Obama's Realism

Paul Pillar

Edward Luce in the Financial Times has a take on Barack Obama's foreign policy that is accurate and should be evident to all. But given the state of foreign policy discourse within American politics, perhaps it is not surprising that it falls to a longtime foreign observer of American policy and politics to make this particular observation. Luce states that as Mr. Obama's presidency “matures,” he “is showing qualities one would normally associate with Henry Kissinger—the arch-realist of U.S. diplomacy.” Luce points to Obama's handling of relations with both Iran and Cuba as evidence that he “is grasping the essence of diplomacy—when adversaries come to terms, neither achieves everything they want,” and that he realizes that “the perfect should not be the enemy of the good.”

Luce focuses especially on the Middle East as a region where President Obama, without acknowledging it, “is taking a leaf from Mr. Kissinger's book” by both pursuing a deal with Iran's regime and simultaneously “stepping up support for its equally dubious counterparts in the Sunni world.” It is a balance-of-power approach, in which the essence of the Obama administration's policy in the region is: “Rather than trying to convert the Middle East to our values, it seeks to limit the region's ability to export its pathologies.”

That Mr. Obama's foreign policy is in its main respects a sober, prudent—and mostly unoriginal—exercise of realism should be obvious but gets obscured by, most of all, the different colors with which his political opponents assiduously endeavor to paint it. The president is consistently portrayed as naive, or weak, or insufficiently assertive in advancing American values. Or as the Speaker of the House said the other day about the nuclear negotiations with Iran (in comments in which Mr. Boehner made clear he wants to kill the deal outright, dropping the pretense that those on his side of the aisle want a “better deal”), “It just appears to me that the administration wants a deal at almost any cost.” The groundless nature of that statement should be apparent to anyone who has looked at all seriously at the history of the negotiations, at what has been agreed to so far, and at who has had to make what concessions to get to this point.

The obscuring of the nature of the current administration's foreign policy also has other roots, including ones that do not necessarily involve the president's opponents. There has been talk about an “Obama doctrine,” reflecting a perpetual yearning among the chattering class in this country to apply such labels and to characterize each presidential administration in unique terms that would warrant such a label. Apply the label if you want, but it implies more uniqueness than is really there.

It is more boring, but also more accurate in characterizing the current administration's policies, to describe it as guided mostly by realist principles that have been applied not just by Henry Kissinger but many others in the past. Among those principles are that U.S. policy should be focused consistently on the most effective ways of pursuing carefully defined U.S. national interests, that the world must be dealt with as it really is and not as we might wish it to be, that in pursuing its interests the United States must use all available tools and deal with all other countries, and that compromise is inevitable and perfection impossible. Unexciting stuff, but wise stuff.

The widespread failure to recognize, with regard to this stuff, both what the Obama administration has been doing and what any administration ought to be doing is a sad comment on the state of foreign policy discourse in the United States today (and Luce notes that the realist strand in Mr. Obama's policy “goes heavily against the grain of the debate in Washington”). This discourse takes place in an environment in which sound and unexciting realism cannot be accepted for what it is without being dressed up with a snazzier label, and in which policies based on such realism get denigrated as weak or unprincipled or something else.

The political environment in which the discourse takes place is one in which the foreign policy of one of the major parties, which now controls the Congress, has been captured by neoconservatism, with a libertarian minority and a realist remnant—reflecting a tradition once represented by Mr. Kissinger and his boss, President Richard Nixon—that is an even smaller minority. The other major party—as a political beast separate from the Obama administration—has been having a hard time finding its foreign policy bearings amid a nationwide rightward shift. The Democrats seem likely to put up a presidential candidate who is substantially more hawkish than the party's rank-and-file, and many members seem less inclined to assert proudly any realist tradition than merely to limit the ability of the other side of the political spectrum to export its pathologies.

The political power of American exceptionalism, of which neoconservatism is the most muscular manifestation, leaves little basis for expecting that any of this will change any time soon. Completion and implementation of a nuclear agreement with Iran would be a significant realist achievement very much in the tradition of—and Luce makes this comparison explicit—what Kissinger and Nixon did in their opening with China. But first the agreement must be completed and implemented, and anti-realist sentiment is keeping uncertain whether that will happen.                               

