support for charter schools will be interesting to watch.
--Energy is a place where a lot of money can be invested, and more can be wasted unless Obama's people take pragmatic stances on alternative energy sources. Oil will likely stay in the $50-65/bbl. range unless Iran, et. al set off some kind of Middle East war. Then all bets are off. At $50-65/bbl, oil is still the fuel of choice. Nuclear should be, but Obama has already poisoned that well with his commentary.
--Defense is one of my great concerns. Read Thomas Sowell's piece that is posted at the end of this edition. I fear that he will, in his attempt to be diplomatic and be liked by foreign powers, get fooled, taken advantage of and ultimately put the USA in mortal danger. Everyone who has nuclear weapons or is frantically developing them must be smiling as they hear Obama's high-minded philosophical rationale that we should dispose of ours. Don't bet on Russia or China or Israel buying into that stupid idea. Nukes are, unfortunately, here to stay--and we'd better get ours up to date and keep them at the ready--hoping all the while that nobody makes us use them.
---Taxes: They may go down in the near term, so Obama can stimulate the economy and keep his campaign promises. BUT, remember, in March alone the government spending was up 41% to $321 Billion and revenue dropped 28% to $129 Billion (according to MarketWatch.com). Annualize that deficit and you get $2.3 trillion. (For those who don't remember this, a trillion is a million-million, and that is a hell of a big number. You don't have to be a mathematician or a policy wonk to figure out that mismatch between income and outflow doesn't work for very long without some kind of massive tax increases. The Bush tax cuts expire in 2010, and with the current Democratic power in place, they will not be renewed (that would just be bad politics). That is tax increase number one--of many coming. The ones mentioned before might come from "Cap & Trade," from "Inflation's effect on the value of the US Dollar" and the zeal to fix the entitlements (Social Security) and health care (Medicare) problems. Translation: Watch for the ceiling on FICA contributions (taxes) to go way up, and maybe get lifted entirely. Medicare is already charging some of us retirees about double the premiums due to "means testing." If you don't think more tax hikes are coming to offset the flagrant spending spree, you have your head in the sand.
---Immigration and Border Security: One is a mess and the other stinks. Take your pick which is which. Obama wants to get moving on that problem this year. One of the early steps will be to create some form of accelerated amnesty. Amnesty in some form is almost unavoidable, because we can neither find, nor deport 12-14 million "undocumented" (illegally here) immigrants. Anyone who doesn't think these new "citizens" will add cost to the country has not thought about their prolific birth rate and need for government paid health care--if nothing else--but there will be many "something else's." And the illegal immigrants have, as their chief spokesperson and advocate, none other than Speaker of the House Pelosi. Meanwhile, no one is paying much attention to the limitation on H1B Visas, through which we could "import" some much needed skilled immigrants--Doctors, Nurses, Computer Scientists (many trained here in the first place), and so forth.
The immigration problems and those of our porous borders MUST be solved. What I fail to understand is that Amazon.com can track me down, tell me everything I bought and even suggest some things I might want to buy--but we can't keep track of live human beings who entered and are living here in our country. Get those secure ID cards going, and insist that they sign up, both at the border and wherever they are. At least we might get some better information on "sleeper cells" in the process.
---Conclusion: Either the government has to quit spending way in excess of its income (IT WON'T) or it has to find ways to increase its income (IT WILL--VIA TAXES) or other "HIDDEN TAX" increases will just "happen" via inflation, a devalued dollar, etc.) No matter what happens, the current spending patterns will translate into some overt or hidden taxes, taking wealth out of the private sector and transferring it to the public sector where it will be redistributed to other places, and a significant part of it wasted by the inefficiency of the government bureaucracy. Unfunded mandates will be foisted upon the states, to help the Federal government spend more, and the states are already in deficit positions for the same reasons the Fed. is. During a recession incomes and tax revenues drop like a rock, and states have mostly fixed costs. Thus states cannot cut programs and services fast enough or far enough to cope with the dramatic reduction of revenue and new unfunded mandates passed down from Washington, DC. What is the answer for the states? You get it: raise taxes and fees.
