Economics

How to Defeat Iran

George J. Gilboy — Thu, 09 Feb 2012 10:00:00 +0000

If Tehran crosses the Obama administration’s "red lines"—developing a nuclear weapon or blocking world oil supplies transiting the Strait of Hormuz—Washington will face a dilemma. The risks of using force are high, yet the risk of inaction may also be unacceptable. If red lines are crossed the United States must respond, but it should ponder options other than bombing.

One such option worthy of consideration: using mines around Iran's naval ports and oil-export terminals. This might create better leverage than a campaign of air strikes—without generating the death and destruction that could give Iran a cause for perpetual grievance. Mining would shut in both the Iranian navy and Iran's oil exports.

Modern U.S. naval mines are not indiscriminate weapons. They have programmable sensor-trigger mechanisms. These mines can be set to arm after a delay for a warning period, select targets based on a ship’s magnetic, pressure and acoustic signature, and they can be neutralized or cleared after a conflict.

Naval mines have advantages over air strikes. Even precision-guided weapons might well cause civilian casualties and collateral damage that cannot be undone. Air attacks against inland targets would put American pilots at substantial risk. An air campaign could not assure the complete destruction of underground targets.

Worse, mere air strikes might not provide a successful exit strategy. An exit from conflict must be based on forcing (and also enticing) Tehran to accept a political settlement ending its threatening behavior. Yet in addition to its inherent risks, a bombing campaign might cause the Iranian people to rally in support of the unpopular regime. This could further embolden Iran's leaders.

The Impact

Keeping Canada Close

Tom Velk — Thu, 09 Feb 2012 10:00:00 +0000

Tom Velk

History, geography and economic logic combine to make America and Canada close partners. Today, Canada is being shaken up by the uncertainty of a U.S. election year, and some analysts suggest it should "look east" to Asia or "diversify" its trading portfolio. Canadians should ignore these calls. Canada needs to find the right balance for its national interests. But the danger exists it will shift too suddenly—and there is no better example than the current negotiations with the United States on the Keystone oil pipeline.

Obama's Energy Reality

On January 17, President Obama’s Council on Jobs and Competitiveness said that the continuing importance of traditional fuels, combined with uncertain supply lines ”require the United States to optimize all of its natural resources and construct pathways (pipelines, transmission and distribution) to deliver electricity and fuel." It continued that "permitting obstacles that could threaten the development of some energy projects" would "negatively impact jobs and weaken our energy infrastructure.”

Later that day, acting on “advice” from the State Department, The president delayed—and some fear de facto cancelled—completion of the Keystone oil-pipeline project. If the TransCanada corporation completes the project, the thirty-six-inch conduit would carry 1.3 million barrels a day of unrefined petroleum from Canada’s oil sands of Alberta to refineries and shipping assets in Nederland and Port Arthur, Texas.

Exposing Earmarks

The Editors — Wed, 08 Feb 2012 22:14:24 +0000

The Editors

The February 7 Washington Post had a front-page story on how members of Congress have used those ubiquitous "earmarks"—federal monies directed by Congress to specific purposes—to foster public projects right near the homes or investment properties of those very members of Congress. The piece jumps to the inside, with two full pages of investigative prose and mini-profiles of sixteen specific examples. Earmarks are a scourge on American democracy, not because they represent a material amount of money in the bloated federal budget but because they are a recipe for corruption.

Heretofore the focus has been on members helping favored constituents who then contribute significantly to those members’ campaigns. The Post, in a bit of really probing journalism, shows that the corruption goes beyond that. There’s no particular reason this should be surprising. It should be a rule of thumb in politics that entrenched power always gets abused. That’s what this story is all about.

Of course, the members deny that there is any corruption here—or that there is any connection at all between the earmarked funds and their own interests. As the Post said, "Any potential personal benefit—financial or otherwise—is nonexistent, minimal or secondary to the needs of the public, they said."

That rings hollow, of course, and is likely to seem even more hollow after the next installment in this two-part series—a look at money delivered to institutions connected to lawmakers’ relatives.

David S. Fallis, Scott Higham and Kimberly Kindy

The Washington Post

Bursting the Chinese Bubble

The Editors — Tue, 07 Feb 2012 15:56:55 +0000

The Editors

America is finished as a superpower. Or so you might think from the recent discussion in the U.S. media. Popular books lament that “that used to be us” and that the United States is committing “suicide.” Meanwhile, a majority of Americans believe that China has already passed Washington as “the leading economic power in the world today,” according to a 2011 Gallup poll.

