As the Tea Party wing of the Republican Party continues to play Russian roulette with the American and world economies, there's no shortage of explanations being offered for the wing's risky and irresponsible behavior. Some commenters blame it on Sen. Ted Cruz's megalomania, others on racist opposition to the first black president. The poisonous impact of Fox News and the perverse effects of gerrymandering are also popular culprits. Yet another strand of thought pins the blame on Rep. John Boehner's spineless desire to cling to his House speaker post even if doing so drives the country off a cliff. And then there are those who see this episode as an inevitable consequence of the separation of powers inherent in the U.S. Constitution. In this view, crazy-making moments like this one are hard-wired into the American system of government. They don't happen often -- thank goodness -- but they are bound to occur from time to time.
Any or all of these causes may well be at work, but these explanations all miss a broader structural reason for the current impasse, one whose roots are found not in the nature of American politics but in the nature of the contemporary international system. In brief: All this mishigas is happening in part because the United States is in fact very secure, which leads many people to think it doesn't need a strong central state. They are therefore willing to countenance steps that they would not consider if the country were really facing a serious external danger.
For a prophetic analysis of this basic issue, check out Michael Desch's 1996 article "War and Strong States, Peace and Weak States?" in International Organization. Drawing on Otto Hintze and others, Desch argued that the end of the Cold War was going to undermine and weaken many existing state structures. The logic is straightforward: During periods when international conflict is rife, populations look to the state to protect them, and they are willing to tolerate (even encourage) increases in state capacity. Moreover, they are less willing to tolerate anyone who seems to be threatening national unity. In extreme forms, this tendency leads to abuses -- such as the incarceration of Japanese-Americans during World War II and other crimes -- but in milder forms it means punishing politicians who act in an irresponsible or divisive fashion.
But when nations are feeling secure from external dangers, both citizens and politicians are freer to indulge ideological whims or to pursue self-serving agendas of their own, because the body politic won't see these actions as undermining national unity or threatening national security. And that's at least partly why a yahoo like Cruz can get away with what he's doing.
But wait: Doesn't the United States face a serious threat from international terrorism? Isn't that why Congress passed the Patriot Act, why it approved the vast expansion of the National Security Agency and other intelligence capabilities, and why the public supports the use of American drones and special forces all over the world? Don't these dangers create a profound need for national unity and resolve and thus contradict this basic line of argument?
Nope. Despite all the hype about terrorism, the United States is still a remarkably secure country and ordinary Americans get this, which is why presidents and foreign-policy wonks have to work overtime trying to scare us enough to get us to keep policing the world. Sure, foreign-policy experts like me love to talk about the implications of events in far-flung regions, but that's mostly to give ourselves something to do and to remind everyone that We're Really Important. But most people in the United States don't care very much about these things, except on those rare occasions when someone bombs Pearl Harbor or flies a plane into the World Trade Center. Then you get a vigorous response, but it wears off as soon as the problem is gone.
Ironically, the surest cure for the self-indulgent insanity of the current Republican Party would be a serious external threat. Ideally, we'd need an external threat that was just large enough to require us to pull together more and keep fringe groups out on the margins where they belong, but one that was not so large as to pose a genuine danger to our security and way of life here at home. Alas, dangers don't always limit themselves to that convenient "not too hot, not too cold" range.
On the whole, I'd rather live in a world where the United States faced relatively few external challenges, so that it could concentrate more of its energy and wealth on improving the lives of U.S. citizens. Unfortunately, a favorable international environment tends to bring out the crazy here at home and might actually do more damage to the country than Osama bin Laden, Saddam Hussein, or Nikita Khrushchev ever managed.
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Every now and then you read about a seemingly minor incident that illuminates an entire way of thinking about international affairs. And sometimes the harsh light of reality exposes the flaws in a popular body of theory, or at least reveals its limits.
Today, for example, the Financial Times reports that China is trying to get the World Bank to water down its annual Doing Business report, which ranks the world's nations by focusing mostly on the efficiency and transparency of the regulatory environment and thus the ease of starting or conducting new business. For what it's worth, Singapore ranks #1 on the list, Hong Kong #2, the United States #4, Taiwan #16, but the rest of the People's Republic of China ends up in the middle of the pack, at #91.
What's the IR theory angle in all this? For the past couple of decades, a number of IR scholars and China experts have argued that the best way to accommodate China's rise was to enmesh it in a wide array of international institutions. These institutions would bind China into an existing set of norms and rules, help "socialize" it into prevailing global practices, and guard against Beijing feeling like it was being excluded or marginalized. This sort of thinking justified the Clinton administration's entire policy of engagement, and especially its lengthy effort to bring China into the World Trade Organization.
There's nothing wrong with including China in existing international institutions, and doing so undoubtedly facilitates day-to-day cooperation on all sorts of mundane international transactions. In this sense, the institutionalist perspective reflected above remains helpful. But it is a mistake to assume that an increasingly powerful China will just passively accept a set of rules and practices that had been developed by the United States and Europe over the past fifty-plus years.
On the contrary, like other great powers, China will use its growing power to try to rewrite international norms and rules in ways that will benefit it. As the FT notes: "The row [over the Doing Business report] is an example of China's growing assertiveness at international bodies and its increased willingness to challenge liberal economic prescriptions."
There's nothing nefarious or imperialistic about such behavior -- at least, not in my book -- because major powers have always tried to rig the rules of global conduct in their favor. You weren't expecting altruism, were you? Or they simply ignore the rules when they turn out to be inconvenient, as the United States did when it went off the gold standard in 1971 or invaded Iraq in 2003. But the fact that such behavior is familiar doesn't mean it will be any less of a problem, and it reminds us that international institutions themselves are at best weak constraints on the behavior of major countries.
In short, if China continues to rise and competition between the United States and China (and others) intensifies, the battleground won't just be confined to the South China Sea, the competition for allies in Asia, or the shadowy world of cyber-espionage. It will also be fought out in the corridors, offices, plenaries, and sidebar meetings at major international institutions. And in these arenas, economic clout and diplomatic skill will count as much or more than aircraft carriers, drones, or sophisticated special forces.
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When Andrew Sullivan announced last week that he was taking his uber-blog, The Dish, independent and relying solely on reader subscriptions to fund the operation, the first thing I thought of was...
Not because the announcement made me yearn for a nice IPA, but because it made me wonder whether what is happening to the media environment is in some ways analogous to the extraordinary improvements in brewmaking over the past couple of decades, especially here in North America.
Back in my youth, beer in America was a consistently bland and homogeneous product. Watery lagers predominated, because the big brewing companies all sought to appeal to the median drinker. There just wasn't much difference between Bud, Miller, Schlitz, etc., which is why beer like Coors -- which had even less flavor but was hard to get in much of the country -- could become a fad for awhile. Beer snobs sometimes drank imports like Beck's or Guinness, but the major U.S. brands were boring, conventional, and competing to be more-or-less like each other. Kinda like Detroit's Big Three automakers or the three major TV networks.
Enter the microbrewery revolution. Beginning in the 1980s, enterprising Americans in search of good beer began drawing on artisanal brewing traditions and techniques from Europe, leading to an explosion of small craft breweries whose main selling point was creativity and diversity. Not to mention taste. Instead of trying to be like everyone else, microbrews thrived by presenting unique and interesting products that could actually hold a beer fan's interest. Instead of putting out a cheap product to be swilled in front of the TV or at a football game, microbrewers sought to produce something you could savor, discuss, and get seriously passionate about. No wonder I haven't sipped a Bud in years. Even the Obama White House has caught the bug, producing its own Honey ale in recent years.
So too with blogs. As Sullivan has realized, you don't have to be connected to some big media giant like the New York Times or the Economist in order to have a significant readership. It helps to be part of a well-known brand, of course but it's not essential, especially if you're more interested in appealing to a smaller group of engaged readers than in grabbing as much market share and advertising revenue as you can.
Furthermore, as the diverse set of writers that Sullivan often features on his blog illustrate, those who work primarily in the blogosphere are usually more interesting, provocative, willing to experiment, and well-informed than the mainstream commentators and pundits writing for the big media outlets. There are exceptions, of course, but I'm constantly impressed by how many smart people and good writers now inhabit the internet, and I frequently find myself in awe of how well so many of them use language and how much genuine pleasure one can get from reading them. By contrast, outstanding writing is becoming harder to find in a lot of mainstream media platforms, and its almost an endangered species in the hallowed halls of academe. It's not that they are bad writers, it's just that they are mostly so cautious, predictable, and bland. You know: like PBR.
Given the effectiveness of modern search engines, interested citizens can get lots of information from the web if they're willing do a little bit of dedicated trolling, which in turn makes it harder for governments, interest groups, or big media conglomerates to control discourse anymore. And that's why authoritarian governments in countries like China or Iran have worked so hard to slap restrictions on this free-wheeling environment, lest their own actions and legitimacy get undermined by the unconstrained flow of ideas.
None of this is big news by now, and Sullivan isn't the first blogger to rely solely on reader support. He's just the most visible and prominent, and his experiment reminds us that the information revolution that we are all living through is still in its early stages. But I hope Sullivan's venture succeeds and that others follow his lead. I don't know what the information industries will look like a decade or two into the future, but it's certain to be different than it is today and a lot different than it was when I was a kid. I'm already reconciled to the fact that I'll eventually have to give up my cherished morning newspapers and get almost everything in digitized form. I'll heave a nostalgic sigh when that happens, but in the end I think it will be for the best. Why? Because I also believe that the open exchange of information and ideas eventually leads to greater collective wisdom and better public policies. For this reason, the break-up of big media oligopolies and the proliferation of independent voices is a good thing.
And on that happy note, I think I'll have a beer.
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Here's a puzzle for all you academics and IR theory mavens out there. On the one hand, the most distinguished scholars in the IR field are theorists. Think of names like Kenneth Waltz, Alexander Wendt, or Robert Keohane, whose reputations rest on theoretical ideas rather than empirical work. Or look at the recent TRIP surveys, where virtually all the scholars judged to have had a major impact on the field are theorists. And most of the classic works in the field are also works of theory; by contrast, few empirical works have proven to be of lasting scholarly value
But on the other hand, the amount of serious attention that IR scholars in the US devote to theory is declining. (Interestingly, the same trend seems to be true of economics as well). The field is moving away from developing or carefully employing theories and instead emphasizing the testing of empirical hypotheses through some combination of quantitative or qualitative analysis. Such work is not purely inductive or atheoretical, but theory plays a relatively minor role and most of the effort goes into collecting data and trying to draw reliable causal inferences from it.
Hence the paradox: theory is the most esteemed activity in the field, yet hardly anybody wants to do it anymore. John Mearsheimer and I explore this paradox in a new paper, and argue that this shift away from theory is a mistake. A revised version will be published later this year in the European Journal of International Relations, but you can read a working paper version here.