TopicsU.S. Foreign Policy RegionsMiddle East

The Transformation of America's Housing Market

The Buzz

There has been a pivot in the way Americans live.  When it estimated the U.S. housing inventory for the fourth quarter of 2014, the Census Bureau found that owned homes had declined for the year, while rental units increased by more than 2 million.

Homeownership has fallen to 63.9 percent, its lowest level since 1994. Meanwhile, vacancy rates for rental units hit lows not seen since 1993. In terms of employment and GDP, the economy has certainly made progress since housing bubble burst (though both took longer to get back to normal than most expected). Housing itself, however, has continued to lag.

This shift toward rental housing has already begun to filter through one of the more important, and stagnant, parts of the economic recovery—inflation. Price moves are difficult to track, as are policies surrounding how to measure them. Some price shifts matter more than others. Oil and food movements are volatile, and therefore less important than the movement of clothing and autos. The consumer price index (CPI) places significant importance on the price changes of shelter. Rent and owner’s equivalent rent (OER) make up about 33 percent of the index.

How much is shelter affecting the CPI? Core CPI—all items less the volatile food and energy—is 1.8 percent from a year ago. But remove shelter from this equation and CPI is only 0.9 percent. The price of shelter is up about 3 percent—a significant reason CPI remains in positive territory. This begins to make the “stable prices” mandate and 2 percent Fed inflation target look suspect, and less well targeted than might be assumed.

This is where the shift away from ownership towards rent begins to make an impact.

The calculation of the housing component of CPI is an oddity. The pricing data used to calculate the pricing movements is collected solely from renters—including the data used to compute the owner’s equivalent rent. The Consumer Expenditure Survey asks owners how much rent they would charge for their unfurnished home per month with no utilities. Renters are asked how much their rent is per month and what the amenities are included in the rent. But this CES data is only used to set the weights in the CPI. The prices used to calculate CPI are all from renters. Can you really compute rent of an owned home from a rental unit?

This means the pace of rent increases has a significant effect on the U.S. inflation rate—not simply through the rent line, but through the method of calculating owner’s equivalent rent. Actual home prices do not enter into the equation. If rent does not increase in concert with home prices for idiosyncratic reasons, then home price increases will not be reflected in the owner’s equivalent rent line (which is 24 percent of the index). The converse is also true. If rents are increasing due to Millennials failing to purchase homes and instead bidding up rents, lackluster home prices will have little to no effect on the CPI.

Imagine home prices are increasing. A homeowner asked “How much would the rent on your house be?” will likely estimate a higher figure than before, because of the increasing value. This would increase the weight of the OER in the CPI basket.

As renters shift to being home owners, demand for rental units falls. This would in turn lead to lower rents being charged to tenants. So we end up with a higher weight for OER with a lower rent number. The outcome would be lower shelter inflation—while housing prices are increasing. Costs have not actually declined, but there is inability to distinguish a shift in preferences.

This is crucial to understanding the movements of inflation in recent years. For a variety of well documented reasons, Millennials prefer to rent in cities and live close to work. This has created a renter culture, and rents are moving higher. From this perspective, the current stable core inflation level could be considered the “Millennial Moderation.” The much maligned generational preference for rental housing is likely playing a substantial role in the “reflating” of the economy through the rent mechanism.

The CPI is the most familiar measure of price level movements, and it is used to calculating a host of things including Social Security payment increases, deflating retail sales, and the national product accounts. The measurement of CPI is critical, and this means owner’s equivalent rent is important—not simply because it makes up nearly a quarter of CPI, but because CPI is a critical factor in other economic indicators.

This means there are implications for Fed policy. The measurement and level of CPI is pervasive in economic indicators. The Fed’s mandate is to maintain stable prices, and this means understanding the underlying dynamics of the indicators—especially the indicators that capture headlines and affect everyday economic decisionmaking.

The Fed would normally care little about the internals of the housing market so long as financial stability is maintained. But because of the significance on CPI, the Fed has an obligation to monitor the effects of monetary policy on shifts in housing preferences. The Fed has a habit of insisting that certain economic oddities are simply “transitory.” If high levels of rent inflation are transitory, the Fed’s much sought after inflation pressures might be also.

Typically, higher rates would reduce inflation pressures. But this time, there are no pressures to reduce. With core CPI (less shelter) already running at such low rates, it is important to understand how OER will react to a rise in rates. If it causes rents to decline, this could be an additional headwind for inflation. Higher rates could push the United States into deflation territory. After all, shelter is contributing more than 50 percent of inflation at the moment.

