Veterans for Common Sense

November 10, 2008 – During his quest for the presidency, president-elect Barack Obama scored considerable points with the American public when he stated that America must “get off the wrong battlefield in Iraq and take the fight to the terrorists in Pakistan.” That is where bin Laden and al Qaeda are, he emphasized.

Taking advantage of the Iraq war’s unpopularity, Obama promised to send more American troops to the Pakistan-Afghan front as they become available from Mesopotamia, making that proposal a central plank in his foreign policy platform. His pronouncement on the Afghan war theater was also meant to give Obama credibility in an area he was deemed weakest: foreign affairs.

But with the election now over, the challenges facing the incoming president in the turbulent Afghanistan-Pakistan region are much more complex than those espoused on the campaign trail. And their resolution will also require more than the two extra brigades Obama said he will send to Afghanistan next year.

On the issue of troop numbers alone, military analysts agree more foreign soldiers are needed in the Afghanistan-Pakistan area of operations. According to the military website, strategypage.com, the Taliban has increased its number of fighters by 20 to 30 percent this year due to an upsurge in drug revenues. As well, defeated al Qaeda fighters and bomb makers from Iraq have rallied to the terrorist organization’s border sanctuaries in Pakistan where their presence has been felt in the Afghanistan conflict.

In turn, this growth in al Qaeda and Taliban numbers has caused an increase in violence in Afghanistan this year and a corresponding larger number of American and allied casualties. But perhaps even worse from both the security viewpoint and the winning of hearts and minds, NATO troops and Afghan troops have had to withdraw from areas they once controlled due to a lack of boots on the ground, leaving the local population to the mercies of the Taliban. A senior Canadian officer said the Canadian contingent would need to double its numbers to 5,000 to keep the Taliban away from important districts around Kandahar, the Taliban’s birthplace.

As a result, military experts have estimated that the number of American and NATO troops in Afghanistan should be tripled from the present 50,000-60,000 to about 150,000, and the Afghan army and national police be increased from its present size of about 120,000 to 500,000. These numbers are similar to those which were responsible for successfully bringing a war-torn Iraq under control, a country smaller in size and population than Afghanistan.

But the question is whether Obama, who promised to bring American troops home from Iraq within 16 months after being elected, would be willing to redirect them so soon to Afghanistan. And will he be willing to send the large numbers deemed necessary to do the job? Failure to do so would lead to the suspicion that Obama was simply using the Afghanistan conflict and the call to fight bin Laden and al Qaeda as an excuse to end the Iraq war the Democrats detest.

Another major challenge facing the Obama administration in Afghanistan is the Afghan government itself. Corruption is rife among Afghan officials and police, who have lost much trust among the Afghan people. Money for rebuilding the country has gone missing. And even President Hamid Karzai and his brother have been accused of accepting bribes from drug gangs. It is here, in the all-important civil sector, that the war may be lost since no viable state can be set up without the Afghan people’s support. With such misrule, even if the Taliban were defeated, Afghanistan would probably relapse into the warlordism of the 1990s without a NATO presence.

What should hearten the incoming president, though, is that conditions in Pakistan are improving regarding the war against Islamic extremists on Pakistani territory. This is good news for Obama, since events in Afghanistan are a consequence of what is happening in Pakistan.

The Pakistan government outlawed the Taliban and launched an all-out offensive against it and al Qaeda last August in their border sanctuaries. Hundreds of Taliban and al Qaeda fighters have been killed since then and hundreds more foreign combatants have been arrested. The Pakistani Taliban is so hard-pressed, it has offered to lay down its arms and hold talks with the government, an offer President Asif Zardari, in his determination to eliminate the extremist threat to seize the Pakistani state, has so far refused. But it will still be some time, Pakistani officials admit, before that threat will be completely eliminated.

The Pakistani government’s resolute action against al Qaeda and the Taliban, however, may let Obama off the hook on one of his more controversial campaign promises. Obama stated he would send troops into Pakistan without that government’s permission if “actionable intelligence” existed that al Qaeda was planning another terrorist attack against America and the Pakistanis were failing to act on it. This statement made him unpopular in Pakistan, one of the few countries where he trailed in the popularity polls during the election campaign.

