Six Questions, Washington Babylon — November 12, 2008, 7:20 am

Six Questions for David Hendrickson on the Obama Administration, Banana Republics and Foreign Policy

David Hendrickson teaches international politics and American foreign policy in the Political Science Department at Colorado College. He is the author of numerous books and essays, including Peace Pact: The Lost World of the American Founding. He recently posted a blogbook called Cause for Depression: A pictorial guide to the financial crisis, which offers a variety of charts, graphs, and tables that help explain the current scope of the country’s economic troubles. I spoke to Hendrickson by phone and asked him six questions about the economic scenario faced by the Obama administration, and the impact of the situation upon foreign and military policy. This interview was edited for length and clarity.

1. Just how bad, and how big, is the unfolding economic mess?

It’s very big and we’re still early in the process. The fundamental problem is the enormous debt overhang. Total credit market debt, which includes all government and private debt, is 350 percent of gross domestic product (GDP). That’s way out of line from a historical perspective. The figure has to come down and that will involve a tremendous amount of dislocation. The official unemployment rate, which seriously underestimates the real number, could easily hit 10 percent. We have the makings of a very serious downward spiral and we’re at the beginning stages.

2. Is the bailout bill passed by Congress likely to seriously address the situation?

The bailout bill was a colossal mistake and it is based on a false premise: specifically, that we’re facing a liquidity crisis and not an insolvency crisis. Ben Bernanke and Henry Paulson originally justified buying all this toxic paper because we were facing a short-term panic. The problem, in their view, did not reflect insolvency in the financial system, so they believed, if the government took on the assets they would appreciate and the taxpayers would make money. But the assets they took onto the balance sheet will depreciate; they’ve already started marking them down. The worst part is that losses that ought to have been borne by shareholders are now borne by the public. Meanwhile, the government’s borrowing needs for fiscal year 2009 are estimated at $2 trillion–that’s 12.5 percent of GDP, a Banana Republic level.

3. How will these problems limit Obama’s administration?

There will be decisive constraints. They will be able to undertake new initiatives, but only ones directed towards savings and cutting programs to make them more cost-effective. Obama’s capacity to undertake major initiatives in programs like health care will be extremely limited. The economic crisis Obama is inheriting is like the first President Bush’s gift of Somalia to the Clinton administration. After the 1992 election, President Bush sent substantial forces to Somalia, which became an enormous headache for Clinton. It was a parting gift. Now multiply the headache by 100 times. It’s not an entirely apt analogy, but the Bush administration’s response to the financial crisis is a huge albatross for Obama.

4. The defense budget climbed by about 60 percent during the Bush years and now comes to about $600 billion Is Obama likely to cut defense spending?

Thus far, Obama promises an expansion. He wants to enlarge military ground forces and he hasn’t proposed any significant cuts elsewhere. We used to have a big argument in this country about guns vs. butter, but that disappeared after September 11. There’s been a holiday from thinking about defense in terms of limited resources, but the economic crisis will inevitably force a reconsideration of many defense programs and their affordability. Obama is in a curious position. His electoral strategy was to go along with a “Bush Lite” approach in foreign and defense policy. He criticized the administration on Iraq, but he held to a broad set of objectives that Bush embraced. He needs to reconsider those objectives; the public wants him to as well. He’s been very timid so far, Iraq apart.

5. What objectives, specifically?

He has not walked away from the Bush doctrine of preventive war, for example, and threatens that as a last resort in dealing with Iran. He wants to surge into Afghanistan and he talks about that conflict in the same terms as Bush. Unfortunately, the strategy the United States has employed over the past six years or so has been a disaster. It’s consisted primarily of killing Taliban, but all the civilian deaths have antagonized much of the population there. Petraeus wants to do in Afghanistan what he did successfully in Iraq—divide the resistance by accommodating parts of it. Probably he deserves a chance to do so, but it needs to be emphasized that Afghanistan is not winnable by just sending in more troops to kill more Taliban. If Obama draws down troops from Iraq just to send them to Afghanistan, it will become his war. Disaster lurks if he’s not careful.

6. Are there other areas where the U.S. needs to think about a broad retrenchment?

Obama is in favor of including Georgia and Ukraine in NATO. That should be renounced. It’s guaranteed to poison U.S.-Russian relations and it risks weakening the credibility of other NATO guarantees. The problem is that there’s a consensus among establishment Democrats as well as Republicans on these sorts of questions. Obama talks change, but he really hasn’t proposed much change in foreign policy. It’s the same old song with a more respectful tone. That there’s a better tone is important, but he will need to rethink some of our extravagant ambitions, and sooner rather than later.

Graceful and eloquent as he is, Obama may suffer from too much timidity. He wants to make nice to all sides of the Democratic Party, but there are a lot of hawks in the Democratic establishment. So it will be politically difficult for him to engage in the necessary retrenchment. But there’s nothing like being broke to make you reconsider your plans. The U.S. government is like the pensioner whose 401(k) became a 201(k) during these past few months. You can still entertain all of your ambitions but at the end of the day you have to look and see what’s in your bank account. We have urgent domestic demands and huge fiscal problems competing with all of our global plans. A decade ago the United States was on top of the world economically, politically and militarily. Since then, we’ve weakened in every dimension, yet we still have the same ambitions. Something has to give.

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