Monetary policy decisions based on CPI, or one of its many derivatives, could be problematic. If rents begin to decline, so will inflation. Even a slowing in rent growth would be problematic for the Fed’s price stability mandate. Without a more broad based increase in the price level, the moderate increase in the core price level will be difficult to maintain, and inflation will fall lower. Understanding this is crucial when evaluating the strength of the U.S. recovery, and the dangers posed by weak inflation.

Samuel Rines is an economist with Chilton Capital Management in Houston, TX. Follow him on Twitter @samuelrines.

Image: Flickr/Charleston's TheDigitel

TopicsEconomics RegionsAmericas

How Iran Fooled the United States

The Buzz

The recent interim framework struck by the United States, its partners, and Iran in Lausanne has generated a tremendous amount of commentary from both supporters and opponents of the deal. Unfortunately, little of that commentary has focused on what Iran was trying to achieve in these negotiations.

Looking at the framework the negotiations produced it seems that U.S. negotiators suffered from this same myopia. In any negotiation, success rests, in part, on the ability to see things from the other party’s point of view. The failure to understand Iran’s actual goals in Switzerland has led to a deal that focuses on things that don’t matter very much, like breakout times and the logistics of inspections, and not at all on the things that matter most. The result is a deal that gives Iran what it wanted most: time and money. The United States and its international partners received in return vague assurances and a press conference that Iran is already backing away from.

In order to build a nuclear capability, a nation needs three basic components: fissile material, a working bomb design, and a reliable delivery system. Iran reportedly has the ability to produce enough nuclear material to build a bomb within three months. So why haven’t they? One possible reason is that all the fissile material in the world can’t help you build a nuclear weapon if you don’t have a working bomb design or a reliable missile to deliver it. What Iran needed out of Lausanne was sanctions relief to revive its economy, preserve the regime, and finance its efforts to further develop its bomb design and perfect a long-range missile that can deliver a weapon against its adversaries. That is exactly what it gets out of Lausanne.

American negotiators focused on getting Iran to give up centrifuges and surrender its uranium stockpiles. They were, we are told, somewhat successful. Iran agreed to give up two thirds of its centrifuges and 98 percent of its enriched uranium stockpiles. (Although the ultimate fate of Iran’s uranium stockpiles and the means by which they were to be disposed of was left vague by the terms of the framework). What negotiators do not appear to have understood is how little these concessions were worth. Constant references to breakout times demonstrate that the U.S. team had a myopic focus on Iran’s current ability to enrich uranium without regard to long run strategy.

Iran’s decision to give up centrifuges and to possibly degrade its enriched uranium does not cost it much. Having mastered the enrichment process, it can temporarily let some centrifuges and material go now because Iran probably does not have a working bomb design yet. It has been widely reported that Iran is conducting tests on bomb triggers at a facility called Parchin. After denying IAEA inspectors access to the site for the last ten years, in an impressive display of negotiating skill, Iran managed to get the United States to agree not to even mention the Parchin site in the Lausanne framework. Iran has now been given the time it needs to perfect its bomb design and got the United States to give up on sending inspectors to facilities where Iran is suspected of conducting weapons research. Once Iran has a working bomb design it can replace every centrifuge and every ounce of uranium it just gave up in very short order. After all, Iran originally built its cascade of centrifuges and enriched all this uranium while under severe economic sanctions and intense international scrutiny. Imagine how quickly Iran will be able to do so again without sanctions.

Even if Iran had a working bomb design, it would still need a reliable delivery system. The most glaring flaw in the agreement struck by the United States is that it does not even touch on Iran’s ballistic missile program. Iran could launch a round of long-range ballistic missile tests tomorrow and it would not violate one word of the agreement struck in Lausanne. Unlike other nuclear states that have air forces with advanced fighter-bombers or submarines capable of delivering submarine launched ballistic or cruise missiles, Iran does not have such platforms capable of delivering a nuclear weapon. Thus, Iran is developing long-range ballistic missiles so it can deliver the weapon it wants to build.

Iran’s main ballistic missile is the Shahab 3. Experts differ on the exact capabilities of the Shahab 3 but most agree that it is capable of carrying a nuclear warhead and can reach Israel. Iran has hundreds of these missiles and is working to develop a new missile, the Sejjil, which will have an even longer range and carry a larger payload.