Here's the abstract:
"Theory creating and hypothesis testing are both important elements of social science. Unfortunately, in recent years the balance between theory creation/refinement and the testing of empirical hypotheses has shifted sharply toward the latter. This trend is unfortunate, because insufficient attention to theory can lead to misspecified models and overreliance on misleading measures of key concepts. In addition, the poor quality of much of the data in IR makes it less likely that these efforts will produce useful cumulative knowledge. The shift away from theory and towards hypothesis testing is due mostly to the professionalization of academia, and this trend is likely to continue unless there is a collective decision to alter prevailing academic incentives."
We are often told that Gulf states like Saudi Arabia and Kuwait are deeply worried about Iran, and eager for the United States to take care of the problem. This is usually framed as a reflection of the Sunni-Shiite divide, and linked to concerns about Iranian subversion, the role of Hezbollah, and of course the omnipresent fretting about Iran's nuclear energy program.
I have heard senior Saudi officials voice such worries on more than one occasion, and I don't doubt that their fears are sincere. But there may be another motive at work here, and Americans would do well to keep that possibility in mind.
That motive is the Gulf states' interest in keeping oil prices high enough to balance their own budgets, in a period where heightened social spending and other measures are being used to insulate these regimes from the impact of the Arab Spring. According to the IMF, these states need crude prices to remain upwards of $80 a barrel in order to keep their fiscal house in order.
Which in turn means that Saudi Arabia et al also have an interest in keeping Iran in the doghouse, so that Iran can't attract foreign companies to refurbish and expand its oil and gas fields and so that it has even more trouble marketing its petroleum on global markets. If UN and other sanctions were lifted and energy companies could operate freely in Iran, its oil and gas production would boom, overall supplies would increase, and the global price would drop.
Not only might this new wealth make Iran a more formidable power in the Gulf region--as it was under the Shah -- but lower oil and gas prices would make it much harder for Saudi Arabia and other Gulf states to stave off demands for political reform through social spending. Saudi Arabia could cut production to try to keep prices up, but that would still mean lower overall revenues and a budget shortfall.
So when you hear people telling you how worried the Gulf states are about Iran, and how they support our efforts to keep tightening the screws, remember that it's not just about geopolitics, or the historical divide between Sunnis and Shiites or between Arabs and Persians. It's also about enabling certain ruling families to keep writing checks. Keep that in mind the next time you fill your gas tank or pay your home heating bill, or the next time somebody tells you the United States ought to think seriously about a preemptive war.
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In The Origins of Alliances (1987), I wrote:
"...the domestic situation of the United States may be more important than anything else. External events impinge on U.S. power; internal conditions generate it. Losses abroad will add up slowly (if at all) and will be compensated by balancing behavior by allies and by the United States itself. Thus a final prescription is to avoid policies that jeopardize the health of the U.S. economy. It is far more important to maintain a robust and productive economic system than it is to correct some minor weaknesses in defense capability or to control the outcome of some insignificant clash in the developing world." (p. 284)
I wrote those lines before the Cold War ended; they are even more true today. I thought of them as I read Edward Luce's perceptive discussion of America's deteriorating infrastructure in yesterday's Financial Times. Money paragraph:
"...most Americans are unaware of how far behind the rest of the world their country has fallen. According to the World Economic Forum's competitiveness report, U.S. infrastructure ranks below 20th in most of the nine categories, and below 30 for quality of air transport and electricity supply. The U.S. gave birth to the internet -- the kind of decentralized network that the U.S. power grid desperately needs. Yet according to the OECD club of mostly rich nations, average U.S. internet speeds are barely a 10th of those in countries such as South Korea and Germany. In an age where the global IT superhighway is no longer a slogan, this is no joke."
Why aren't Americans more concerned about their eroding infrastructure? Luce argues we've just adapted to delays, discomfort, and inefficiencies, much as the fabled frog supposedly doesn't recognize it is being boiled to death if the temperature in the pot rises slowly. But I'd argue there are a number of other forces at work.
The first is militarized patriotism: It's easier to get Americans to cheer when a B-2 or the Blue Angels does a flyover above a football game than it is to get them to take pride in a truly modern flight tracking system that would streamline commercial air travel. Similarly, it is easier to scare taxpayers by inflating foreign threats than it is to get them to put money into roads, bridges and other safety features that would reduce U.S. highway fatalities. We all know that nearly 3000 people died on September 11, 2001, but we never notice the deaths that might have been avoided if we had better hospitals, highways, and a more productive economy that kept fewer people in poverty.
Combine the hyping of foreign dangers with America's liberal idealism, and you get a country that will pour a trillion or more dollars into Iraq and Afghanistan, send special forces and drones into countries of little or no strategic value, and spend more time worrying about who's going to run Syria than it does worrying about conditions here at home.
Second, and following from the first, infrastructure improvements don't enjoy the support of large and well-organized lobbies constantly beating the drum for keeping our infrastructure in good working order. Such groups aren't non-existent, but their political power pales in comparison with other groups who are constantly thrusting their hands into the public till.
And then there's the time lag: Building road, bridges, internet capacity, air traffic control, a robust power grid, and protections against climate change/rising sea levels will be expensive and take years to complete. Equally important, the benefits accrue far into the future, long after today's politicians are gone. It takes foresight and a powerful sense of civic duty to invest in things that will mostly benefit future generations, which is why today's politicians are more likely to pander to today's voters and to well-heeled interest groups, instead of helping the country as a whole prepare for the future.
Lastly, as Luce notes, the GOP is no longer interested in federally-funded and managed programs for building national infrastructure, and their long campaign to convince Americans that government is always the problem and never the solution has undermined public support for a major campaign to rebuild the sinews of the U.S. economy. Their skepticism doesn't apply to military spending, however, even though it is hardly a model of efficiency (see my first point above).
This is not an argument for gutting defense, by the way; but cutting defense is clearly implied. More to the point, it is an argument for not squandering lots of money elsewhere when there are obvious needs here at home. And let's not forget that building infrastructure is actually something we know how to do, unlike the various costly projects of "nation-building" we've taken on elsewhere.
So here's a basic strategic principle that we've largely forgotten over the past seventy years, but which would serve us well today: Let's first make sure our leaders have done all we can to improve the lives of Americans -- you know, the citizens who work and pay taxes to support the government -- before they take on various international projects whose primary purpose is to benefit someone else. The United States shouldn't retreat into isolationism, of course, and it would still do things abroad that contributed directly and significantly to making Americans safer and more prosperous. Such actions would include support for an open world economy, maintaining "command of the commons," and helping maintain balances of power in key regions (but not trying to do it all ourselves).
Most importantly, we would not take on the various philanthropic projects embraced by neoconservative hawks, liberal imperialists, and other apostles of American "greatness" until we had addressed all of the obvious problems we are facing here at home. Let's first make that "shining city" really gleam, and then worry about which thugs are running Syria, or which politicians are fleecing depositors in Kabul.
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A frequent topic here has been America's position in the world and its future prospects. Today, my colleague Ali Wyne weighs in with his own upbeat take on why Americans should be fairly optimistic heading into 2013:
Ali Wyne writes:
With just over a month to go before New Year’s Day, Americans are divided. Following President Obama’s reelection on November 6th, USA Today that a “changing U.S. electorate split in two Tuesday -- not only along lines of political party and ideology but also by race and ethnicity, gender and marital status, region and religion, education and age. The divisions are even sharper than they were four years ago.” A Gallup poll taken shortly after the election found that while 94 percent of Democrats think that the United States will be better off four years from now (vs. just 4 percent who think that it will be worse off), only 11 percent of Republicans think so (86 percent think that it will be worse off). Some who belong to the 86 percent appear to be not just dispirited, but appalled: notable reactions include “America died,” “[w]hat happened on Nov. 6th was suicide by voter,” and “on November 6, 2012, America elected to end modern civilization.”
But leaving aside the partisan divides that are inevitably highlighted in the run-up to and aftermath of an election, Americans on the whole appear to be more pessimistic than usual about their country’s domestic condition and global role. to a mid-2012 poll by the Atlantic and the Aspen Institute, for example, 66 percent think that the U.S. economy is on the wrong track, and 63 percent think that the United States is heading in the wrong direction. Furthermore, several polls indicate that Americans regard the United States as a declining power. I cited some of them in an article for Zócalo Public Square this April, and corroborating ones have been conducted since then. According to a mid-2012 poll by the Chicago Council on Global Affairs, for example, only 24 percent of Americans think that the United States “plays a more important and powerful role” “as a world leader” today than it did ten years ago; 43 percent think that its role is “less important and powerful.” In 2002, those figures were, respectively, 55 percent and 17 percent. Furthermore, whereas Americans judged the United States to be considerably more influential than China a decade earlier (9.1 vs. 6.8 on a ten-point scale), they predict that the two countries’ influence will essentially be equal ten years hence (8.1 vs. 7.8).
Despite feeling the blues, Americans of all stripes can still find reasons to give thanks as they celebrate the holidays and look forward to 2013.
First, the United States has endured far more trying times, dating back to its inception. As historians including David McCullough and John Ferling have documented, America’s victory in its war of independence was far from certain; in fact, in his farewell address to the Continental army in 1783, George Washington himself called it “little short of a standing miracle.” Furthermore, the United States bounced back -- indeed, emerged stronger -- after many events that may well have been judged fatal to its prospects for global leadership by the standards of some contemporary declinists: the Civil War, World War I, and the Great Depression come to mind readily.
Second, America’s economic picture is not entirely bleak. True, four years after Lehman Brothers’ collapse, unemployment continues to hover around 8 percent, and growth continues to sputter along at less than 1.5 percent per year. More alarming, the debt is over $16 trillion and growing rapidly. On the other side of the ledger, however, U.S. gross domestic product (GDP) -- at $14.83 trillion -- accounted for a little over one-fifth of gross world product (GWP) last year. As of the second quarter of this year, 62 percent of the world’s allocated foreign-exchange reserves were dollar-denominated. According to QS, 31 of the world’s top 100 universities are in the United States; furthermore, the Institute for International Education found that there were a record 764,495 international students at U.S. colleges and universities in the 2011-12 academic year, marking the sixth consecutive year that that figure has increased.
Looking forward, there are reasons to be upbeat, even bullish, about the U.S. economy. Its demographic outlook, for example, continues to be favorable; thus, it is expected to remain the world’s third most populous country in 2050, after India and China. Furthermore, rapidly growing indigenous supplies of tight oil and shale gas could enable the United States to reduce its dependence on foreign energy and potentially even create new bases of employment in its energy sector; according to the International Energy Agency, it could become “all but [energy] self-sufficient in net terms by 2035” and become “a net oil exporter by around 2030.” Further down the pike, breakthroughs in a host of fields -- ranging from digital fabrication to “big data” -- could inject new dynamism into the U.S. economy; citing its recent strides in telecommunications and energy, John Gapper observes that despite its “economic problems” and “worries about its comparative decline,” the United States is using its “amazing, enduring capacity to reinvent itself through technology.” The existence of such opportunities -- in demographics, energy, and innovation -- does not, of course, entail the promise of their realization; it does, however, suggest that the current unemployment-growth-debt triad need not become a “new normal.”