In the latest issue of International Security, Michael Beckley argues strongly that this is all wrong—as his title, “China’s Century? Why America’s Edge Will Endure,” indicates. Beckley, a research fellow at Harvard, brings empirical facts and cool analysis to an issue often dominated by overheated rhetoric. His main target is the idea that we can measure China’s rise solely based on its rising levels of GDP.

Michael Beckley

International Security

Israel and Iran: Countdown to War

Benny Morris — Tue, 07 Feb 2012 10:00:00 +0000

Benny Morris

Israel's strategy for the Iranian nuclear weapons program is working—but it’s unlikely to solve the problem, or solve it in time.

Europe, which for constitutional and economic reasons for years shied away from using the big stick, recently decided to impose drastic economic sanctions against Iran in an attempt to compel it to halt its nuclear-weapons program. Meeting in Brussels, the European Union's twenty-seven foreign ministers, led by Britain, France and Germany, agreed to halt all imports of Iranian oil products or to help ship them to any destination; to halt all exports to Iran of oil-production equipment and all investments in the Iranian oil industry; to freeze the assets in Europe of Iran's central bank; and to prohibit all trade in diamonds, gold and other precious metals with Iranian state agencies.

But the union added the proviso that all existing oil-purchasing contracts between Iran and the three major European importers of Iranian oil–Spain, Italy and Greece—would be honored until 1 July, substantially reducing the immediate impact of the sanctions. In 2011, Greece imported 35 percent of its oil from Iran, Italy 15 percent and Spain 13 percent. All three countries are in the throes of a major financial crisis.

The European foreign ministers agreed to compensate those of its members economically injured by the sanctions. Meanwhile, both Europe and the United States have pressed Saudi Arabia, Iraq and Libya to increase their oil production to compensate for the loss in Iranian exports and keep oil prices down.

What Is Our Number One Priority?

Paul R. Pillar — Tue, 07 Feb 2012 00:50:22 +0000

Paul R. Pillar

In an interview broadcast during NBC's Super Bowl pregame show on Sunday, President Obama made a couple of statements that were disturbing, even if politically unsurprising. In a portion of the interview about the danger of Israel touching off a war with Iran, the president said, “My number one priority continues to be the security of the United States, but also the security of Israel.” Wait a minute—shouldn't the security of the United States be the number one priority of the president of the United States? Rather than merely sharing the top spot on the priority list with some foreign country's security? This comment was part of an unscripted interview, and perhaps the language of a prepared speech would have come out differently. But the president said what he said.

Elsewhere in the same interview, Mr. Obama said that in dealing with Israel regarding the issue of Iran, “We are going to make sure that we work in lockstep.” If working in lockstep means that Israel defers to U.S. interests and preferences, that would be fine for the United States. But of course the deference nearly always works the other way around. For a glaring recent example involving President Obama, recall how he caved to Benjamin Netanyahu regarding the continued Israeli construction of settlements in occupied territories. So this statement is disturbing as well.

Burma Comes in from the Cold

Doug Bandow — Mon, 06 Feb 2012 10:00:00 +0000

Doug Bandow

Once isolated by the West, Burma, also called Myanmar, has chosen to join the rest of the world. Although Burma’s future course is not guaranteed, the country’s prospects are growing brighter. The United States should reward the government in Naypyidaw for further expanding democratic reforms.

The military first seized control in Burma in 1962.The junta varied between bizarre (long-time dictator Ne Win was guided by astrology) and brutal (suppressing democracy protests equally ruthlessly in 1988 and 2007). Callous incompetence after Cyclone Nargis in 2008 resulted in mass suffering. In eastern and northern Burma, the regime literally warred against its own people, with numerous ethnic groups seeking autonomy.

Over the years the United States withdrew its ambassador and imposed a range of economic sanctions. However, Washington only inconvenienced regime elites, who grew rich from their political connections.

The government, known as the State Law and Order Restoration Council and later the State Peace and Development Council, occasionally relaxed its control, only to return to repression. The regime voided the election of 1990 after the poll was won by Aung San Suu Kyi’s National League for Democracy (NLD). The Nobel laureate and daughter of one of Burma’s national heroes, Suu Kyi spent fifteen of the next twenty-one years under house arrest.