Nothing in the Lausanne agreement requires Iran to give up any of its existing missiles or curtail tests for its next-generation missiles. More troubling, the agreement promises to give Iran the financial means to revive and expand its testing program. Iran has spent over $1 billion in the last decade on missile development. Ballistic missiles have proven an expensive pursuit and the cost helps explain why development of the Sejjil stalled out as sanctions ratcheted up and money became scarcer. That situation is about to change.

Iran has, since 2009, had enough nuclear material to build a bomb in just a few months. It has likely not done so because its ability to enrich uranium has outpaced its ability to design a bomb or put a nuclear warhead on a missile that can reliably deliver it.

Countries like Pakistan, India, and South Africa operated civilian nuclear programs for many years before trying to build a nuclear bomb. The greater experience a country has running a nuclear program the better equipped it is to deploy an effective nuclear weapon. Giving Iran sanctions relief and breathing space and even inviting them to develop a civilian nuclear program will enable Iran to gain experience in handling nuclear technology. The time will also allow Iran to perfect its bomb design and advance its ballistic missile program.

When the deal expires in a mere ten years (or earlier if Iran decides to violate it) breakout times and snap back sanctions will not matter. This deal doesn’t stop Iran from getting the bomb. It just gives them space to build one on their own terms.

John Ford is an attorney in California. He served as a Captain in the US Army on active duty before entering private law practice. He is a regularly commentator on foreign affairs and national security matters.

TopicsSecurity RegionsMiddle East

Danger: China Is Building Massive Mobile Islands

The Buzz

Not content with transforming reefs into air strips, China is now building massive new floating islands that are likely to be used by the military in the South China Sea.

Over at their “Eastern Arsenal” blog on Popular Science, Jeffrey Lin and P.W. Singer report on a press conference this month announcing the new floating islands. They note that the islands will be built by two Chinese companies— Jidong Development Group (JDG) and Hainan Hai Industrial Company—and the first of them will be used for offshore oil and gas exploration at the South China Sea.

However, Lin and Singer also report that a People’s Liberation Army officer spoke at the press conference, and that the floating islands have many military uses.

“The floating island can support both civilian and military missions, including supply, landing aircraft and basing of amphibious vehicles,” the two authors write in their report.

(Recommended: Russia Could Make China King of the South China Sea)

The also note that the “JDG's floating island designs are modular, being assembled from multiple semi-submersible hull sections,” and would originally come in three different sizes. The smallest would be 300 meters long and 90 meters wide, while the largest of the fake floating islands would be 900 meters long and 120 meters wide. The medium-sized islands would be 300 meters long and 90 meters wide. All that being said, the modular design of the floating islands would allow them to be easily enlarged.

The authors estimate that the three proposed floating islands would displace anywhere from 400,000 and 1.5 million tons In addition, they would be able to travel at speeds of sixteen kilometers per hour.

(Recommended: Red Alert: The South China Sea's New Danger Zone)

As the authors put it: “The design though would allow the islands to scale much larger, by attaching more semi-submersible hull modules, just like Lego bricks. Despite the large size of the individual modules, the floating islands could be easily assembled in deep offshore waters by linking together modules transported by semi-submersible heavy lift ships from landbased shipyards.” The modular design would also make the floating islands difficult to sink.

Another computer generated image depicts a floating island that stretches an incredible two kilometers. “Such giant bases could house battalions of marines and a wing of fighter/attack aircraft, and unlike fixed island bases, they can be redeployed away from enemy missiles,” the authors write in the report.

(Recommended: Unveiled: China's New Naval Base in the South China Sea)

As The National Interest has repeatedly noted, China’s military is currently shoring up its ability to project force in the South China Sea, likely as a prelude to establishing an Air Defense Identification Zone (ADIZ) in the disputed waters. As part of this effort, Beijing has been transforming reefs in the region into artificial islands through massive land reclamation projects. Last week, new satellite images analyzed by IHS Jane’s found that China is constructing its first air strip in the Spratly Islands where Beijing has transformed Fiery Cross Reef.

Zachary Keck is managing editor of The National Interest. You can be found on Twitter: @ZacharyKeck.