Third, America’s relative decline is not as concerning as it might appear at first glance. It largely stems, after all, from actions that it has taken (many of which it can avoid repeating, such as conducting another large-scale ground war), actions that it has not taken (many of which it can still take, such as reaching a budget deal along the lines of what the Simpson-Bowles commission and numerous other task forces have proposed), and the growth of other countries (a phenomenon that benefits the United States, as Europe and Asia’s postwar recoveries benefited it over a half century earlier). Relative decline, furthermore, does not nullify its mixture of hard and soft assets. The United States remains the only country that can project military power globally. Less discussed, it continues to underpin -- albeit under growing duress -- a liberal international order. While the rules and arrangements that form that system are evolving, the system itself does not yet face a coherent alternative -- in part because many countries that bristle at its reach nonetheless continue to benefit from it. China, America’s putative superpower replacement, is perhaps the most compelling example. It welcomes U.S. decline, but wants that phenomenon to occur gradually, not rapidly. In the interim, in fact, as its dependence on Middle Eastern oil grows, it will likely become more dependent on stable and open global commons, which U.S. military power plays an important role in preserving.
If one believes that the United States was once able to dominate the course of international affairs, and evaluates its role in the world according to its ability to continue doing so, then it has indeed been declining -- absolutely and precipitously. In reality, while shocks (such as the global financial crisis) and surprises (such as the “Arab Spring”) may play a growing role in determining U.S. foreign policy, the United States has never been able to exercise hegemony. Even after World War II, despite accounting for over a third of GWP and having “an overwhelming preponderance in nuclear weapons,” Joseph Nye observes that it “was unable to prevent the ‘loss’ of China, ‘roll back’ communism in Eastern Europe, prevent stalemate in the Korean War, defeat Vietnam’s National Liberation Front, or dislodge the Castro regime in Cuba.”
There is no question that the Obama administration will confront a daunting foreign-policy inbox come January 20, 2013, arguably one of unprecedented complexity: a partial inventory of its imperatives would include stabilizing America’s relationship with China, whose GDP is likely to be the world’s largest within the decade, and whose defense spending could conceivably be the world’s largest before the middle of the century; helping the European Union stay afloat; responding to the changing strategic contours of the Middle East and North Africa; and reinforcing the nuclear nonproliferation regime. It would be simplistic, however, to adduce difficulty in dealing with a challenging world as evidence that the United States is a declining, even impotent, actor. As Stephen Walt argues,
[i]f all we were trying to do was defend Americans against major threats and foster continued economic advancement, running U.S. foreign policy would in fact be relatively easy….[Americans should] be grateful for the country’s good fortune….most of our foreign policy problems are voluntary…That’s another sign of U.S. power: we have the luxury of choosing how much or how little to do.
If overestimating one’s influence and minimizing the urgency of one’s challenges can sow hubris, underestimating the former and minimizing one’s ability to respond to the latter can produce distress. Rather than fretting over the prospect of decline, Americans should strategize about how their country can adjust to the power shifts that are afoot -- and be thankful that the United States is better equipped than most to do so.
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"Tell me how this ends," David Petraeus famously asked back in 2003, referring to the U.S. war in Iraq. Today, I'd like somebody who knows more about international finance than I do to answer that question regarding the eurozone.
Today we learned that with the exception of Germany, the rest of the eurozone is slipping back into recession. Take a look at this graphic here, and you'll see that problem countries like Spain and Italy are in particularly bad shape, with economies that are not only under their 2008 levels, but beginning to shrink at an accelerating rate. And the OECD forecasts for next year -- see here, here, and here -- are not exactly encouraging.
Why does this matter? Because countries like Spain, Italy, and Greece all need genuine economic growth in order to get out of their larger debt problems. In fact, they need economic growth that is sufficiently strong to provide a surplus over their existing debt service (and other expenses), so that people holding their debt (or expecting to buy new bonds when it's time to roll the current set over) have reason to believe that the debts will eventually be repaid. This is why everybody gets nervous when interest rates on new debt rise about the canonical 7 percent mark.
The issue is ultimately one of confidence. If the institutions holding Spanish or Italian debt and the lenders who have to issue new debt (to cover the service on the old debt) are convinced that the Spanish and Italian economies will eventually start growing and that the money to pay these debts will be there in the future, then interest rates will remain low and the danger of default will recede. But if these same lenders begin to suspect that these economies aren't going to grow enough (and might even continue to shrink) they will rightly conclude that the money to pay their existing debts (including the debt service) will be lacking. At that point, they will only be willing to lend more money at interest rates that are even less sustainable. And that's when states have to start thinking about bailouts, or about leaving the eurozone and solving their problems through a new (and highly devalued) local currency.
The happy ending to this story, if there is one, is that the various structural reforms now being imposed on these countries will simultaneously cut government costs (thereby freeing up money for debt service) and eventually trigger robust economic growth (thereby increasing tax revenues and providing even more money). But thus far this doesn't seem to be happening. Instead, we get recurring crises, each dealt with by some sort of hastily improvised mechanism mostly designed to kick the can down the road and wait for a miracle to occur. But unless the curves in the graphic cited above hit an inflection point and start heading upward, I don't see how this favorable outcome ever gets reached.
But international finance isn't my real gig, so there may be aspects of this situation that I've failed to grasp. If any of you think you understand what's really happening, tell me how this ends.
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It's hot and sticky here in Boston, and I feel a rant coming on. Just consider the following items from today's headlines, around the web, and my inbox:
Item #1: An independent report on the fiscal condition of America's state governments (chaired by Paul Volcker and Richard Ravitch) presented a gloomy prognosis about their budgetary prospects. State and local governments face exploding health care costs, declining revenues, lots of deferred expenditures, and anticipated cuts in federal support. Even if the U.S. economy grows more vigorously, the states are going to be in trouble for quite awhile. And that means we will all be living less well, because all the good things that governments provide (roads, bridges, schools, public safety, parks, museums, etc.) will be in shorter supply.
Item #2: Along the same lines, here's a report by Lisa Margonelli (hat tip: Andrew Sullivan) on the increasingly fragile condition of America's electrical power grid. As she points out, not only have we under-invested in this critical national resource, but we've done so at a time when weather is becoming more extreme (due to climate change) and the grid is thus under greater strain. If you want to keep reading this blog, maybe it's time to install that portable generator (or a lot of spare batteries), but that won't help you if your ISP link goes down too.
Item #3: Dylan Matthews of the Washington Post offers a quick and easy guide to the latest budget battle between Republicans and Democrats over which elements of our current fiscal policy (i.e. taxes, credits, expenditures, etc.) we are going to preserve after December 2012. As Matthews' projections suggest, the obvious thing to do is to let the high income Bush tax cuts expire and keep some of the other measures. This approach would reassure the markets and stabilize our long-term fiscal situation, yet reduce the risk of a fiscal contraction that would tip the economy back into recession. But don't expect the GOP to go along with anything sensible like that.
Item #4: A new report by the Project for Defense Alternatives, reminding readers of the following basic facts:
a) the U.S. and its allies spend four times more on defense than our potential adversaries do. I like a margin of safety as much as anyone, but this is ridiculous.
b) Key U.S. allies perennially free ride on Uncle Sucker. The United States spends 4.8 percent of GDP on defense while our NATO allies in Europe spend an average of 1.7 percent, Japan spends 1 percent of GDP and South Korea spends only 2.8 percent.
c) China, our supposed emerging "peer competitor," a rising China, devotes only about 2 percent of GDP to defense.
Either we have our strategic priorities all mixed up, or the DoD is doing something very wrong. I would note in passing that Mitt Romney thinks we aren't spending enough, that we ought to cut taxes even more and that we also need to balance the federal budget. Needless to say, this combination makes no sense, and Romney (who seems to know a lot about clever accounting when his own fortune is involved) is being disingenuous or simply lying.
Is there a direct connection between these various items? No, because economies are complicated and cutting U.S. defense spending wouldn't automatically translate into more money for other items (include state and local governments). But there is clearly a connection between the amount the U.S. spends (trying to) provide global security in lots of far-flung places and our ability to pay for desirable things here at home, including things like education and infrastructure that are essential to our long-term well-being and strength as a nation.
Unfortunately, over the past forty years so-called conservatives in the United States have done a great job of convincing Americans that it is foolish, counter-productive, and even unpatriotic to pay taxes for the benefit of other Americans, while at the same time declaring that it is one's patriotic duty to pay taxes so that we can occupy other countries, build military facilities on every continent, and make it easier for Europeans, Asians, and others to live better under the umbrella of our protection. Unless, of course, you are really, really rich, and can hide a lot of your income in some nice offshore tax shelter. It's been a brilliant piece of salesmanship, but the results are exactly what one would predict: a gradual hollowing-out of the features that once made America the envy of the world, and a bunch of allies who aren't even all that grateful for the sacrifices made on their behalf.
I'm inclined to think that this phenomenon also reflects the rampant individualism that now permeates U.S. culture. If you're doing really well, what does it matter if the broader society is doing worse? Just put your kids in private school, live in a gated community, and let other poor schmucks depend on an eroding set of public goods. If you're a politician, forget about telling the truth or trying to do right by the voters you're supposed to represent, and just do or say whatever will keep your major donors happy and help you get reelected (and land a cushy lobbying job after you retire). If you're a tenured academic, spend your time writing articles that nobody reads and avoid topics that might be controversial, because being relevant or provocative won't help your career. If you're a pundit or a policy wonk, don't worry if you're repeatedly wrong or if your advice leads the country into costly quagmires, so long as you don't pay any price for past errors and you still get invited on all the talk shows.
I also think the roots of this problem can be traced in part to America's remarkably favorable overall position. Because the United States found itself was in such a blessed position after the Cold War-wealthy, powerful, with no serious rivals, etc. -- we could afford to be lazy and irresponsible in the conduct of public affairs. We could take on a lot of foolish projects overseas, allow our national discourse to be polluted by special interests, and let various rent-seeking groups within society pilfer the public purse for their own pet projects. So when al Qaeda showed up and seemed to be a more serious challenge (albeit one we exaggerated), we went off on an ill-conceived crusade that we weren't even willing to pay for. And absent a serious rival to focus the national mind and impose a bit more discipline on our discourse, I doubt this is going to change any time soon.
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Today's jobs report has got to be a real downer for the White House, because it gives Mitt Romney more ammo to make the case that he would be a better steward of the U.S. economy than Obama. I don't think that view is correct, by the way, but winning elections isn't really about who's right or wrong.
If Obama does lose in November, will it be because he made too sharp a departure from the policies of his predecessor, governed the country like some sort of 1960s radical, and in so doing lost the broad support of the American middle? Hardly. If he loses, a good case could be made that his mistake was to act too much like George W. Bush and not enough like Barack Obama the candidate.
To be more specific, he spent too much time and money on Afghanistan, too much time sanctioning Iran (thereby driving up oil prices), too much time picking drone targets, and too much time on a Middle East peace effort that he abandoned as soon as AIPAC & Co. howled. Getting bin Laden was an achievement, but as I noted at the time, it wasn't going to win him any more votes than Bush 41 got for liberating Kuwait in 1991. He got a Nobel Prize because people liked his speeches, but his actual behavior was not that different from Bush's second term. At the same time, he did too little to stimulate the U.S. economy, and too little to constrain an unapologetic financial industry. And I'd argue he spent too much time and political capital getting a modest health care reform bill passed, one that will neither fix the U.S. health care system nor win him many votes in November. (I applaud the ambition, but I'd have gotten the economy rolling first and then done health care). Some of this clearly isn't his fault (i.e., Europe's economic doldrums are not his responsibility), but voters aren't likely to make distinctions like that if economic growth remains sluggish.