In 2010, the regime remade itself but offered little hope of genuine change. Top generals retired while creating a nominally civilian government dominated by officers who shed their uniforms. The constitution preserved the military’s dominance; the parliamentary election was rigged.

Blinded by Transition

Regime Change, Humanitarianism and Syria

Paul R. Pillar — Mon, 06 Feb 2012 03:45:10 +0000

Paul R. Pillar

The West and especially the United States are still paying a price for the messy habit of conflating regime change with other objectives, even the laudable objective of saving lives. Last October, Russia and China vetoed a United Nations Security Council resolution on Syria. The Russians in particular made it clear they were determined not to fall again for what they regarded as a bait and switch on Libya, in which a NATO military intervention that received multilateral support on humanitarian grounds quickly morphed into support for toppling the Libyan regime. Last Saturday saw a replay at the Security Council: another resolution on Syria, and another double veto by Russia and China. It's not as if the Russians and Chinese are throwing vetoes around with abandon these days. The vetoes on the Syria resolutions are four of only five vetoes that have been cast at the council in the last couple of years (the United States used the other one a year ago against a resolution criticizing continued Israeli construction of settlements in occupied territories). Despite efforts to word the most recent resolution on Syria in a way that would assuage Russian and Chinese concerns, all the talk about seeing the backside of Bashar al-Assad, in addition to the experience with Libya, makes it easy to see why Moscow and Beijing were still not buying.

The Polemical Economist

The Editors — Fri, 03 Feb 2012 20:19:06 +0000

The Editors

Paul Krugman’s polemical bulldozer rolls along, smashing buildings, automobiles and anything else that evinces even a hint of conservatism. On Friday, the New York Times columnist turned his bulldozer toward GOP presidential candidate Mitt Romney. The issue was Romney’s unfortunate word choice in talking about where he would place his economic focus. The now-famous quote: “I’m not concerned about the very poor. We have a safety net there.”

What Romney was trying to say was that his primary economic goal as president would be to get the economy growing in order to extricate the middle class from its current squeeze. As he said, “I’m concerned about the very heart of America, the 90 percent, 95 percent of Americans who right now are struggling.” And ultimately he says the goal is to “get this economy going for them.” Eureka! He actually got to economic growth. But, as the Wall Street Journal editorialized, the wait was “excruciating.”

So Romney asked for it with his artless articulation, and he certainly got it. Liberals went after him like foxhounds on the scent. As for Krugman, most of his column offers a solid liberal critique that focuses on past Romney expressions regarding that safety net, a defense of federal transfer payments and an attack on the distribution of largess in Romney’s tax plan. So far, fine.

Paul Krugman

The New York Times

Egypt’s Pragmatic Islamists

Malou Innocent — Wed, 01 Feb 2012 22:37:49 +0000

Malou Innocent

As many expected, Islamist parties will form a dominant majority in Egypt’s first freely elected parliament. The Islamists are here to stay, and fearmongering over their rise is unproductive, since Egyptians will judge for themselves whether Islamists are delivering on their promises. Moreover, understanding the dynamics that brought religious parties to power should be the real goal and will ultimately prove more useful to those engaging this nascent democracy.

Economic Pipe Dreams

The Editors — Wed, 01 Feb 2012 16:43:56 +0000

The Editors

“Take a vacation!” “Buy more yachts!” “Hire everyone!”

No, these responses aren’t the fodder of impulsive, giggling adolescents when asked how to solve the myriad issues of our global economy. They are reactions from thirteen esteemed thinkers and intellectuals in Foreign Policy’s January/February 2012 special feature “13 Out-of-the-Tinderbox Ways to Save the Economy.”

The allusion to quick, “out-of-the-box” solutions shouldn’t have permitted suggestions so theoretical and unrealistic that they can never be applied. Tinderboxes fell out of use when matches were invented because they were unwieldy and impractical. This feature’s ideas are equally useless when one gets down to the real work necessary to “firestart” the global economic system. They range from tangential (Daniel Dennett’s three-month-long vacation for everyone), to unrealistic (James Galbraith’s nearly doubling minimum wage), to the unthinkable (Paul Kedrosky’s mass default).

All of these minds are accomplished. The central problem of this symposium lies in what must have been an overly-simplistic prompt: The global economy is a fragile, complex system. Please craft an unusual, decidedly unwonky solution in 1,500 words or less.