In the end, Obama may bring his own tools to the table to deal with the challenge of Afghanistan. He has stated he believes in a multilateral approach in dealing with international problems, so he may include countries such as Russia, Iran and the Central Asian states in talks regarding the Afghanistan conflict. The president-elect also said it will be necessary to “win over the hearts and minds of 1.3 billion Muslims” or ‘it was going to be very difficult for us to win the long war against extremism.” This represents a greater challenge, of which Afghanistan is a part; but success here would constitute Obama’s greatest achievement of all.

President Bush will bequeath President-Elect Obama a national debt — $10.5 trillion and rising — that has almost doubled since he took office, even before you factor in the full costs of the financial bailout and the Medicare prescription benefit, as well as the price tag for providing for the hundreds of thousands of returning Iraq war veterans.

More Pain to Come, Even if Obama is Perfect

November 9, 2008 – This is one hell of a way to win.

Barack Obama owes his victory in large measure to the prospect of the longest and deepest economic downturn in a quarter-century and perhaps since the Great Depression. If he performs well, he could become a great president. If he flubs it, he could get the same reception as Jimmy Carter. In the crassest political terms, it was good luck to have the financial crisis hit so close to the election. But Obama’s lucky streak will end in a hurry if he can’t find a way out of this mess. He will also have to manage expectations: Even if he does everything perfectly, we probably won’t turn the corner for 18 months, and the downturn could last far longer than that.

The first task facing President-elect Obama, after eight years of misguided economic policies, will be to begin the recovery — or at least forestall a further decline. It won’t be easy. Some 1.2 million jobs have already been shed this year, and some three-quarters of a million Americans are about to exhaust their limited unemployment-insurance benefits. By October, only 32 percent of unemployed Americans were receiving unemployment checks. To make matters worse, when Americans lose their jobs, they typically lose their health insurance, too. Meanwhile, 3.8 million homes are under foreclosure, and states are facing massive revenue shortfalls; without assistance, they will have to cut spending, plunging the economy deeper into recession.

So some steps are obvious: assistance to homeowners and bankruptcy reform; extending unemployment insurance; and making up for the gap in state revenue. The United States also has an infrastructure deficit, not just a fiscal and trade deficit, which means that spending more on infrastructure (such as public transport and technology — especially of the green variety) will stimulate the economy in the short term and help us be more competitive in the long run.

But then matters start to get trickier. The economy obviously needs a direct shot in the arm, but the 44th president needs to be careful about the design of the stimulus he proposes. That’s because President Bush will bequeath him a national debt — $10.5 trillion and rising — that has almost doubled since he took office, even before you factor in the full costs of the financial bailout and the Medicare prescription benefit, as well as the price tag for providing for the hundreds of thousands of returning Iraq war veterans.

To his credit, Obama knows much of this. During the campaign, he argued against cutting taxes on upper-income Americans, who have done so well in recent years. In addition to repealing the 2001-03 tax cuts for the wealthiest, Obama should also consider taxing dividends and capital gains at the same rate as ordinary income: It would reduce the deficit, have few short-term adverse effects on an already reeling economy and make the tax code more fair. After all, why should speculators — whether on oil, food or real estate — be taxed less than those who work long hours to make a living?

Another major problem Obama has to tackle is growing inequality in this country. Some of these trends will take decades to reverse, but ensuring that no Americans are denied a college education because they can’t afford it, providing adequate funding for public primary and secondary schools and so forth would be a good beginning

Obama has also promised to wind down the war in Iraq. Spending a fraction of the war’s cost — my estimate places the total at $3 trillion for our entire economy — on investments within the United States would help reduce the deficit and boost economic growth at home.

While the federal deficit looms over the Obama administration’s economic deliberations, we must be careful not to let it block bold action. Sometimes, we’re wiser to pay now rather than later. Borrowing for high-yielding investments (not just Wall Street bailouts) is common sense. The decisions not to reinforce the levees in New Orleans or upgrade the bridges in Minneapolis were penny-wise, pound-foolish blunders that we lived to regret.

The root of so many of our problems is the reeling financial sector. The plan cooked up by Bush and his Treasury secretary, Henry M. Paulson Jr., isn’t likely to work, or work well enough. So Obama’s team will have to wade in.

Already, the banks have been talking about using taxpayers’ money for dividends, bonuses and acquiring other banks, rather than doing more lending, which was clearly what Congress had in mind for the $700 billion. U.S. taxpayers got a raw deal, compared to the terms won by other governments (such as Great Britain) or by the legendary investor Warren Buffett, who provided capital to the best capitalized investment bank, Paulson’s own Goldman Sachs. Want further proof that Washington got a lousy deal? Look at how the markets reacted. The share prices of the bailed-out banks shot up, showing that investors expected net profits to rise substantially.