As readers here probably know, I'm among those who were genuinely excited by Obama's election and hoped that he would succeed in guiding America onto a different path. Nor have I forgotten what a difficult situation he faced when he took office, and it's unrealistic to expect politicians to be perfect. I'll almost certainly vote for him in November, if only because some of Romney's foreign policy advisors have track records that should worry all of us. And he may still pull it out, because he's a lot more likeable and a lot less gaffe-prone than his GOP rival. But it's going to be close, and a bit more bad news on the economic front will make Barack a one-term president.
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I have no idea if Dartmouth president (and public health expert) Jim Yong Kim is a good choice to head the World Bank or not. I'm not an expert on economic development, and I've heard both good and bad things about him from a number of friends and colleagues since his nomination was announced. But I am pretty sure that the Obama administration blew an opportunity to score some diplomatic points when they decided to push him for the job.
Here's the key issue: Because voting shares in the World Bank are determined by each member nation's contributions, the United States has a de facto veto over who gets to be Bank president. It's the old Golden Rule of International Organization: Those with the gold make the rules. By long-standing custom, the president of the World Bank has always been an American, while a European gets to lead the International Monetary Fund.
Surprise, surprise: Other countries find this situation objectionable. And especially when the U.S. uses its prerogative to foist candidates with dubious qualifications on the institution, such as former Secretary of Defense Robert McNamara (who helped lead the U.S. to disaster in Vietnam) or former Deputy Defense Secretary Paul Wolfowitz (who did the same for us in Iraq).
Of course, realists expect powerful states to use international institutions to advance their own interests, which is why they want to make sure that the people in charge are reliable. If I were president, I would want the World Bank to be led by a highly competent individual who wasn't about to harm U.S. interests. But a smart realist would also recognize that imposing the U.S. choice on others every single time is bound to trigger resentment, and encourage rising powers like China, Brazil, India, and others to redouble efforts to break Washington's stranglehold. And every time the United States has to twist arms or use its privileged position to get its way, other states quietly seethe and anti-American forces are handed another nice talking point to use to undermine the U.S. image around the world.
Which is why I think the Obama administration missed a golden opportunity when it failed to embrace the nomination of Ngozi Okonjo-Iweala, the Nigerian Minister of Finance minister and former World Bank Managing Director. I can't speak with authority about her qualifications, although she does have a B.A. from Harvard (magna cum laude) and a Ph.D. in regional economic development from MIT. I'm also struck by the endorsement she received from renowned trade economist Jagdish Bhagwati in a letter to the Financial Times, where he said that his own personal experience had convinced him that "she can outwit and outsmart almost any policy economist I know."
To be clear, I'm not arguing that Okonjo-Iweala is axiomatically a better choice than Kim, although she certainly appears to be equally (and maybe better) qualified. My point is about the diplomatic repercussions of this decision and the broader approach that the United States ought to be taking in world affairs. Given how powerful the United States still is, a primary goal of U.S. foreign policy should be to make America's privileged position as palatable to others as possible. One way to do that is to make symbolic concessions on minor issues on occasion, in order to build good will and to convey a certain regard for others's sensitivities. You know: a "decent respect for the opinions of mankind." So when Washington gets lucky and the African Union endorses a Nigerian economist with a B.A. from Harvard and a Ph.D. from MIT, who also has ample experience at the World Bank, and who is a woman of color to boot, the smart thing to do is get behind it immediately. This course is such an obvious no-brainer that I'm amazed the Obama administration didn't leap at the opportunity.
And by the way, having a non-American as president of the World Bank wouldn't set an unfortunate precedent. The United States would still have the voting rules in its favor, and it could still veto future candidates that it deemed unacceptable. But in this case the United States missed an opportunity to build some good will at little or no cost, and it's going to come back to haunt us down the road. And woe unto us if Kim gets the job and turns out to be a dud.
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Dan Drezner misunderstands me, and not for the first time. Specifically, in my post on the debate over whether China is overtaking the United States, I neither said nor implied that "developing accurate assessments about the power balance between China and the United States" was not important. My point, rather, was that focusing so heavily on whether China was "catching up" ran the risk of distracting us from equally important issues, such as America's ability to advance its interests more broadly.
In particular, even if everyone agreed that China was not catching up at present, it might still be true that the United States was less able to get its way than it used to be. And even if Michael Beckley is correct that China is not "catching up," it does not necessarily follow that the United States is in great shape, or that it hasn't committed some costly blunders that it ought not to repeat.
Dan is correct to say that the United States is still the world's most powerful country, but of course I never said it wasn't. Indeed, America's enduring assets are a point that I emphasized in my own post and in the National Interest article to which I linked. But the real issue is whether our capacity to "run the world" is more constrained than it used to be. After World War II, the U.S. was able to create a working international trade and monetary order, create new alliance partnerships in Europe, Asia, and the Middle East, and pretty much run those partnerships on its own terms for decades. Back in those days, the U.S. could devote fully five percent of its GDP to a single initiative like the Marshall Plan without batting an eye. And then we spent the 1950s subsidizing our allies' recovery. Can anyone imagine our doing something similar today (i.e., spending five percent of GDP (that is, about $700 billion) on economic aid for anyone, in addition to our normal expenditures for defense and foreign affairs? And let's not forget that it has been two decades since the last successful multilateral trade round, which is another indicator of how power has diffused.
But one doesn't have to go all the way back to 1947. I'd argue that U.S. influence was significantly higher in 1999, in part because we enjoyed a budget surplus,but also because we had a reputation for military prowess and idealism that made many states want to be on our side. For lack of a better term, let's call it soft power.
Today, by contrast, we have budget deficits looming as far as the eye can see. We've lost one war (Iraq) and are going to lose another (Afghanistan). Our global image has been tarnished by events like Abu Ghraib, Guantanamo, the persistent use of drones, and our decidedly one-sided policies elsewhere in the Middle East. Israel ignores our efforts to foster peace, Saudi Arabia ignored us when it intervened in Bahrain, both Pakistan and Afghanistan routinely lie to us, and we have little influence over the political evolution underway in places like Egypt or Libya. Turkey may be cooperating on some issues, but it is hardly as compliant an ally as it was back in the days of the old military government. And so on.
Again, this situation doesn't mean the U.S. is devoid of all influence or a "pitiful, helpless giant." But at the same time, to conclude that all is well because China is not about to supplant us as the world's number 1 power strikes me as a dangerous misreading of recent trends.
Dan is undoubtedly correct to point out that many states still want to rely on U.S. power to help them deal with local security problems, and that the United States is sometimes able to elicit support from like-minded allies if we work really, really hard at it. It is therefore not surprising that a number of Asian countries are eager for U.S. help to counter the challenges posed by a more powerful China. But as I've argued previously, forming a balancing coalition against a rising China is not going to be a walk in the park, and it will require adroit diplomacy to overcome the inevitable dilemmas of collective action and other incentives to "free-ride" on Uncle Sam.
One can also raise at least two questions about Beckley's optimistic assessment. If China hasn't been "catching up," then why are so many states in Asia worried about it? It's possible that they have fallen for the hype too, but at a minimum it ought to give us some pause to realize how seriously China's neighbors see its growing capabilities. Second, as Tom Christensen and some others have previously noted, China does not have to equal the United States in order to pose a greater challenge for us (which is a point that could also be said, on a far lesser scale, for some other countries).
To see this, just ask yourself the following question: if the U.S. were contemplating a direct test of strength with China, would it be better for the United States for this to have occurred in 1992, 2012, or 2022? I'd argue the former, and I'll bet almost anyone in the U.S. military would agree. That's not to say the United States would not win a direct test of strength both now and well into the future, it's just to say that it would have been easier in the past than it is likely to be in the future. And if that inference is correct, then it tells you something about whether Beckley's optimism is fully warranted.
All of which leads to stand by my original post. Of course we should pay attention to the balance of power between the U.S. and China, and Beckley's original article is an important contribution to that effort. But it would be a mistake to read Beckley's reassuring conclusions as evidence that everything is just hunky-dory with current U.S. foreign and defense policy, and to conclude we hadn't spent a lot of the past decade wasting a lot of blood and treasure on fools' errands.
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On the eve of the EU Summit, Mark Sheetz offers the following commentary, which differs in some respects from mine.
In several recent blogs on the euro crisis, Stephen Walt has expressed exasperation with European leaders and pessimism on the fate of the eurozone. His reaction is understandable and consistent with virtually all journalists and economists who study the issue. They are frustrated at the slow pace of European decision-making and the fact that a solution seems obvious. In recent days, demand for action has become nearly hysterical, with analysts, columnists, and editorial writers for the New York Times suggesting that time for a solution is "running short," that "the endgame is fast approaching," that the eurozone is facing a "meltdown," and that a collapse is "perhaps inevitable."
So, what is the solution? Conventional economic wisdom insists that either Germany acquiesce to some sort of bailout or the eurozone is finished. Germany must consent either (a) to the issuance of joint and severally liable Eurobonds or (b) to a policy of monetary easing by the European Central Bank (ECB). The problem is being treated as a technocratic economic matter. Hence, technocrats have come to power in Greece and Italy. But the matter is essentially political and the crisis turns on central problems of international relations theory, like anarchy, sovereignty, and power.
Economists believe that the basic problem of the eurozone is economic: that national economic imbalances can no longer be restored through the traditional method of currency devaluation. But the problems of the eurozone are fundamentally political: (a) it expanded too fast, wider won out over deeper, (b) there is no commitment to common budgetary policies, and (c) there is no mechanism to enforce agreements.
The debate is congealing around two poles, a pessimistic pole predicting the breaking apart of the eurozone versus an optimistic pole of closer integration. The solution includes both. On the one hand, wide economic disparity among members of the eurozone will force weaker members to leave. Greece, as well as those countries that use the euro but cannot afford it (PIGS), will be cast off from the eurozone by a mounting centrifugal force.
On the other hand, the remaining members will converge on tighter economic policy along the German model. As a corollary to more restricted membership, those countries remaining in the eurozone will harmonize their policies regarding deficits and government pensions and achieve some sort of convergence in the major items affecting budget deficits. This will have the effect of bringing Europe closer together, or at least those countries that can achieve convergence. It may also create a more politically coherent Europe, with those remaining in the eurozone leading the European Union economically and politically. Such a situation might even give a common foreign policy the chance to develop and cohere around a small group of stronger European countries.