All of these tax increases make citizens less able to spend (as consumers) and companies less able to earn (thus reducing Wall Street's valuation of their stocks). That means the stock market recovery will be slow, erratic and take a long time--years, maybe a decade or more, and still not get up to where it was just a year ago.
TO MAKE THINGS WORSE--ONE PARTY RULE IS A RECIPE FOR DISASTER
Senator Arlen Specter of Pennsylvania said on Tuesday that he would switch to the Democratic party, potentially presenting Democrats with a possible 60th vote and the power to break Senate filibusters. Specter did so because he was almost certain he could not win reelection as a Republican in Pennsylvania in 2010. The good people of PA know him for what he is--unreliable, regardless of party affiliation. The Dems will embrace him with open arms to get their 60th, filibuster busting Senate vote (Al Franken will eventually get seated over Norm Coleman). And Americans, in the end, will suffer--including those misguided ones who think Obama's stated "defense posture" is the right one. Check out what Thomas Sowell, one of America's leading thinkers and scholars says about this topic (right below my signature).
BOTTOM LINE
The recession may technically end as this year ends. The 4Q of '08 and 1q of '09 numbers are so bad that 4Q '09 and 1Q '10 should be slightly better. But that will still be 3-4% below a year ago levels. The recovery will not start simultaneously with the recession ending, and it will be long and gradual. China may be our best friend, in that its recovery might spur ours along. Europe won't. It will have its own problems. The government will screw up (fill in your own names): GM, Chrysler, AIG, the banks, and anything else it tries to takeover and micromanage. Why? It's the "JOE BIDEN RULE"--Long time legislators (and their bright young staffers) know little or nothing about how the real world works in a capitalistic, free enterprise economy and society. Sarbanes-Oxley proved it. This Democratic Congress and President Obama's (even if well intended) Administration will make blunder after blunder. Many will go unnoticed at first because President Obama is so adept at reassuring us. Sooner or later, the "JOE BIDEN RULE" will prevail, and the blunders will stand out like a "sore thumb."
Biden (and often Obama too) reminds me of an executive I once knew who made the slickest presentations to the board and security analysts. He was tall, well dressed, well spoken, articulate, good looking, etc., etc. They loved him--until the numbers came in and were terrible. He was exposed as a glib, articulate, shallow fool, who was incapable of running the business for which he was responsible.
I sincerely hope I am wrong, and President Obama is right. I will celebrate with glee. Until then, I will spend more time trying to find a new crop of candidates for Congress who either already understand already or are willing to learn--before they get inside the Beltway and get "brainwashed." I hope readers who agree with me will do the same.
Best, John
=================================================
A New Defense Posture: Bend Over Backward
By THOMAS SOWELL | Posted Tuesday, April 28, 2009 4:20 PM PT
It used to be said that self-preservation is the first law of nature. But much of what has been happening in recent times in the United States, and in Western civilization in general, suggests that survival is taking a back seat to the shibboleths of political correctness.
We have already turned loose dozens of captured terrorists who have resumed their terrorism. Why? Because they have been given "rights" that exist neither in our laws nor under international law.
These are not criminals in our society, entitled to the protection of the Constitution of the United States. They are not prisoners of war entitled to the protection of the Geneva Conventions.
There was a time when people who violated the rules of war were not entitled to turn around and claim the protection of those rules. German soldiers who put on U.S. military uniforms, in order to infiltrate American lines during the Battle of the Bulge, were simply lined up against a wall and shot.
Nobody even thought that this was a violation of the Geneva Conventions. American authorities filmed the mass executions. Nobody dreamed up fictitious "rights" for these enemy combatants who had violated the rules of war. Nobody thought we had to prove that we were nicer than the Nazis by bending over backward.
