Review: Tools to Assess Candidates’ positions

1. Review: Tools to Assess Candidates’ positions • Any foreign policy must confront an anarchic world • Candidates (and everyone) will devise foreign policy positions based on: • 1. How dangerous they (we) think the world is and whether that danger can be averted • Very dangerous—only power matters • Trust no one and go it alone--unilateralism • Trust no one and dominate others • Danger can be averted— intentions matter and can be influenced • Trust that international cooperation can mute problems and solve global problems • Or isolation mind own business and others will not be afraid

2. Tools to assess candidates’ positions • 2. How broad America’s interests are or should be • Broad interests in a world where only power reduces danger • go-it alone unilateralism • or dominance of international organizations • Broad interests in a world where diplomacy can reduce danger • international cooperation • Foreign aid • Narrow interests in a dangerous world: • Independence • Defense • Narrow interests in a world where danger can be muted: • Isolation: If the U.S. focuses inward, others will be reassured that the U.S. will not attack or hurt

3. 3. Foreign Policy Traditions • Myth of American Exceptionalism: the United States is a nation "providentially set apart in the New World and wanting nothing more than to tend to its own affairs," • only grudgingly responding to calls for global leadership "in order to preserve the possibility of freedom." • first by pushing west until it reached the sea, • then through a brief period of direct colonialism, • and more recently through a ruthless if indirect imperial policy of control. • In reality, the United States has sought expansion, open door policy with China • It worked spectacularly.Creation of global institutions to manage global economy • The United States became a great power replete with material abundance. But….. • Right around the time of the Vietnam War, this began to unravel. • Trade imbalances, federal deficits, • mushrooming entitlements, • plummeting savings rates, • energy dependence • led us to become a debtor nation, counting on others to foot the bill—US became a participant in global institutions, not a leader..

4. 4. Market Forces Globalization Absence of Leadership and Regulation…. Govt = “private good, public bad” 1945-73 U.S. Leadership International Financial Institutions International Trade Organizations Global interdependence British leadership 1920s global interdependence 1980’s 1990’s Protectionism Protectionism 1970’s Recession 1930s Depression

5. Global Danger Only reduced through power Reduced through diplomacy American Interests NarrowBroad

6. Turning to the Current economic crisis…. • 1. Housing values remain stable for 100 years to 1995 • 1995-2005 Housing prices double + • 2. Wage stagnation and income inequality + • 3. Deregulation of financial markets • 4. Easy money  easy mortgages as bets on  in housing prices + Run of CDOs and derivatives + borrowing to buy them (betting on  in value) + rating fraud + easy insurance (AIG)  highly leveraged banks  Housing supply overwhelms demand  housing prices fall + mortgage defaults  CDOs lose value + Bank stock prices fall  credit drys up  Begin the bailout  (hopefully) more credit  (hopefully) save businesses and jobs  (hopefully) economic growth

7. Fannie Mae and Freddy MacWhy did Fannie and Freddie dive into the subprime mortgage market? And were their practices just one facet -- or the most important cause -- of the crisis? The questions are related and the answers debatable. • The reckless lending policies of Fannie Mae and Freddie Mac, necessitated a $200 billion government rescue Sept. 2008 • Powerful Democratic (and some Republican) advocates of affordable housing, have been the GSEs' most potent and ardent champions in recent years. • in summer 2005. The Senate Banking Committee adopted a bill to impose tighter regulation on Fannie and Freddie, with all Republicans voting for it. But the Democrats voted against it in committee and killed it on the floor. • Also in 2005, Fannie and Freddie began buying vast amounts of subprime and "alt-A" mortgages with, in many cases, virtually no down payments, that had been taken out by people with low credit scores and low incomes relative to their monthly payments. • GSEs dramatically lowered their traditional underwriting standards. • Between 2005 and 2007, Fannie and Freddie "sold out the taxpayers" by financing almost $1 trillion in such highly risky mortgages, • Fannie and Freddie played a major role in causing the current crisis, because their quasi-governmental status allowed them to privatize profit while socializing risk. They bought mortgages from banks, which could then use the cash to make more loans -- and they were enabled them to lend at high rates to reap enormous profits for their private stockholders and executives and to borrow at low rates based on the government's implicit promise to rescue them from any failure, as it has now done. • private Wall Street investment banks and others financed even more of the $3 trillion in substandard mortgages than Fannie and Freddie did • although the Clinton administration pushed the GSEs to finance more affordable housing by purchasing subprime mortgages, it was not until 2005 that the GSEs began financing risky loans in huge amounts. • Freddie and then Fannie had been ravaged in 2003 and 2004 by accounting scandals The company was under siege. Competitors were snatching lucrative parts of its business. Lenders were threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans. • "So Mr. Mudd steered Fannie into more-treacherous corners of the mortgage market, • Fannie's stamp of approval made shunned borrowers and complex loans more acceptable to other lenders • The banks had little incentive to avoid risky loans as long as they could sell them to the GSEs and others long before any defaults. • Fannie and Freddie joined the junk-mortgage (bad ratings) binge to avoid losing business to private companies such as Bear Stearns, Lehman Brothers, and Goldman Sachs. • August 2004 decision by the big bond-rating agencies, Moody's and Standard & Poor's, to loosen their guidelines for rating mortgage-backed securities. • But why would investment banks take foolish risks with their own money, as well as that of investors, just because Fannie and Freddie were doing so? • the companies wrongly assumed that these must be sound investments because Fannie and Freddie,