Some believe that a Greek expulsion from the eurozone will be catastrophic. They assume that a Greek default within the eurozone is manageable, while a Greek exit would make contagion worse. My own feeling is that contagion -- and the accompanying collapse of the European project -- would be the result of Greece staying in the euro, not the result of Greece getting out. The recent evidence of market contagion to Italy and Spain appears to support this claim. A referendum in Greece would have cleared the air. It would have restored a stark reality that European leaders would not be able to evade. If Greeks had voted "no" on the referendum, Greece would have had little choice but to return to the drachma. That would have been a lesson to others. They would have recognized that they have only two choices: (a) converge fiscal and monetary policies or (b) press the "eject" button. The problem now is that European leaders may still think they can muddle through by patching up a country here and there. That will destroy the clarity exposed by a Greek default.
The divide, as usual, is between France and Germany over monetary policy. The French, along with their southern European allies in Greece, Italy, Spain, and Portugal, favor easy money, while the Germans, along with northern Europeans in the Netherlands, Austria, and Finland, insist on a tight money policy. Any hint of German capitulation to French demands of easier money will be the end of the euro. The first sign of wavering, the first inkling that a compromise is afoot, will signal to the markets that the floodgates for a river of euros are open, that fiscal and monetary discipline are history, that inflation will be rampant, and that the euro will be worthless.
Germans will not pay for the profligacy of their neighbors. Otherwise, where would it stop? Any concession towards easy money will only reinforce the "moral hazard" of further risk-accepting behavior. It is a story as old as Aesop: the ant and the grasshopper. Germany entered into the euro under assurances that all members would conduct their economic affairs responsibly. If this is no longer the case, then Germany will reserve the right to withdraw. A former British chancellor of the exchequer agrees, insisting that Germany would sooner withdraw from the euro than see its integrity compromised. Another (not insignificant) factor is the survival of Angela Merkel as chancellor. Any suggestion of Merkel wavering at the prospect of easy money is tantamount to political suicide. So all the speculation that the ECB or the EFSF will "stabilize" (rescue) the euro is so much folderol.
The power calculus, then, favors Germany. France will be dragged along kicking and screaming, but two points suggest eventual French capitulation. One is that Germany will otherwise threaten to secede from the euro, which would put France in a nasty competitive economic position. And the second is that, without the unity embodied in a common currency, French hopes of ever again exerting influence on the world scene will have evaporated. Europeans understand that they cannot meet global challenges as individual nations because they are no longer great powers. As President Sarkozy conceded, "If Europe does not change quickly enough, global history will be written without Europe."
The original path to the common currency was through a convergence of economic policies. Nations would have budget deficits of no more than 3 percent of GDP, and total debt of no more than 60 percent of GDP. If euro members had stuck to these criteria, they would be in dandy shape now. So a return to that mechanism, with additional penalties for non-compliance, might work. The problem is to create binding agreements.
On the question of enforcement, one possibility mentioned is an automatic increase in taxes to offset a budget deficit beyond acceptable limits. Other devices to ensure compliance with EU oversight of national budgets are available for the same purpose. These sanctions would be imposed by a central authority that can override national budget decisions. The European Court of Justice and the European Commission have been suggested as ultimate arbiters, but such supranational enforcement has its limits in a union of sovereign states.
Sovereign governments may oppose such measures for domestic political reasons. As long as sovereignty remains, national governments may negate previous agreements. Even within national governments, as in the U.S. Congress, existing legislatures may negate the agreements of previous legislatures. Therefore, a more severe penalty is required.
The ultimate penalty for non-compliance is, of course, expulsion. The eurozone could expel any country that fails -- after a suitable time period -- to adhere to budgetary guidelines set forth in a new agreement. The ultima ratio of economic union is expulsion, just as the ultima ratio of politics is war. It lurks behind every decision as the final alternative.
So the demise of the euro, as a proxy for the EU itself, is not on. Neither is a consolidation on the German federal model. A big push for more Europe is not in the cards now. The loss of that much national sovereignty is unrealistic, given the immature development of a European identity. That is why convergence of fiscal and economic policies is the most likely outcome, not complete structural reform.
But convergence will not save the euro if member states refuse to comply with agreed guidelines. Both France and Germany violated the guidelines in 2003, breaking through the barriers of 3 percent budget deficits and 60 percent debt for more than a year. If the founding members of the eurozone fail to comply or to remedy violations within prescribed time periods, then the euro will well and truly collapse. In a union of sovereign powers, political will is the ultimate arbiter.
Mark S. Sheetz is an Associate in the International Security Program at the John F. Kennedy School of Government of Harvard University. He is currently writing a book on France, Germany, and the Transformation of Europe.
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If you're confused about where Europe is headed, join the
club. Last week at a seminar a colleague with considerable knowledge of European
affairs confidently told me "Don't sell your euros ... the Germans will eventually
step in and rescue the whole thing." He may be right, but the head
of the Bundesbank isn't stepping up yet and there are significant political
obstacles to the level of integration that would be necessary to make the
European Central Bank a true "lender of last resort."
My concern is more long-term. It's possible that Germany is bluffing, and that Europe's leaders will find a way to stagger through the current crisis. But as I've noted before, the underlying issue isn't just the rickety structure of the euro itself. In addition, it is whether economies like Greece and especially Italy can generate enough economic growth to make it plausible that they will ultimately repay their debts. An all-European guarantee (funded largely by Germany) might help in the near-term, because holders of Greek and Italian debt are less likely to panic if they think a bailout is available if needed and reduced fears of default will lower spreads on Italian and Greek bonds and thus allow them to continue to finance the debts they already have.
Unfortunately, economic growth in the entire eurozone is sluggish, and troubled economies like Italy aren't likely to see sharp increases in growth, especially if they are being forced to adopt austerity budgets that shrink public sector spending and/or throw more people out of work. Plus, over the longer term most of Europe --including Greece and Italy -- are going to decline in population, while the median age will rise sharply. For example, Italy's population will decline by about 1 million by 2035 and its median age will rise from 43 today to nearly 50. A growing population of retirees and a shrinking number of active workers is not exactly a formula for robust economic growth, even in the best of circumstances.
Even if my friend is right and the Germans eventually go "all-in" to save the euro, isn't there likely to be a point where the more prosperous European countries are no longer willing to finance bailouts in perpetuity? And what if a situation arises where they aren't in such great shape themselves and aren't able to fund a bailout? This is where nationalism will really kick in: it is one thing for wealthy New Yorkers or Californians to subsidize poorer U.S. states more-or-less forever, because the subsidies are mostly hidden from public view and in the end we all think of ourselves as part of the same country. But I don't think the existing sense of common European identity is powerful enough to neutralize stubborn local nationalisms, even when the bond market is pushing in that direction. I continue to hope that Europe's leaders will find a way out, but I've yet to hear a convincing story that tells me how.
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The struggle to save the euro is beginning to look like a chase scene from an Indiana Jones movie. First, our hero dodges the landslide, then runs from the spear-wielding aborigines, then is surprised by a snake ("I hate snakes!"), then is pursued by well-armed Germans and has to escape on horseback, only to plunge over a waterfall, only to be captured by ... you get the idea.
So this week we had 48 hours of excitement after Greek Prime Minister George Papandreou announced he was going to hold a referendum on Greece's acceptance of the European bailout. Consternation reigned, and markets tumbled. And then he said, in the best tradition of Emily Litella: "Never mind." Markets rebounded, and the bus lurched on toward the next crisis.
As I've emphasized before, I'm no macroeconomist (although my respect for some of them has been dropping steadily since 2007). From my decidedly non-expert perspective, here's what I've concluded.
The real issue with respect to Greece and Italy (and thus, the euro) is whether genuine economic growth can be restored to these economies. All the bailouts and austerity and haircuts (i.e., voluntary reductions in debt) in the world won't help these states (and especially not Italy) if they can't generate enough economic growth to pay back what they owe. (Strict austerity is a problem here, by the way, because it reduces growth in the short term). If they don't grow they can't pay, which will place a lot of European banks at risk of major losses and maybe bankruptcies. And because this whole arrangement depends on confidence -- a debt is an asset if you think it will be repaid, but it's a loss if you believe it won't -- you'll get a credit event if the markets ever conclude that growth won't happen and the debts won't get repaid, and the euro is probably finished (at least in its present form). End of story.
So the fact that things have calmed down a bit (just as they do at the end of a good chase scene), doesn't tell us much about the future. All these diplomatic machinations to arrange rescue packages, etc., can buy time, but they won't solve the problem if economic growth does not return. And the big difference between this thriller and a Spielberg movie is that the script is being written as we go along and we have no guarantee of a happy ending.
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For those of you who are curious about the relationship between scholarship and the real world, with particular reference to the social sciences, I recommend FT columnist John Kay's recent essay "The Map is Not the Territory: An Essay on the State of Economics." Kay is an experienced professional economist himself, and the essay is a penetrating critique of the kind of divorced-from-reality thinking that has dominated a lot of macroeconomic research over the past few decades. As you'll see if you read the piece, he's especially irritated by the unwillingness of some prominent macroeconomists (including Nobel Prize winners like the University of Chicago's Robert Lucas) to acknowledge that the failure to anticipate the financial meltdown of 2007-2008 casts some well-founded doubt on the direction that economic thinking has taken in recent decades.
Kay's essay also contains some valuable lessons for political science and other academic disciplines. My favorite passage:
For many people, deductive reasoning is the mark of science, while induction - in which the argument is derived from the subject matter - is the characteristic method of history or literary criticism. But this is an artificial, exaggerated distinction. ‘The first siren of beauty', says [macroeconomist John] Cochrane, ‘is logical consistency'. It seems impossible that anyone acquainted with great human achievements - whether in the arts, the humanities or the sciences - could really believe that the first siren of beauty is consistency. This is not how Shakespeare, Mozart or Picasso - or Newton or Darwin - approached their task.
The issue is therefore not mathematics versus poetry. Deductive reasoning of any kind necessarily draws on mathematics and formal logic; inductive reasoning is based on experience and above all on careful observation and may, or may not, make use of statistics and mathematics. Much scientific progress has been inductive: empirical regularities are observed in advance of any clear understanding of the mechanisms that give rise to them. This is true even of hard sciences such as physics, and more true of applied disciplines such as medicine or engineering. Economists who assert that the only valid prescriptions in economic policy are logical deductions from complete axiomatic systems take prescriptions from doctors who often know little more about these medicines than that they appear to treat the disease. Such physicians are unashamedly ad hoc; perhaps pragmatic is a better word.
Needless to say, I like this argument because I believe it is important for the social sciences to be a diverse intellectual ecosystem instead of a monoculture where one approach or method reigns supreme. Even if one approach or theoretical model were demonstrably superior -- and that is rarely, if ever, the case -- there would still be considerable value in having lots of other scholars working in different ways. Sometimes we learn by exploring deductions in a formal model (though we often just restate the obvious when we do); at other times we learn by "soaking and poking" among policymakers, by constructing a data set and exploring patterns within it, or by immersing ourselves in the details of historical cases or by exploring the categories of thought and discourse that surround a given policy domain. Given that all these approaches yield useful knowledge, why would any serious department want to privilege one approach over all others?