Bending over backward is a very bad position from which to try to defend yourself. Nobody in those days confused bending over backward with "the rule of law," as Barack Obama did recently. Bending over backward is the antithesis of the rule of law. It is depriving the people of the protection of their laws, in order to pander to mushy notions among the elite.
Even under the Geneva Conventions, enemy soldiers have no right to be turned loose before the war is over. Terrorists — "militants" or "insurgents" for those of you who are squeamish — have declared open-ended war against America. It is open-ended in time and open-ended in methods, including beheadings of innocent civilians.
President Obama can ban the phrase "war on terror," but he cannot ban the terrorists' war on us. That war continues, so there is no reason to turn terrorists loose before it ends. They chose to make it that kind of war. We don't need to risk American lives to prove that we are nicer than they are.
The great Supreme Court Justice Oliver Wendell Holmes said that law is not some "brooding omnipresence in the sky." It is a set of explicit rules by which human beings structure their lives and their relationships with one another.
Those who choose to live outside those laws, whether terrorists or pirates, can be — and have been — shot on sight. Squeamishness is neither law nor morality. And moral exhibitionism is beneath contempt, when it sacrifices the safety of those who live within the law for the sake of self-satisfied preening, whether in editorial offices or in the White House.
As if it's not enough to turn cutthroats loose to cut throats again, we are now contemplating legal action against Americans who wrung information about international terrorist operations out of captured terrorists.
Does nobody think ahead to what this will mean — for many years to come — if people trying protect this country from terrorists have to worry about being put behind bars themselves?
Do we need to have American intelligence agencies tip-toeing through the tulips when they deal with terrorists?
In his visit to CIA headquarters, President Obama pledged his support to the people working there and said that there would be no prosecutions of CIA agents for prior actions. Then he welshed on that in a matter of hours by leaving the door open for such prosecutions, which the left has been clamoring for, both inside and outside of Congress.
Repercussions extend far beyond issues of the day. It is bad enough that we have a glib and sophomoric narcissist in the White House. What is worse is that whole nations that rely on the United States for their security see how easily our president welshes on his commitments. So do other nations, including those with murderous intentions toward us, our children and grandchildren.
Copyright 2008 Creators Syndicate, Inc.
=================================================
OBAMA'S FIRST HUNDRED DAYS AND U.S. PRESIDENTIAL REALITIES
By George Friedman, CEO of Stratfor, Inc.
U.S. presidential candidates run for office as if they would be free to act however they wish once elected. But upon election, they govern as they must. The freedom of the campaign trail contrasts sharply with the constraints of reality. The test of a president is how effectively he bridges the gap between what he said he would do and what he finds he must do. Great presidents achieve this seamlessly, while mediocre presidents never recover from the transition. All presidents make the shift, including Obama, who spent his first hundred days on this task.
Obama won the presidency with a much smaller margin than his supporters seem to believe. Despite his wide margin in the Electoral College, more than 47 percent of voters cast ballots against him. Obama was acutely aware of this and focused on making certain not to create a massive split in the country from the outset of his term. He did this in foreign policy by keeping Robert Gates on as defense secretary, bringing in Hillary Clinton, Richard Holbrooke and George Mitchell in key roles and essentially extrapolating from the Bush foreign policy. So far, this has worked. Obama's approval rating rests at 69 percent, which The Washington Post notes is average for presidents at the hundred-day mark.
Obama, of course, came into office in circumstances he did not anticipate when he began campaigning -- namely, the financial and economic crisis that really began to bite in September 2008. Obama had no problem bridging the gap between campaign and governance with regard to this matter, as his campaign neither anticipated nor proposed strategies for the crisis -- it just hit. The general pattern for dealing with the crisis was set during the Bush administration, when the Treasury Department and the Federal Reserve Board put in place a strategy of infusing money into failing institutions to prevent what they feared would be a calamitous economic chain reaction.