8. McCain: market solutions • tax cuts aimed at helping investors weather the financial crisis. • temporary reductions on capital gains tax, • on taxes paid by senior citizens when they withdraw money from retirement accounts, • on taxes paid on unemployment benefits.

9. Obama: market and regulatory solutions • tax breaks for businesses that create new jobs, • a freeze on foreclosures by banks that participate in the government's rescue program • a public-works fund to rebuild the nation's infrastructure while keeping people employed. • He embraced McCain's proposal to suspend the rule that would require retirees to start liquidating their 401(k) holdings at the bottom of the stock-market crash. • He proposed that Americans should be able to withdraw some of those retirement savings without penalty during the economic crisis.

10. Global Cooperation

11. British Leadership (again?) • At a special European summit meeting, the major economies of continental Europe declared themselves ready to follow Britain’s lead, injecting hundreds of billions of dollars into banks while guaranteeing their debts. • And Mr. Paulson reversed course, and now plans to buy equity stakes rather than bad mortgage securities

12. Global Leadership? Britain? G8? International Organizations? 1990’s Globalization No Leader!!!! No regulation!!!! Wage stagnation Housing Bubble Easy Money Future? 2008

13. On participation in the global economy: What do Americans Want? • In a recent Pew Centre poll, 48% of Americans said trade agreements are a bad thing, and just 35% thought they were good—the worst margin in at least a decade. • Free trade is also deeply unpopular with Democrats in Congress, whose numbers are expected to grow after the election. • That means either president will face an uphill battle getting new agreements through.

14. Free trade must be free of restrictions and regulations opposition to farm and ethanol subsidies extract concessions from trading partners free trade can advance only when American workers are protected Supports trade subsidies extract concessions from trading partners McCain Obama

15. Session 4: Energy Policy

18. Energy: What are the issues U.S. 5% of population uses 25% of world’s energy (not a foreign policy issue) Soooooo….what are the foreign policy issues? • Central voter concern of the 2008 Election • in 2006, energy was the most important issue for independent voters. • In 2008, recent polling shows energy to the be the single most important issue for the entire electorate.“ • Why is Energy a foreign policy issue? • Rising prices of oil • Energy Independence • Climate change …….emissions

19. 1. Price of Oil: The central issue • Gas in the U.S. is still cheaper than it was in the nineteen-seventies, after adjusting for inflation, • And that it still costs a lot less in the U.S, than it does abroad. • In the United Kingdom, for example, a gallon of gasoline costs more than five dollars. • Many Americans believe that they are entitled to cheap fuel, regardless of how much they consume. • The price at the pump is up more than a quarter on its level a year ago. 

20. The Electorate wants low prices and no taxes on gas

21. Both candidates say they will lower prices • .McCain suggested suspending America’s tax on fuel to make life easier for drivers and increase domestic supply of oil. • Obama wants to raise taxes on oil producers, and give some of the proceeds to help those hardest hit by the rise in energy prices.

22. 2. Energy Independence • Both Candidates want energy independence and “clean” energy

23. Both candidates have incoherent policies • long-term plans aimed at energy independence and reducing emissions, • undermined by short-term promises to drivers to reduce price of oil. • Why?

