Beyond November: Challenges for the Next U.S. President

WASHINGTON, October 31, 2008--In a few days, Americans will have a new president, and the long campaign will be at an end. John McCain or Barack Obama will then be confronted with the full import of the challenges and opportunities the new president will inherit when he assumes the mantle of leadership in January. Acknowledging the importance of looking "beyond November" to the next four years under a new administration, AEI held a series of conferences in late October on key issues for the next president to address in the areas of foreign policy, international trade, and economic policy. Some panelists were advisers or supporters of one of the candidates, but none spoke for either campaign.

At the panel focused on foreign policy, participants agreed that the omnipresent challenges of the greater Middle East make it likely that the region will play a central a role in the foreign policy agenda of the next U.S. president, much as it did under the Bush administration. In addition to the wars in Iraq and Afghanistan, an Iran with hegemonic and nuclear aspirations, a stalled Arab-Israeli peace process, a volatile Pakistan, an increasingly fragile Lebanon, and rampant anti-Americanism in the region, the new president will have the added challenge of inheriting various failures and the "tarnished reputation" of the Bush administration, according to Martin Indyk of the Brookings Institution. He warned that the next administration faces a "bleak horizon" in the region but also pointed to a "silver lining": the success of the surge in Iraq, which will allow a drawdown of U.S. forces and will reduce Iraq’s vulnerability to Iranian sponsorship of proxy organizations.

 Jon Alterman of the Center for Strategic and International Studies described the United States as "weaker" and "less persuasive" at the end of the Bush administration. The first foreign policy challenge for the next president, he said, will be navigating the domestic environment in the United States, with the American people "tired of the Middle East and preoccupied with challenges at home." The next administration, he advised, should devise a way to give less overt attention to the region while recognizing its centrality to U.S. strategic interests.

Iraq, according to AEI’s Reuel Marc Gerecht, will be the lynchpin of American foreign policy in the Middle East for the next president as it was for President Bush. If Iraq emerges as a self-sustaining democracy--as it looks like it will if current trends continue--it could perform a function similar to what the Bush administration originally envisioned and could be a strong U.S. ally to counter Iran. Success in Iraq would disprove arguments that democracy in the Middle East is impossible.

Vance Serchuk, a foreign policy adviser to Senator Joseph Lieberman (I-D-Conn.), pointed out the danger of hubris for the next president but emphasized the capacity he will have to do good in the world. Serchuk agreed that the next president will inherit obvious messes in the Middle East, but he warned that the next administration will probably be confronted with unexpected events, as were the administrations of George H. W. Bush, Bill Clinton, and George W. Bush. The test of the next president, Serchuk said, will be how he reacts to surprises.

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The event highlighting trade policy uncovered deep pessimism about the U.S. political appetite for international trade. Bruce Stokes of the National Journal said that "Americans are in a sour mood about trade" and pointed to a 25 percentage point drop in poll support since 2002. While the subject of trade is more prominent now, the fact that it is not a major issue in the presidential campaign speaks to its low priority in the national dialogue: trade is not a central issue, Stokes said, because it is too removed from people’s lives. Stokes articulated, and all the panelists agreed, that likely nothing will be accomplished on trade in the next four years because there is too much on the agenda and because the Democratic Congress is generally against it. "On trade issues," Stokes said "it’s not really going to matter who’s president."

AEI’s Philip I. Levy warned that when it comes to trade, "standing still may well not be an option" because the system for international trade is not as strong as it seems. "There is no real enforcement mechanism" for the World Trade Organization, he said, and protectionism rises in difficult economic situations like the current one. But trade does matter, Levy insisted, because it is "symbolic" of a country’s approach to markets.

The current "crisis on trade," however, cannot be blamed on the Bush administration, according to Ira Shapiro, general counsel to the Office of the U.S. Trade Representative (USTR) in the Clinton administration. "There has been a fair amount of continuity in U.S. trade policy between the Clinton administration and the Bush administration," he said. Trade is not a new problem. What the next president needs to do, he said, is make a "cold-eyed assessment" of the opportunities for trade, U.S. economic interests, and other countries’ competitive strategies. The next president, Shapiro insisted, should not put forward rigid free trade agreement proposals because he will need the credibility that comes from a real effort at engagement.

Sallie James of the Cato Institute agreed that the Democratic Congress will not be interested in increasing and facilitating international trade or approving free trade agreements. She dismissed proposals to renegotiate NAFTA, calling NAFTA "a really handy whipping boy," and said that promises of revitalizing the Rust Belt by renegotiating NAFTA are "a false hope to offer to people." She agreed that "we’re not going to see much good out of trade policy either way" in the next four years but added that one difference in the next administration will probably be the "makeup and function" of the USTR--"I think it will turn into a litigation shop," she said.

Thea Lee of the AFL-CIO insisted that trade policy as it stands today is not working for Americans, and she pointed to debt and low wages as examples. "Americans have been trained to hate and fear trade policy," she said. For average people, the phrase "global economy" connotes fewer benefits and more threats to their jobs. While a President McCain will accomplish nothing on trade because of the Democratic Congress, a President Obama, she said, has the potential to address unfair trade policies.

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On the panel addressing the economic challenges facing the next president, AEI’s Charles W. Calomiris also struck a pessimistic note by saying he is "worried sick," and not just about the financial crisis itself. "As a financial historian, I’ve seen this play before from a political economy standpoint, and it doesn’t have a good ending." He called "political opportunism" the biggest risk for the economy and warned that "politically self-serving misdiagnoses" of the economic problems could lead to "regulatory errors." He pointed to three potential errors in particular: a "rebirth" of Fannie Mae and Freddie Mac from conservatorship, politically driven global coordination through the Basel Committee on Banking Supervision, and "lawyerly solutions to regulation" that would be counterproductive to incentives.

AEI’s Kevin A. Hassett pointed out that Americans have not experienced a recession preceded by a financial panic in the post-World War II era and predicted that "we’re going to have a recession that is worse than the typical postwar experience and perhaps longer." Reversals in markets are still possible, he said, but a prewar-like recession is also possible. In this uncharted territory, he said, it is policy that will determine whether we are headed into a lengthy recession. Another stimulus package will not have the desired effect because people anxious about the economy will not spend the money they receive. The next president will need to propose policies with longer-term effects. At the same time, anything that contributes to "an anti-business climate could cause changes that would magnify the downturn," as previous recessions have.

The job market is "solidly in recession," and consumers are retrenching, the Economic Policy Institute’s Jared Bernstein said. In the "unreal" economy, financial markets are down 40 percent year to date. And in the "real" economy, the unemployment rate is 6.1 percent, while the underemployment rate--made up in large part of people who cannot find full-time jobs--is 11 percent. Wages are falling due to loss of weekly hours worked, the real net worth of working-age households is down $5 trillion, and the real median income for these households is declining. This cumulative bad news, Bernstein said, is driving the electorate toward the Democratic Party. Considering these daunting challenges, Bernstein issued a belated warning for the candidate who finds himself the new president of the United States: "Be careful what you wish for."

--CHRISTY HALL ROBINSON AND PHIL ALITO

For video, audio, and information about these events, visit www.aei.org/event1818/, www.aei.org/event1824/, and www.aei.org/event1825/.

For media inquiries, contact Véronique Rodman at vrodman@aei.org or 202.862.4870.

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