Obama continued the Bush policy, though he added a stimulus package. But such a package had been discussed in the Bush administration, and it is unlikely that Sen. John McCain would have avoided creating one had he been elected. Obviously, the particular projects funded and the particular interests favored would differ between McCain and Obama, but the essential principle would not. The financial crisis would have been handled the same way -- just as everything from the Third World debt crisis to the Savings and Loan crisis would have been handled the same way no matter who was president. Under either man, the vast net worth of the United States (we estimate it at about $350 trillion) would have been tapped by printing money and raising taxes, and U.S. assets would have been used to underwrite bad investments, increase consumption and build political coalitions through pork. Obama had no plan for this. Instead, he expanded upon the Bush administration solution and followed tradition.
The Reality of International Affairs
The manner in which Obama was trapped by reality is most clear with regard to international affairs. At the heart of Obama's campaign was the idea that one of the major failures of the Bush administration was alienating the European allies of the United States. Obama argued that a more forthcoming approach to the Europeans would yield a more forthcoming response. In fact, the Europeans were no more forthcoming with Obama than they were with Bush.
Obama's latest trip to Europe focused on two American demands and one European -- primarily German -- demand. Obama wanted the Germans to increase their economic stimulus plan because Germany is the largest exporter in the world. With the United States stimulating its economy, the Germans could solve their economic problem simply by increasing exports into the United States. This would limit job creation in the United States, particularly because German exports involve automobiles as well as other things, and Obama has struggled to build domestic demand for U.S. autos. Thus, he wanted the Germans to build domestic demand and not just rely on the United States to pull Germany out of recession. But the Germans refused, arguing that they could not afford a major stimulus now (when in fact they have no reason to be flexible, because the U.S. stimulus is going to help them no matter what Germany does).
Germany's and France's unwillingness to provide substantially more support in Afghanistan gave Obama a second disappointment. Some European troops were sent, but their numbers were few and their mission was limited to a very short period. (In some cases, the European force contribution will focus on training indigenous police officers, which will take a year or more to really have an impact.) The French and Germans essentially were as unwilling to deal with Obama as they were with Bush on this matter.
The Europeans, on the other hand, wanted a major effort by the International Monetary Fund (IMF). The Central European banking system, largely owned by banks from more established European countries, has reached a crisis state because of aggressive lending policies. The Germans in particular don't want to bail out these banks; they want the IMF to do so. Put differently, they want the United States, China and Japan to help underwrite the European banking system. Obama did agree to contribute to this effort, but not nearly on the scale the Europeans wanted.
On the whole, the Europeans gave two big no's, while the Americans gave a mild yes. In substantive terms, the U.S.-European relationship is no better than it was under Bush. In terms of perception, however, the Obama administration managed a brilliant coup, shifting the focus to the changed atmosphere that prevailed at the meeting. Indeed, all parties wanted to emphasize the atmospherics, and judging from media coverage, they succeeded. The trip accordingly was perceived as a triumph.
Campaign Promises and Public Perception
This is not a trivial achievement. There are campaign promises, there is reality and there is public perception. All presidents must move from campaigning to governing; extremely skilled presidents manage the shift without appearing duplicitous. At least in the European case, Obama has managed the shift without suffering political damage. His core supporters appear prepared to support him independent of results. And that is an important foundation for effective governance.
We can see the same continuity in his treatment of Russia. When he ran for president, Obama pledged to abandon the U.S. ballistic missile defense (BMD) deployment in Poland amid a great show made about resetting U.S. Russia policy. On taking office, however, he encountered the reality of the Russian position, which is that Russia wants to be the pre-eminent power in the former Soviet Union. The Bush administration took the position that the United States must be free to maintain bilateral relations with any country, to include the ability to extend NATO membership to interested countries. Obama has reaffirmed this core U.S. position.