TopicsSecurity RegionsAsia

Russia's S-300 Sale to Iran: 3 Things You Need to Know

The Buzz

It’s been widely reported that Russian President Vladimir Putin has decided to sell the Russian-made S-300 missile system to Iran. This sale has been planned for years, but it was put on hold in 2010 when the U.N. Security Council adopted Resolution 1929. Although this resolution did not specifically prohibit the sale of missile systems like the S-300, it did call for all states to “exercise vigilance and restraint” in supplying weapons to Iran. Since then, Russia has refrained from selling these weapons. Now Russia has changed its mind.

The S-300 is a mobile surface-to-air missile defense system that couples powerful radars with high-speed, long-range missiles. It is capable of shooting down aircraft over a large area (depending on the variant, the lethal engagement zone could be larger than the state of New Jersey…with the detection/tracking zone much larger than that). In NATO, we refer to this missile system as the SA-10. We have studied it and trained to counter it for years. While we are not scared of it, we respect the S-300 for what it is: a very mobile, accurate, and lethal missile system.

Russia’s decision to sell the S-300 to Iran is a big deal for three reasons:

1. It represents a fundamental shift in military power for the region:

For over a decade, the United States and its allies have been able to take freedom of action in the Middle Eastern skies for granted. Friendly forces could count on air support and freedom of maneuver. Adversaries could assume they were vulnerable to observation and attack from the air, limiting their options and convincing some of them that they could not achieve their objectives through military force (often called deterrence by denial). This was especially true of Iran, whose air defenses have suffered greatly due to sanctions. The arrival of the S-300 changes this.

(Recommended: Russia's Missile Moves Explained: The S-300 Challenge)

The S-300 is not a wall in the sky. If we have to, we can attack and defeat it. Doing so, however, requires an effort that is much larger, much riskier, and much more costly. Recently, we have seen a debate on the scale of a potential attack on Iranian nuclear facilities, with some arguing that it would be relatively limited and others taking an opposing view. With the S-300 in place, there is no debate. Overcoming this type of system will require a large deployment of air, sea, and land assets, including our most capable—and expensive—airplanes and missiles. Our people and equipment will be at greater risk, and accomplishing the mission will be more difficult and time consuming.

(Recommended: 5 Russian Weapons of War America Should Fear

2.  It represents a major acceleration in the proliferation of A2/AD systems:

In 2003, Andrew Krepinevich, Barry Watts, and Robert Work warned against the proliferation of threats like the S-300 in a study published by the Center for Strategic and Budgetary Analysis that coined the phrase “Anti-Access/Area-Denial,” or A2/AD. They argued that states such as Iran and North Korea would acquire capable systems like the S-300, forcing the United States to alter its approach to projecting military power. That day appears to be here. This is why many officials, including Work—who is now the Deputy Secretary of Defense—have called for the development of new technological approaches to “offset” advanced weapons systems like the S-300. Some have argued that this effort is aimed directly at China, but the proliferation of the S-300 demonstrates how A2/AD environments are spreading.

3.  It represents the return to an age of geopolitical competition:

We may not want to go back to the days when every world development had to be viewed in light of a political competition with another great power. It is increasingly clear, however, that Russia sees the world through this lens. Western sanctions—implemented in response to Russian intervention in Ukraine—have imposed significant costs on the Russian economy and ratcheted up the tension between Russia and the West. It now appears that tension has spilled over into the Iranian situation. With the upcoming sale of the S-300 to Iran, Russia has found a way to increase our costs dramatically should we deem it necessary to intervene there.

(Recommended: 5 NATO Weapons of War Russia Should Fear)

One final observation: 

The training required to prepare against an S-300 threat is exactly the type that has been so damaged by the sequester cuts of 2013 and the budget caps of 2014/2015. Recently, Secretary of the Air Force Deborah James stated that half of Air Force combat units are not trained to the level necessary for the “high-end fight.” In light of proliferation developments such as this Russian deal with Iran, that is not a reassuring statistic.

Colonel Clint Hinote, U.S. Air Force, is a military fellow at the Council on Foreign Relations. He holds a PhD in military strategy, and he recently returned from Korea, where he commanded the 8th Fighter Wing at Kunsan Air Base.  The conclusions and opinions expressed are his own and do not reflect the official position of the U.S. government.

This piece first appeared in the CFR Blog Defense in Depth here

Image: Creative Commons 3.0

TopicsS-300 RegionsEurope