But because academic disciplines are largely self-defining and self-policing (i.e., we determine the "criteria of merit" and success depends almost entirely on one's reputation among fellow academics), there is the ever-present danger that academic disciplines spin off into solipsistic and self-regarding theorizing that is divorced from the real world (and therefore unlikely to be refuted by events) and of little value to our students, to policymakers, or even interested citizens. This tendency occurs primarily because proponents of one approach naturally tend to think that their way of doing business is superior, and some of them work overtime to promote people who look like them and to exclude people whose work is different. Anybody who has spent a few years in a contemporary political science department cannot fail to have observed this phenomenon at work; there just aren't very many people who are genuinely catholic in their tastes and willing to embrace work that isn't pretty much like their own.
This situation creates a real dilemma: if you believe in academic freedom (and I do), then you don't want outside authorities interfering in the production of knowledge, telling academics how to do their work, or setting stupid criteria for evaluating scholarly contributions. But without some pressure to be at least potentially relevant, the social sciences are prone to drift off into what Hans Morgenthau once decried as "the trivial, the formal, the methodological, the purely theoretical, the remotely historical -- in short, the politically irrelevant." I've already touted my own prescriptions for this problem here, but I don't have enormous confidence that any of them will be heeded. But at the risk of seeming to tout my own employer (and similar programs elsewhere), that's why I increasingly expect the most interesting and relevant work to emerg from schools of public policy, and not from the increasingly arcane worlds of traditional disciplinary departments.
Perhaps the single most remarkable development in 2011 is the wave of political protests that have occurred in widely-varying political contexts. In addition to the various upheavals that constitute the "Arab Spring," we've also seen tent cities in Israel, the "Occupy Wall Street" movement and its clones here in the United States, and various imitators in both Europe and Asia. This wave of political contagion is more widespread than the "velvet revolutions" of 1989 (though not yet as significant), and perhaps the nearest analogue would be wave of youth-revolutions and upheavals that occurred back in 1968.
What is going on here? Is there a common set of causes at work, or at least a common thread to otherwise diverse phenomena? I think so, because I see these upheavals as fueled by three important global developments.
The first factor is economic globalization, which has made many states both sensitive and vulnerable to events in far-away places, and led to rising inequality both between and within countries. Yet most governments have failed to enact remedial measures to soften the consequences of economic change and to restore a more level distribution of income, thereby ensuring some degree of economic pain and political discontent.
The second development is the globalization of information, which allows events and ideas to spread much more quickly. As a result, demonstrators in Cairo can watch what's happening in Tunis and imitate it, and then other people in other countries get the idea that protest can be effective, even if their particular grievances are somewhat different. And so it spreads, as the radical idea of ordinary people taking action against the seemingly impregnable becomes increasingly contagious. Plus, each group can learn from each other and feed off the sense of being part of a larger process, instead of feeling like isolated and powerless individuals with scant hope of success. This sort of thing has happened before in world history (e.g., in 1789, 1848, 1919, 1989, etc.), but never in so many far-flung and widely different contexts.
The third reason is the increasingly-evident incompetence and/or corruption of governing elites in many countries, and the tendency of governments to do too much to protect wealthy and powerful interests and not enough to help ordinary people. In Egypt, it was the overt corruption of the Mubarak regime, whether in the form of privileged deals for military officers or for Mubarak's son. In the United States, it was the taxpayer-funded rescue of "too big to fail" financial institutions as well as the "too-well connected to fail" recycling of some of the same people who helped create the whole mess in the first place. And then there's the continued recycling of policy ideas that had been discredited by events but never discarded. People may be disappointed by Obama, but real disenchantment comes from the growing realization that replacing him wouldn't make much difference and might make things much worse. You know the line: "Meet the New Boss....Same as the Old Boss." (Turns out Pete Townshend was a prophet when he wrote "Won't Get Fooled Again," which would be a nice anthem for many of these movements.)
There is, of course, a deeper taproot to all this. As my colleague Jenny Mansbridge reminded me in a superb talk I attended last week, (and which will be published next month in PS), the present combination of economic inequality and political gridlock is fatal to the proper functioning of democratic orders. In a capitalist democracy, corporate interests tend to be wealthier than the rest of society, and the state is the only actor powerful enough to intervene to prevent corporate interests from going too far and exploiting their position. This is what happened in the Gilded Age and again in the Roaring 20s, which eventually led to the Progressive Era and later the New Deal.
But if the political system is gridlocked, then the state cannot act quickly or decisively to retard corporate power. Even worse, as corporate interests grow stronger they tend to acquire greater political power (and especially when a tame Supreme Court helps them, as it did in the Citizens United decision). Instead of just hamstringing the state, corporate interests can get it to enact laws that favor them even more. The result will be rising economic inequality and precisely the sort of irresponsible and unregulated behavior that led to the Great Recession of 2007.
Put these three things together, and you have a recipe for global protests in very different countries. Despite the many differences between conditions in the United States, in Greece, in Egypt, in Syria, in Israel, or elsewhere, what unites the 2011 wave of global protest is the shared belief that the People in Charge do not know what they are doing, care more about their own wealth and well-being than they do about the common weal, or are simply too spineless and shallow to do what at least a few of them secretly know to be right.
Ask yourself: how many contemporary political leaders do you genuinely admire? How many of them would rate a paragraph, let alone a whole chapter, in a revised edition of Profiles in Courage? How many of them seem capable of giving you a straight answer to a hard question, as opposed to offering you a lot of happy double-talk? How many of them are better at making a powerful speech than they are at taking a principled stand and sticking to it? How many of them have really got your back, as opposed to pandering to the endless parade of well-heeled lobbyists and special interest groups? Is there political leader in your country who is not for sale?
If you've been paying attention, and you can't find such leaders in your country, and you having been watching the obscenely wealthy get richer and more powerful, so that they can rig the game to make themselves richer still, then you'd probably think about painting a sign and getting out in the streets. And if I didn't already have this blog for my soap-box, maybe I would too.
Spencer Platt/Getty Images
So today I'm watching stock markets around the world go into
free fall, and the following set of thoughts struck me. For starters, what if the world economy hits a
"perfect storm?" The United States is already well on its way to a
"lost decade," mostly because the Bush administration created an
enormous mess and Obama, his advisors, and the Congress combined to do too
little back in 2009. Europe is still teetering on the brink of meltdown, and
some people have real concerns about China's overheated and opaque economy too.
And these problems are all connected, and not just by bad loans, credit-default
swaps, and the like. If any of these big economies heads back into recession,
that will slow the others and could -- in the worst case -- sends us spiraling
back down into the sort of economic tailspin not seen since the 1930s.
I am not an economist, and I have no idea how likely that "perfect storm" scenario is. But remember that what ultimately got the United States out of the Great Depression was World War II. Suddenly there was a war to win, and the American people didn't mind deficit spending and didn't mind devoting over 40 percent of GDP to defense. And they also accepted that sacrifices would be needed -- rationing, scrap drives, a draft, and the like -- and the war muted the partisan wrangling of the 1930s. That gigantic Keynesian stimulus finally got the economy roaring to life.
So here's my question: in the nuclear age, the danger of a World War II-style global conventional war is greatly reduced, and maybe even impossible. And even the most hard-edged realist would have trouble finding the equivalent of Nazi Germany or Imperial Japan in today's world (by comparison, the Islamic Republic of Iran, with a $10 billion defense budget that is less than 3 percent of U.S. national security spending, isn't remotely in the same league). So if the world were to fall into an economic abyss and a big conventional war is neither likely nor desirable (and let me make it clear that I think replaying World War II would be a VERY BAD THING), then how would we dig ourselves out? And how long would it take, especially when you consider just how dysfunctional, fact-free, and irresponsible our politics has become.
Back in 2009, right after Barack Obama took office, I published the following prediction in the Australian journal American Age:
To be blunt, anyone who expects Obama to produce a dramatic transformation in America's global position is going to be disappointed. There are three reasons why major foreign policy achievements are unlikely. First, the big issue is still the economy, and Obama is going to focus most of his time and political capital there. Success in this area is critical to the rest of his agenda and to his prospects for re-election in 2012. Second, Obama is a pragmatic centrist and his foreign policy team is made up of mainstream liberal internationalists who believe active US leadership is essential to solving most international problems. Although they will undoubtedly try to reverse the excesses of the Bush administration, this group is unlikely to undertake a fundamental rethinking of the US's global role. Third, and most important, there are no easy problems on Obama's foreign policy "to-do" list. Even if he was able to devote his full attention to these issues, it would be difficult to resolve any of them quickly.
I thought of that article and those predictions after two conversations with friends who are both experts in American politics. One is a political scientist and entrepreneur who leans toward the GOP these days, and the other is a political scientist with considerable experience in the Democratic Party establishment. My businessman friend told me bluntly: "Obama is toast. The Republicans could run a scarecrow against him and win." Interestingly, my Democratic party friend was even more outspoken in condemning the president and his advisors, and bluntly called them "a disaster." (As for my own forecasts, I think I was basically right, although Obama did not focus as much on economic matters as I expected and put too much time and capital into the health-care fight. And that is why he's in big trouble now.)
It's still early in the election season, of course, and the GOP field looks none too strong. But there's a lot of solid political science research showing that incumbent presidents have a very tough time when the economy is in the doldrums, and it's hard for me to see how Obama can get things moving again, especially when the GOP leadership has every incentive to thwart his efforts, even if it means keeping Americans out of work for another year or so.
The prospect of a one-term Obama presidency is bound to have important effects on foreign policy too. I'll bet other countries are already starting to think about the possibility, and starting to factor that into their calculations. The obvious implication is that any governments who have serious differences with the Obama administration are going to dig in their heels even more and hope for better after 2012. It's possible that some governments who fear a more hard-line U.S. response under the GOP might be tempted to cut deals while they can, but I don't think that's very likely because they would also have to wonder if a lame-duck administration could deliver on any deal it made. The absurd length of the U.S. presidential campaign season will compound all these problems, by burning up even more of the president's time and attention over the next year or so.
This is obviously speculative and should not be overstated. But now, as in 1992, "It's the economy, stupid." And the bottom line: Expect even less from U.S. foreign policy in the year ahead. Like I said back in 2009: If you thought this administration would produce a major change in our overall global position, get used to disappointment.
Over at the Belfer Center's "Power and Policy" blog (a relatively new website which is well worth perusing), my colleague Dick Rosecrance has taken issue with my earlier post on Europe, the European Union, and transatlantic relations. Dick is a friend, a highly accomplished scholar, and a great asset to the Kennedy School. His challenge to my analysis is therefore welcome, though I didn't find it convincing.
For starters, Dick begins his sally by misrepresenting my position. Contrary to what he writes, I did not "consign the European Union to the trashheap of history." Indeed, I made it clear that I expected the European Union to remain intact for some time to come. My point was simply that the high points of European influence, EU unity, and transatlantic security cooperation were now behind us, and that U.S. policymakers ought to take these developments into account. I might add that I think U.S.-European relations will be more harmonious if both sides of the Atlantic have more realistic expectations about each other, instead of acting as if we are still in the heyday of the Cold War. And no, I don't think recent events in Libya are going to alter this trajectory.