24. 2. Lower Prices mean more consumption and Energy Dependence • In 2003, the United States consumed some twenty million barrels of oil a day, • slightly more than half was imported from abroad, much of it from the Persian Gulf. • By 2020, domestic oil producers will be meeting less than a third of United States needs, • Gulf countries will be supplying up to two-thirds of the world's oil. • "This imbalance, if allowed to continue, will inevitably undermine our economy, our standard of living, and our national security,"

25. Can the United States move beyond dependence on foreign energy? • For much of the twentieth century, the United States was the world's largest oil producer, • Today we are only the third-largest producer, • behind Saudi Arabia and Russia. • In terms of proven reserves, the U.S. has slipped to tenth place in the international rankings, • as reservoirs in Texas, Louisiana, and Oklahoma have started to dry up.

26. US dependence on foreign oil

27. Dependence is now necessary: • If the United States were forced to rely on its own oil resources alone, it would run out of oil in four years and three months. • What Can be done?

28. Is Energy Independence the answer?

29. Independence will not be easy to achieve…. • Making America less reliant on foreign oil involves • Confronting powerful commercial interests, • solving difficult technological problems, and • convincing the American public that cheap fuel is not a birthright.

30. How to reduce Dependence? • Increase Domestic oil supply • ANWR • offshore drilling • Coal and Natural Gas • Alternative Energies • Conservation

31. Arctic National Wildlife Refuge

33. The Arctic National Wildlife Refuge • Surveys carried out by the U.S. Geological Survey suggest that it may contain about ten billion barrels of recoverable oil. • In 2025 ANWR could be generating about a million barrels of oil a day. • By 2025 Americans will be consuming almost thirty million barrels a day. • So…ANWR could satisfy perhaps three or four per cent of that total • meaning that most of the oil we use would still have to be imported. • So…..Not a solution

34. McCain and Obama on off shore drilling • McCain wants to lift the long-standing ban on offshore drilling (although, unlike Sarah Palin, he would keep the Arctic National Wildlife Refuge off-limits). • Obama opposes this idea • He will probably give in to it…he might drop his objections in order to push a bipartisan legislative package on energy

35. Dry Oil Wells What about Natural Gas?

37. Natural Gas • already meets about half of America's energy needs, mostly in the form of fuel for power stations. • But….America possesses just three per cent of the world's known reserves; • Iran, Russia, and Qatar together possess more than fifty per cent. • There can be no guarantee that a future government in Tehran, Moscow, or Doha won't seek to exercise its market power in the same way that opec did in the nineteen-seventies.

38. Gazprom's Yuzhno-Russkoye gas field in the Yamal-Nenets District of Russia

39. Coal

40. Coal in the U.S. • It is still abundant in the United States. We are “The Saudi Arabia of Coal” • But burning coal is a main source of global warming

41. Alternative Energies: energy independence within a generation.

44. geothermal heat pumps use the relatively constant temperature— six feet below the earth’s surface--to draw warm air into a building in winter and remove warm air in summer. They can save building owners 25 percent to 65 percent on energy costs while reducing carbon dioxide emissions.

46. On the right track? • Renewable energy now meets 7 percent of the nation’s energy needs • public subsidies have promoted a leap for several alternative energy sources in recent years. • federal legislation aims to replace a major share of the oil now imported into the United States with domestically produced biofuels in the next 15 years.

47. Conservation But Not this kind…….

48. Conservation and alternatives to oil • Asking consumers to conserve won’t get votes so……. • Tighten fuel efficiency standards (Obama) • Tax credits for hybrids • Hydrogen powered cars

49. Consumers Do their Part: Electric Cars and Hybrids The Tesla

50. Energy: McCain’s position • McCain, is less zealous in his environmentalism and more forgiving of big business • Not a very good Track Record • Rejects raising auto fuel efficiency standards •  In both 1994 and 1999, McCain voted against more money for renewable energy, including solar. • In 2005 he voted against legislation that would have required utilities to get 10 percent of their power from renewable sources. • In 2007 he missed every vote on renewable energy. • He is against subsidies for wind and solar energy, although he is in favor of subsidies for nuclear power. • Advocated temporary gas tax suspension to lower gas prices