The U.S. financial sector, once the emblem of our economic success, has failed us. Financial markets are supposed to allocate capital and manage risk; instead, they squandered capital and created risk. Even more galling, the banks’ chiefs raked in private rewards totally out of whack with what scant good they were doing for the wider society.

So Obama will have to push for major changes, in both regulations and the overall systems of carrots and sticks, to restore confidence, spur lending and ensure that our financial markets do what they are supposed to do. This may require, for instance, restricting some of the special benefits (such as easy-to-get Federal Reserve loans) granted to the banks in recent months only to well-behaved institutions that actually lend more and use publicly provided funds responsibly. And it means that the financial sector should not only fully repay the bailout funds it has received but also give taxpayers a return commensurate with the risks the country has undertaken. If that means taxing the banks, so be it. Wall Street would demand no less if it were doling out its own money.

Obama will also need to deal with some vast inefficiencies in our economy if we are to prevent further erosions in our standard of living. Some U.S. sectors are global leaders, such as our world-beating universities and the high-tech firms that thrive on the ideas hatched in our ivory towers. Others are embarrassing, such as health care, where Americans spend far more than citizens in many other industrialized countries and get underwhelming results. We need a bold approach here, reforming not just the way we provide medicine but also thinking more broadly about health. That means doing more about diseases associated with alcohol, drugs, tobacco and obesity, which have increasingly come to symbolize American over-consumption.

Similarly, we should think more broadly about the bang we get for our buck in international affairs. Our current military expenditures are a serious drain; we could get more security for far less money if we didn’t waste so much on weapons systems that don’t work or are designed to fight enemies that don’t exist. (Think the Air Force’s multibillion-dollar program for a new deep-strike bomber that would be completely useless against terrorists.) Moreover, we might be the richest country in the world, but we have been among the stingiest of the advanced industrial countries when it comes to fighting global poverty and disease. We devote only 0.16 percent of our world-leading GDP to foreign aid, among the lowest rates in the developed world. If we make the World Bank and the International Monetary Fund more democratic, we will lose some voting power, but we will gain tremendously in “soft power,” or global influence.

Obama is also inheriting a climate crisis. The United States and China have been racing to see which nation will contribute most to the greenhouse gases that cause global warming. It looks as though China will win in absolute terms, but on a per capita basis, America takes the smoggy cake. We cannot save the planet without a global agreement, and we cannot get such an agreement without massive reductions in U.S. emissions. This transition could have upsides beyond the environmental ones. A carbon tax — or the auctioning of emissions permits — could generate huge revenues; some of those could be used to help Americans adjust to the new “green economy,” while the rest could be used to reduce the deficit or lower taxes on workers. But we really have little choice here: Europe and other global players are likely to slap a carbon tax on U.S. goods if we don’t deal with the issue at home. Their firms will not tolerate giving U.S. firms a competitive advantage simply because we refuse to bear our responsibility for the global environment.

We may be witnessing the birth of a new economic model. We have been treating two of the world’s scarcest resources, air and water, as if they were actually free. No wonder we have paid so little attention to resource-saving innovations. Perversely, the U.S. tax code has actually been subsidizing the production of the very fossil fuels that contribute to global warming. We have been pursuing a policy that amounts to “Drain America first.” It has made us even more dependent on oil imports — a stunningly short-sighted plan.

And in the rare cases when we have turned to renewable sources of fuel, we have done so in a manner driven by special interests, not by common sense. Subsidies to corn-based ethanol, for instance, offer little if any benefit to the environment; such handouts have been justified in the name of helping out an infant industry that will stand on its own feet if given a good start. But ethanol is an infant that has refused to grow up.

The new economic model will require changes in the ways and places where we live and work. There will be some losers (including the oil industry, which has done jarringly well in recent years), but there will be even more winners.

In so many ways, the United States has reached a low point. Picking ourselves up off the ground is itself no mean achievement. But I hope that our new president will do even more for us than that.

Joseph Stiglitz, a professor at Columbia University, won the Nobel Prize in economics in 2001. His latest book, with Linda J. Bilmes, is “The Three Trillion Dollar War.”