Dick makes three main assertions in the rest of his response. First, he reminds us that Europe is the largest economic unit on earth, with a combined GDP that is larger than the United States. Its power would be even more impressive, he suggests, if it imitated the early American republic and became politically united. This is undeniably true in theory, just as I would be Wimbledon champ if I could play tennis better than Nadal, Federer, or Djokovic. The problem is that Europe isn't like the early American republic, and a true "United States of Europe" is not going to happen in our lifetimes.
Second, he says that "in today's world, economics largely determines politics." Dick is hardly the only person who believes this, but has he noticed all the ways that politics -- pure and simple -- keeps intruding into economic affairs? Were it not for politics, managing Europe's debt crisis would be relatively simple. Absent politics, we would have had better financial regulation here in the United States and we wouldn't have had that 11th hour melodrama over raising the U.S. debt ceiling. If politics were as irrelevant as he suggests, it wouldn't have been seventeen years since the last successful multilateral trade agreement and the Doha Round would not have been a bust. If the desire for economic efficiency and wealth consistently trumped politics, most of the conflicts that still trouble us would have been resolved long ago.
Third, Dick argues that the United States is going to need Europe to counterbalance a rising China. Note the contradiction here: after telling us that economics dominates politics, he proceeds to justify a grand strategic partnership on pure balance-of-power considerations. If economics were all that mattered, we could just spend our time worrying about global trade and investment and there'd be no need to think about China's relative power at all.
Equally important, there is no reason to think that Europe is going to get into the business of balancing China in a serious way. The separate European nations have few strategic interests in Asia and hardly any capacity to project power there. They are far more likely to see China as a market. If the United States were to go to its NATO allies in 2020 and ask for help preserving maritime access in the South China Sea, it would probably get Gallic shrugs of indifference, pious statements of German pacifism, and elegant expressions of English equivocation, and then the diplomats and trade reps would hop the next flight to Beijing. What the United States won't get is any serious help from Europe.
States balance against threats, and one key component of threat is geographic proximity. If the United States decides to balance China--based on the long-range desire to remain the world's only regional hegemon -- and if it needs allies to help it accomplish that task, the place to find them is Asia, not Europe.
If you're like me, your attention this week has been focused on the gyrating stock market. That's not my area of expertise -- though my gut tells me that the wild swings of the past few days are mostly a reflection of uncertainty -- and I won't try to tell you what it means or how you can profit from all this turmoil. (If I had the answer for that, I'd have taken my wife's advice and moved our retirement funds into cash or Treasuries a couple of weeks ago. Oh well.)
Overall, I remain a long-term optimist about America's global position, because the United States still has lots of innate advantages and most of our current problems stem from self-inflicted wounds (stupid wars, threat inflation, a warped tax code, too much money corrupting politics, etc.). Compared with a lot of other countries, however, the United States remains geopolitically secure, wealthy, and technologically advanced. It has excellent higher education and a relatively young and growing population (especially when compared to most of Europe, Russia, or Japan). If we can just get our politics and our strategy right we'll be fine, though I admit that this is a big if.
So instead of brooding about my portfolio, I've been thinking about the Big Uncertainties that are going to shape events in the years to come. It's a subject I've visited before (see my "Five Big Questions" from July 2010), so you can consider this a partial update.
Here are my Five Big Uncertainties for 2011.
1. The World Economy: Meltdown or Malaise? Obviously, a major driver of the near-to-medium term environment will be whether we get another major economic slump. See FP colleague Dan Drezner for the nightmare scenario here, and especially bear in mind the danger that a serious slide would almost certainly lead to even more poisonous politics in lots of different places. (Like any good economist, Dan presents the optimistic scenario here, which tells you why President Kennedy used to complain that he wanted to meet a one-handed economist). The alternative that I foresee, alas, is not a scenario of rapid economic recovery. Instead, the best we can hope for is at least a couple more years of very modest economic growth. But at this point I'd take that in a heartbeat.
Ian McKinnell /Getty Images
Remember the 1990s? Back in those days, the U.S. was recognized as the world's sole superpower. Our economy was booming, we ended the decade with a budget surplus, and there was a widespread sense around the world that the United States really had its act together. True, we had some pretty bitter partisan politics, misguided polices like "dual containment" were helping pave the way for 9/11, and corrupt financiers were busy sowing the seeds for the 2007 meltdown, but most of the world had the impression -- rightly or wrongly -- that the United States knew what it was doing. People like Tom Friedman extolled America's virtues in books like The Lexus and the Olive Tree, arguing that the rest of the world would have to embrace "DOS.Capitalism 6.0" (in other words, our system), or fall by the wayside. Overall, a powerful aura of competence enhanced U.S. influence and magnified our "hard power."
Fast forward to right now. We are on the brink of a major self-inflicted wound, driven solely by the deep dysfunction that now seems baked into our political system. Why should Pakistanis, Afghanis, Europeans, Chinese, Thais, Mexicans, Venezuelans, or anybody else take our advice on how to govern, when they watch the sorry set of ignorant clowns who are holding the rest of us hostage? If the worst case happens and the United States ends up defaulting, the economic costs will be significant enough. But it is also likely to do considerable damage to America's reputation for being a reasonably well-governed society, and it will accelerate the tendency for people around the world to look elsewhere for guidance. And while all this time and attention has been wasted on the debt ceiling, other problems are festering and will be there to bite us later.
I wonder if all those "patriots" in the Tea Party and the GOP ever thought about that. And if they did, would they even care?
One of my occasional hobbyhorses on this blog has been the desirability of greater transparency on where research and advocacy organizations (and intellectuals) get their money. It's the old question: cui bono? You can read what I've said in the past here and here. I frankly would welcome a system where think tanks had to publicly disclose all of their sources of support, so that consumers of their work could see exactly who they were beholden to. Lest you think I'm being hypocritical about this, I think university professors ought to do the same with any outside income that they earn.** The reason in both cases is simple: when anyone participates in public discourse on vital issues, outsiders should be aware of potential conflicts of interest and should know exactly who might be paying for it.
Eli Clifton at the Center for American Progress has a revealing post up on the various backers of the neo-conservative Foundation for Defense of Democracies. This organization has been in the vanguard of the campaign for war with Iran, reflexively supportive of the Israeli right, and a fertile source of fear-mongering Islamophobia. It will therefore surprise no one that its primary financial backers are also hard-core Zionists, and that the democracy it seems most committed to defending is located far from Washington D.C.
This situation underscores a point that John Mearsheimer and I emphasized in our book: the Israel lobby is not confined to formal "lobbying" organizations like AIPAC. It also includes well-funded think tanks and advocacy organizations that actively work to shape political debate and public discourse in ways intended to reinforce the U.S.-Israel "special relationship" and to persuade policymakers to support policies that these organizations believe (in my view incorrectly) will be beneficial for Israel and the United States.
It bears repeating that there's nothing illegal, conspiratorial, or unethical about what these donors are doing; individuals and foundations in the United States are entitled to fund whatever advocacy organizations they wish. But Clifton's data helps you understand why discourse inside-the-Beltway is so heavily skewed in one direction.
**Postscript: In my own case, in 2010 I received a consulting fee from the S Rajaratnam School in Singapore and speakers' fees from eight other universities (for public lectures). I also received honoraria for presentations at several events sponsored by the Department of Defense and for participating in a colloquium sponsored by the State Department. I was also paid to speak at an Economist magazine conference in Athens and for doing some research work for the New America Foundation. Foreign Policy pays me a modest amount to write this blog, and Cornell University Press pays me to co-edit a book series. And in case some of you are wondering, I didn't receive any money from any individuals, groups, countries, or corporations connected with Middle East politics.
JIM WATSON/AFP/Getty Images
Back in the good old days, American officials used to lecture other countries on how to reform their economies and how to be responsible players in the international economic order. Today, with U.S. credit-worthiness held hostage to a bunch of self-serving flat-earthers in the Republican Party, and with the management of the rest of the economy in the hands of lobbyists, too-big-to-fail banks, and politically-connected financiers or financially-connected politicos, it's to be expected that states like China would start lecturing us. Who can blame them?
MANDEL NGAN/AFP/Getty Images
About 13 months ago, I returned from a visit to Greece and said I was increasingly pessimistic about prospects for a successful turnaround there. Money quotation (emphasis added):
In order to stave off default, Greece needs to trim its budget drastically (which means throwing people out of work or reducing their incomes), while at the same time stimulating economic growth. The problem is that it's hard to do both at the same time, because cutting the budget (or collecting taxes more efficiently) reduces domestic demand and thus chokes off economic growth. And because Greece is part of the Eurozone, it can't stimulate export-led growth by the normal expedient of devaluing its currency. (The sinking Euro helps globally, but not within the Eurozone itself.) Greece's prospects for economic growth are further handicapped by conditions elsewhere in Europe: It will be hard for Greece to grow if the rest of Europe is stagnant. If the government's efforts at restructuring lead to widespread political unrest, then chances of robust growth are even slimmer. And once the financial markets begin to realize all this, bond spreads will increase again and we will be back in the same soup we were in a few weeks ago.
All of which leads me to conclude that Europe as a whole is going to be in difficult shape for quite some time, unless EU officials figure out a way to do a lot more than they have done so far. And a double-dip European recession could trigger a double-dip recession here in the United States, which would have profound economic and political consequences (e.g., goodbye to Barack's second term?)."
Back then, I was surprised that anybody thought differently (i.e., that anyone believed the initial bailout would work). It didn't, of course, and Greece, the bankers, and the EU are now back in the soup. As the New York Times reports (my emphasis):
"Analysts and Socialist Party insiders said that Mr. Papandreou seems likely to succeed in passing the austerity package, having secured more support within the party. But economists are nearly unanimous in predicting the loans will only buy time, but do nothing to pull the country out of its economic morass and potential default.
Or as Ken Rogoff, co-author of a terrific study of financial crises ("This Time Is Different: Eight Centuries of Financial Folly), points out: "There is every possibility that at the end of this Greece is going to default anyway."
If that's true (and it sounds right to me) then Greece may have no alternative but to abandon the Euro and leave its creditors (and the Eurozone countries) to their fates. I'm no expert on these matters, but most of what I've read so far tells me that this would be very bad news for the European economy, and for us. But you can relax, because at least things are going well in Libya and Afghanistan and Pakistan and the Mideast and Japan and ...
LOUISA GOULIAMAKI/AFP/Getty Images
Juan Cole had a nice piece over the weekend on the paltry Western offers of support for the Arab Spring. Helping the Arab economies recover and securing a moderate and democratic outcome in Egypt and Tunisia (and maybe elsewhere) is arguably one of the more significant priorities in contemporary international affairs, yet pledges of outside help have been pretty meager.
This isn't surprising, of course, because the United States is in deep fiscal trouble and some of our European allies are in even worse shape. So we're trying to get the Arab oil exporters to pony up a lot of the money, or we're making vague commitments of support that may not even be implemented.
