Five big uncertainties

If you’re like me, your attention this week has been focused on the gyrating stock market. That’s not my area of expertise — though my gut tells me that the wild swings of the past few days are mostly a reflection of uncertainty — and I won’t try to tell you what it means or how you can profit from all this turmoil. (If I had the answer for that, I’d have taken my wife’s advice and moved our retirement funds into cash or Treasuries a couple of weeks ago. Oh well.) 

Overall, I remain a long-term optimist about America’s global position, because the United States still has lots of innate advantages and most of our current problems stem from self-inflicted wounds (stupid wars, threat inflation, a warped tax code, too much money corrupting politics, etc.). Compared with a lot of other countries, however, the United States remains geopolitically secure, wealthy, and technologically advanced. It has excellent higher education and a relatively young and growing population (especially when compared to most of Europe, Russia, or Japan). If we can just get our politics and our strategy right we’ll be fine, though I admit that this is a big if.

So instead of brooding about my portfolio, I’ve been thinking about the Big Uncertainties that are going to shape events in the years to come. It’s a subject I’ve visited before (see my "Five Big Questions" from July 2010), so you can consider this a partial update.

Here are my Five Big Uncertainties for 2011.

1. The World Economy: Meltdown or Malaise? Obviously, a major driver of the near-to-medium term environment will be whether we get another major economic slump. See FP colleague Dan Drezner for the nightmare scenario here, and especially bear in mind the danger that a serious slide would almost certainly lead to even more poisonous politics in lots of different places. (Like any good economist, Dan presents the optimistic scenario here, which tells you why President Kennedy used to complain that he wanted to meet a one-handed economist). The alternative that I foresee, alas, is not a scenario of rapid economic recovery. Instead, the best we can hope for is at least a couple more years of very modest economic growth. But at this point I’d take that in a heartbeat.

2. Can the United States Pull Off a Strategic Adjustment? There are plenty of people who recognize that the United States is overextended internationally, and that it needs to conduct a hard-headed reassessment of its overseas commitments and the strategies it is using to protect them. A smart readjustment would draw down even more in Europe, liquidate the losing wars in Iraq and Afghanistan, return to an "offshore balancing" strategy in the Persian Gulf, and gradually reorient our strategic attention towards Asia. It would eschew costly "nation-building" exercises (especially in the Muslim world), and shift more of the burden for regional security onto allies. Deep down, I still suspect that’s what President Obama wants to do, which makes me wonder why he didn’t do more to move in that direction.

And it is an open question whether we can pull that off politically. We’ve been doing a lot of counterinsurgency and counterterrorism activity over the past decade, and the political clout of the COINdista constituency has grown and is likely to be self-perpetuating. Lots of American policy wonks still like the idea of trying to run the world (at least while they are in office), and there are always those unrepentant neocons looking for more trouble to drag us into. And if a trigger-happy Christian Zionist like Rick Perry ends up in the White House, all bets are off. Given America’s overall weight in world affairs, how it chooses to allocate and use its power obviously matters, and so this is going to be a key driver going forward.

3. Whither China? Well, duh. I’ll stick with the same two aspects that I mentioned a little more than a year ago. First, will China continue to rise economically (I’d bet yes), or will its growth be slowed by economic conditions elsewhere, political divisions, or authoritarian policy blunders? Second, will China’s leaders speak softly while they build bigger sticks, or will they start pushing their weight around prematurely and provoke a balancing coalition against them?

4. The European Union: Pulling Together or Spinning Apart? The past year has seen unprecedented problems for the EU, leading a number of analysts to question whether the Euro would survive and whether the EU itself might be a facing a bleaker future. Alternatively, Euro-optimists suggest that the crisis will eventually force Europe to become even more unified, mostly by creating Europe-wide fiscal institutions to prevent the sort of troubles that it has faced since 2008. You can count me among the pessimists — I don’t think the EU will break up, but I think the highwater mark of European unity is behind us — but that’s just a (theoretically informed) hunch. Whatever happens, the outcome will matter a lot.

5. The Middle East: Up with the People or Up in Flames? Last but by no means least, developments in the Middle East are fraught with uncertainty and portent. Will the "two-state solution" be dead and buried once-and-for-all, transforming the Israeli-Palestinian conflict into a struggle for democratic rights, or will the ever-elusive goal of "two states for two peoples" be achieved? Will the "Arab spring" lead to stable and reasonably legitimate governments in at least a few countries (and especially Egypt and Syria), or will we get protracted struggles for power, new forms of authoritarian rule, or something worse? And then there’s Iran, whose importance and power we routinely exaggerate but remains a potential concern for nearly everyone. There’s a lot of combustible material lying around, in short, which makes it hard to be optimistic in the short-term. But there are also some hopeful signs too, most notably in al Qaeda’s failure to win a mass following and the clear desire for more effective and representative government in many parts of the Arab world. The recent social protests in Israel may be a good sign too, if it encourages a broader debate of the corrosive effects that the occupation has had on Israel itself. I don’t know how this will all play out, but I’m pretty sure that it will have far-reaching effects.

By the way, the possibility of a new terrorist attack did not make my list of "Big Uncertainties." Why? Because I just don’t think al Qaeda or its affiliates are all that important. If another major attack occurred we’d probably overreact to it — as we did in 2001 — but that would be our mistake and not their achievement. Terrorism will remain a problem forever, because there will always be a few extremists willing to use these tactics to advance their cause. But it is hardly the greatest danger the United States (or the human species) faces, and we ought to keep that knowledge firmly in mind.