A Symposium

Foreign Policy

China and the Blame Game

John F. Copper — Tue, 31 Jan 2012 10:00:00 +0000

John F. Copper

Politicians are getting ready for the fall election and looking for issues. They are also seeking scapegoats to blame for America’s suffering and malaise. Unemployment, according to most opinion surveys, is the number-one concern of voters. And China, many politicians charge, is the cause. Their mantra has become “Blame China.”

To these politicians, the most relevant issue is China’s undervalued currency, the yuan. They charge that Chinese exports to the United States are too cheap and U.S. exports to China too expensive. The huge trade deficit that results from the undervalued yuan supposedly translates into unemployment in the United States. Is China stealing American jobs?

Most economists agree with the perception that China’s currency is undervalued but suggest it is only by a fairly small amount. Others say that it is not undervalued at all, given that China does not have a trade surplus with most of its trading partners, which means debtor America is not competing very well. Politicians, on the other hand, suggest very high figures for the currency distortion, up to 40 percent. But this exaggerates and distorts the real picture. Most economists contend that a revaluing of the yuan would not have an immediate impact and magically fix the trade deficit.

Europe's Problem Is the Euro

Milton Ezrati — Tue, 31 Jan 2012 10:00:00 +0000

Milton Ezrati

Surveying Europe’s problems, German chancellor Angela Merkel has stressed repeatedly the need to deal with “root” causes. By this, she means profligate spending, wayward fiscal policy and an excessive use of debt. But there are other “roots” the chancellor would seemingly rather ignore. These lie in the structure of the euro itself and how it advantages Germany at the expense of Europe’s periphery.

The euro’s structure was so skewed from the start that it ordained today’s crisis. By exchanging its deutsche marks for euros at a remarkably low rate relative to its productivity and profitability fundamentals, Germany gave its producers great pricing advantages over their competition elsewhere in the union. Because Greece and much of the rest of Europe’s periphery exchanged their national currencies for euros at much richer rates than their economic fundamentals could justify, they became natural consumers of those well-priced German products. Still more, the low exchange rate of Germany’s entry understated German incomes in Europe, creating a feeling of austerity that encouraged people there to save and cooperate with cost-containment efforts. In contrast, the periphery’s initial rich exchanges inflated the euro-buying power of their populations, giving these counties a false feeling of wealth that encouraged spending, borrowing and an easy attitude toward public benefits.

The (Almost) Triumph of Offshore Balancing

Christopher Layne — Fri, 27 Jan 2012 18:16:47 +0000

Christopher Layne

Although cloaked in the reassuring boilerplate about American military preeminence and global leadership, in reality the Obama administration’s new Defense Strategic Guidance (DSG) is the first step in the United States’ adjustment to the end of the Pax Americana—the sixty-year period of dominance that began in 1945. As the Pentagon document says—without spelling out the long-term grand-strategic implications—the United States is facing “an inflection point.” In plain English, a profound power shift in international politics is taking place, which compels a rethinking of the U.S. world role.

Egypt's NGO Suspicions

Sheila Carapico — Fri, 27 Jan 2012 11:00:00 +0000

Sheila Carapico

Late last month, Egyptian security forces raided offices of Egyptian and foreign nongovernmental organizations, confiscating computers, records and funds. Foreign entities included those funded directly from U.S. budgets, the National Democratic Institute, International Republican Institute (IRI) and Freedom House, as well as Germany’s Konrad Adenauer Foundation. Prominent Egyptian human-rights organizations were accused of taking dollars and euros without what military prosecutors deemed proper authorization.

Officials in Washington, Berlin and London expressed alarm and dismay that democracy-building organizations would be subject to search and seizure, especially by a regime that receives so much Western military and economic aid. Bracing for a new round in long struggle over foreign funding of NGOs, which took an ominous twist after the Supreme Council of the Armed Forces (SCAF) took charge last February 11—but had caused trouble for them throughout Hosni Mubarak’s rule—Egyptian defendants were angry but not surprised. The official backlash against democracy promotion may be getting worse, but it is not new.

During last winter’s eighteen-day intifada, rumors were planted about foreign provocateurs. The international English-language press unwittingly fed these allegations. Their reports that Western democracy promoters nurtured fledgling democrats, sending a handful of young activists to study nonviolent resistance with the Serbian organization OPTOR, were recycled in the Arabic-language media.