If you want a comparison that reveals how our recent profligacy has undermined our ability to make bold moves in cases like this, consider that the European Recovery Program (aka the "Marshall Plan") cost about $13 billion in 1948 dollars, which would the equivalent of about $113 billion today. The U.S. economy was only about $270 billion back then, so Marshall Plan aid amounted to roughly 5 percent of U.S. GDP. If Washington were to pledge a similar percentage today, it would be about $700 billion. Of course, Egypt and Tunisia are just two countries, not a whole continent, but even a tenth of that amount would be some $70 billion (which is less than we spend each year fighting in Afghanistan). Yet nobody seems to be thinking in these terms. After all, what did Obama offer Egypt in his speech at the State Department? A couple of billion in loan guarantees and debt relief, and that's all. And I'm not saying he should've have pledged more, because I've no idea where he could find it or how he'd get Congress to authorize it.
Which goes a long way toward explaining why the United States and its allies aren't going to have much influence over how the Arab spring evolves.
P.S. I'll be appearing at a conference session in Washington today (Tuesday), co-sponsored by the Carnegie Endowment for International Peace and the Kennedy School's Middle East Initiative. Other speakers include Nathan Brown, Marina Ottaway, Tarek Masoud, Nicholas Burns, Marwan Muasher, and Christopher Boucek. I don't know if it will be live-streamed or not, but you can find out more about it here.
There's a terrific piece in the National Journal today, adding up the costs of the "war on terror" and pointing out that unlike some other costly wars in American history, this one has produced almost no economic benefits. That is, unless you think people standing in TSA lines are using those idle minutes (hours?) to dream up lots of innovative new ideas that will fire up the U.S. economy. I rather doubt it.
If we had a rational discourse on this subject, it ought to provoke two questions. First, how did we get into this mess in the first place? Specifically, what were the U.S. policies that contributed to the rise of groups like Al Qaeda, and made it difficult-to-impossible to head them off before they hit us? (You'd think the 9/11 Commission would have tackled this question head on, but of course that proved too controversial for them). This subject hasn't been wholly neglected since 9/11 (i.e., there was some discussion of the familiar "why do they hate us?" question), but even raising the question could get you accused of being someone who "blamed America first." So hardly anybody asked if maybe 9/11 was also a wake-up call, and that there were some aspects of U.S. foreign policy that needed to be rethought. Of course, raising the question doesn't necessarily mean that the policies that contributed to Al Qaeda's rise (e.g., stationing troops in Saudi Arabia, unconditional support for Israel, propping up the Mubarak regime in Egypt, etc.) were necessarily wrong, but it does suggest that these policies were more expensive than we previously believed.
The second question would be: which responses to 9/11 have worked well, and which policies have proven to be costly failures? Ideally, the United States ought to conduct a ruthless assessment of the post-9/11 response, in order to determine -- to the extent possible -- which of the post 9/11 policy changes were effective and which were not. The purpose here isn't a witch-hunt directed at former government officials, as I assume that even the neocons who led us blindly into Iraq believed that this decision was in the best interests of the country. But now, nearly ten years later, we ought to be mature enough to recognize that some of the actions we took after 9/11 weren't that smart, while some other responses turned out to be quite effective. And both ends of the political spectrum should be open to revising their views: some policies abhorred by liberals (such as electronic eavesdropping) may actually have been a net positive, while some actions favored by hardline conservatives (such as waterboarding and other forms of torture) should be seen as misguided failures.
That is how a mature great power would deal with the vast and costly response that began on 9/11: it would try to learn the right lessons from the past decade so that it did better the next time it faced an unexpected challenge. But in the polarized, partisan, and fact-free world of contemporary policy discourse, how likely is that?
Saturday's New York Times contained an interesting op-ed piece by Charles Blow, titled "American Shame." The main item was a table listing the 33 countries designated as "advanced economies" by the International Monetary Fund and comparing them on various social and educational characteristics. Specifically, Blow charted income inequality, unemployment rates, level of democracy, the "percentage thriving" (according to the Gallup Global Well-Being Index), food insecurity, prison population, and student performance in math and science. The bottom line: The United States is at the bottom of the heap on most of these measures, and at or near the top in none.
It's a sobering collection of data, to be sure, but I wish Blow had added two more columns to his chart: 1) percentage of GDP devoted to defense, and 2) defense spending per capita. According to the 2010 IISS Military Balance, here's what those columns would have looked like (the countries are in the order presented by Blow, which reflected their summary ranking on the various measures, from best to worst):
Country Defense $/GDP (%) Defense $/population (2008)
Australia 2.24 1,056
Canada 1.19 597
Norway 1.49 1,264
Netherlands 1.41 738
Germany 1.28 570
Austria 0.77 389
Switzerland 0.83 542
Denmark 1.94 344
Finland 1.33 693
Belgium 1.10 534
Malta 0.60 122
Japan 0.93 362
Sweden 1.30 736
Hong Kong n.a. n.a.
Iceland 0.27 (200 153 (2006)
New Zealand 1.39 420
Luxembourg 0.43 478
United Kingdom 2.28 998
Ireland 0.60 382
Singapore 4.20 1,663
Cyprus 2.16 503
South Korea 2.60 500
Italy 1.34 532
France 2.35 1,049
Czech Rep. 1.46 310
Slovenia 1.53 415
Taiwan 2.76 458
Slovakia 1.55 271
Israel 7.41 2,077
Spain 1.20 276
Greece 2.85 946
Portugal 1.53 349
United States 4.88 2,290
And just for fun, let's toss in:
P.R. China 1.36 45
Rod Lamkey Jr/Getty Images
My previous post on the future of the Euro has attracted some critical comments from various parts of the IR/IPE community, see here and here. My critics make some interesting points (though I found them a bit hard to follow), but their central argument is that these broad paradigms don't make sharply differing predictions about this issue. In other words, what happens to the Euro (or the EU itself) would be consistent with any of these paradigms, and so my original question was misplaced.
What's perhaps most interesting about the comments is that none of respondents seem to have gone and looked at the realist work that is most germane to this issue, and to which I alluded in one of my links. I refer to the work of Sebastian Rosato of the University of Notre Dame, who has recently published an important book entitled Europe United: Power Politics and the Making of the European Community. (Full disclosure: Rosato took a course from me at the University of Chicago over a decade ago, but I left Chicago before he wrote his thesis. His book was published in the book series that I co-edit, but I wasn't the editor who handled his manuscript)
In any case, Europe United is a decidedly realist account of the EU's formation and evolution. Rosato is also a pessimist about the fate of the Euro, on both purely economic but also what might be termed "power-political" grounds. Critics of my original post are correct that I don't have a "realist" theory on this issue, but Rosato does. (He also has a forthcoming article in International Security that lays out his arguments regarding the euro in more detail).
Without presuming to speak for him, I'd just make two points. First, as I made clear in my original post, I don't think the evolution of the euro or the EU will decide the validity of rival theoretical approaches to international relations. Despite my realist proclivities, I actually see some virtue in most approaches to international relations, and the trick is determining what weight to give each one and how to adjust the weights in different circumstances. In short, I stand by the views I expressed here.
Second, I still believe these rival perspectives do lead to different expectations about Europe's future course. Realism, liberalism, and constructivism all agree that states will cooperate in some circumstances, but realists are more skeptical about the scope and extent of cooperation and tend to see underlying power distributions and security concerns as central to the process, especially between major powers. Accordingly, a realist account of the EU would stress that these states agreed to constrain their own autonomy and sovereignty largely in response to an unusual power configuration (i.e., the Cold War), and as much for security reasons as for purely economic ones. The end of the Cold War removed that power configuration, and we have seen the EU both expand and fray ever since. Germany's unwillingness to keep subsidizing profligate countries and European concerns about the implications of Germany's increasingly dominant role (as highlighted in this NYT article) are consistent with that view.
By contrast, liberal accounts of the EU emphasize the role of economic interdependence and welfare concerns as the main driving factor. In this view, so long as high interdependence obtains, the EU has little choice but to find a way to stagger forward. Constructivist approaches offer a third alternative: the EU will survive because it has led to the emergence of a nascent "European" identity that is gradually trumping national loyalties, and so distributions of power and other traditional realist concerns aren't really relevant anymore.
So we do have three contrasting views-one of them generally pessimistic about the EU and the euro, and two of them generally optimistic-and we can now wait for the passage of time to reveal which prediction is correct.
Bottom line: I don't think my original question was silly, but I am glad to have stimulated a bit of discussion.
It's not as though the world came to a halt while the Egyptian drama was keeping us glued to our laptops, and at least one interesting development is worth watching closely for a number of reasons. You all know that the EU has been facing a major crisis over the past several years, triggered by deep economic problems in Greece, and to a slightly lesser extent in Spain and Portugal. These troubles forced the eurozone countries to authorize a major financial rescue package last year and led some observers to question whether the euro itself might be at risk.
Over the past few months, however, German Chancellor Angela Merkel and French President Nicolas Sarkozy have been negotiating a joint proposal for deepening economic coordination within the EU (and especially the eurozone) in an attempt to solve some of the problems that produced the crisis in the first place. (The basic issue is that the eurozone countries share a currency, but do not have fully integrated tax systems, labor markets, or fiscal systems, thereby making it much harder for them to adjust when one economy gets into trouble).
Not only does this question have obvious implications for politics and economics in Europe itself, but it also raises some fundamental questions about IR theory and might even be a revealing test of "realist" vs. "liberal" perspectives on international relations more generally. Realists, most notably Sebastian Rosato of Notre Dame, have been bearish about the EU and the euro since the financial crisis, arguing that European member states were more likely to pursue their individual national interests and to begin to step back from some of the integrative measures that the EU had adopted in recent years.
By contrast, institutionalists, and EU-philes more generally, have suggested that the only way forward was to deepen political integration within Europe. The basic idea here is that economic integration is central to European economic health and one of the keys to continued amity within Europe. Equally important, any attempt to leave the eurozone or to dismantle the euro itself would cause an immediate collapse of the currency (and plunge several European states into even deeper crisis). In this view, there's no going back; Europe can only plunge ahead toward closer integration.
As you'd expect, I've tended to be among the bears, in part because I don't think greater "policy coordination" between the member states can eliminate occasional fiscal crises and because I think nationalism remains a powerful social force in Europe. European publics won't be willing to keep bailing out insolvent members of the eurozone, and the integrative measures that have been proposed won't be sufficient to eliminate the need. The original Merkel-Sarkozy proposals got a pretty hostile reception when they were rolled out, and Merkel's hopes of pushing them through probably declined when her designated choice to head the European Central Bank (Axel Weber) withdrew from consideration. So it remains to be seen how much of their program will actually get adopted.
But the EU has surprised doomsayers before, and I can't quite convince myself that a collapse of the eurozone is inevitable. So what we have here is a nice test of two rival paradigms, and students of international politics should pay close attention to how this all plays out. But remember: Like all social science theories, no general theory of international politics or foreign policy is right 100 percent of the time. Accordingly, the future evolution of the EU/eurozone won't provide a decisive test that will validate one approach completely and render the other view totally irrelevant and obsolete. Proponents of each perspective will probably try to claim total victory if events turn their way, but that's not really the way that social science operates.
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Stephen M. Walt is the Robert and Renée Belfer professor of international relations at Harvard University.