The economic crisis and its implications

I had been struck by how the economic meltdown led to a different sort of debate on domestic policy than it did on foreign policy. With respect to domestic issues, the crisis has produced a remarkable consensus on the need for dramatic action here at home, even if there some differences on exactly what ought to be done. So Wall Street gets a bailout, followed by the Big 3 automakers. A vast stimulus package is in the works. Almost everyone agrees that the financial industry needs smarter and tougher regulations. And more and more people now embrace serious health care reform. Taken together, these steps will drive the U.S. budget deficit into uncharted territory and keep it there for some time. When it comes to domestic policy, in short, the mandate for change has been obvious and mostly uncontested.

Yet when it comes to foreign policy, the economic crisis seemed to be barely noticeable, at least while Obama and McCain were still campaigning. One would think that an economic earthquake of these proportions would have produced a similar rethinking of America’s global role. Instead, both Obama and McCain called for increased defense spending during the Presidential campaign — even after the U.S. economy went into free-fall — and confidently talked about doubling down in Afghanistan, addressing climate change, and tackling a whole array of other international problems.

It is therefore deeply refreshing to read Roger Altman’s lead essay in the latest Foreign Affairs. Altman draws the obvious but still under-appreciated conclusion that when a country loses trillions of dollars in wealth in a short period, is in the grip of a serious recession, and has dim prospects for a rapid recovery, then this will inevitably impose certain constraints on how much weight it can swing abroad. The problem is even more severe when some of our key allies are similarly afflicted, and when some other significant powers are not going to be as adversely affected as we are. Altman is not in panic mode, and he’s not arguing that the United States is now a pygmy on the world stage. Indeed, he makes it clear that “the United States will remain the most powerful nation on earth for a while longer.” But let there be no mistake: “the crisis is an important geopolitical setback.”

For a realist take on how we might respond, check out Barry Posen here.  Posen’s essay was written before the economy went south, but that unfortunate event makes his ideas even more relevant.

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