The United States has asked for Russian help in two areas. First, Washington asked for a second supply line into Afghanistan. Moscow agreed so long as no military equipment was shipped in. Second, Washington offered to withdraw its BMD system from Poland in return for help from Moscow in blocking Iran's development of nuclear weapons and missiles. The Russians refused, understanding that the offer on BMD was not worth removing a massive thorn (i.e., Iran) from the Americans' side.
In other words, U.S.-Russian relations are about where they were in the Bush administration, and Obama's substantive position is not materially different from the Bush administration's position. The BMD deal remains in place, the United States is not depending on Russian help on logistics in Afghanistan, and Washington has not backed off on the principle of NATO expansion (even if expansion is most unlikely).
In Iraq, Obama has essentially followed the reality created under the Bush administration, shifting withdrawal dates somewhat but following the Petraeus strategy there and extending it -- or trying to extend it -- to Afghanistan. The Pakistani problem, of course, presents the greatest challenge (as it would have for any president), and Obama is coping with it to the extent possible.
Obama's managing of perceptions as opposed to actually making policy changes shows up most clearly in regard to Iran. Obama tried to open the door to Tehran by indicating that he was prepared to talk to the Iranians without preconditions -- that is, without any prior commitment on the part of the Iranians regarding nuclear development. The Iranians reacted by rejecting the opening, essentially saying Obama's overture was merely a gesture, not a substantial shift in American policy. The Iranians are, of course, quite correct in this. Obama fully understands that he cannot shift policy on Iran without a host of regional complications. For example, the Saudis would be enormously upset by such an opening, while the Syrians would have to re-evaluate their entire position on openings to Israel and the United States. Changing U.S. Iranian policy is hard to do. There is a reason Washington has the policy it does, and that reason extends beyond presidents and policy-makers.
When we look at Obama's substantive foreign policy, we see continuity rather than changes. Certainly, the rhetoric has changed, and that is not insignificant; atmospherics do play a role in foreign affairs. Nevertheless, when we look across the globe, we see the same configuration of relationships, the same partners, the same enemies and the same ambiguity that dominates most global relations.
Turkey and the Substantial U.S. Shift
One substantial shift has taken place, however, and that one is with Turkey. The Obama administration has made major overtures to Turkey in multiple forms, from a presidential visit to putting U.S. anti-piracy vessels under Turkish command. These are not symbolic moves. The United States needs Turkey to counterbalance Iran, protect U.S. interests in the Caucasus, help stabilize Iraq, serve as a bridge to Syria and help in Afghanistan. Obama has clearly shifted strategy here in response to changing conditions in the region.
Intriguingly, the change in U.S.-Turkish relations never surfaced as even a minor issue during the U.S. presidential campaign. It emerged after the election because of changes in the configuration of the international system. Shifts in Russian policy, the U.S. withdrawal from Iraq and shifts within Turkey that allowed the country to begin its return to the international arena all came together to make this necessary, and Obama responded.
None of this is designed to denigrate Obama in the least. While many of his followers may be dismayed, and while many of his critics might be unwilling to notice, the fact is that a single concept dominated Obama's first hundred days: continuity. In the face of the realities of his domestic political position and the U.S. strategic position, as well as the economic crisis, Obama did what he had to do, and what he had to do very much followed from what Bush did. It is fascinating that both Obama's supporters and his critics think he has made far more changes than he really has.
Of course, this is only the first hundred days. Presidents look for room to maneuver after they do what they need to do in the short run. Some presidents use that room to pursue policies that weaken, and even destroy, their presidencies. Others find ways to enhance their position. But normally, the hardest thing a president faces is finding the space to do the things he wants to do rather than what he must do. Obama came through the first hundred days following the path laid out for him. It is only in Turkey where he made a move that he wasn't compelled to make just now, but that had to happen at some point. It will be interesting to see how many more such moves he makes.
This report may be forwarded or republished on your website with attribution to www.stratfor.com. Copyright 2009 Stratfor.
Comments