Is Barack Obama More AIPAC Than J Street?

The U.S. president is showing that he's hardly a leftist ideologue when it comes to Middle East peace -- and Israelis are starting to notice.

Anxiety about Barack Obama has afflicted Israelis since his meteoric rise to the White House. Here was an untested president, one whose agenda in the Middle East could only be imagined. Would Obama's America be Israel's lifeline in a dangerous and often hostile world? Or would this American president experiment with mistaken or even unfriendly ideas that could wreak havoc for Israeli security?

Israeli anxiety was particularly visible in the circle around Prime Minister Benjamin Netanyahu, who took office two months after Obama in March 2009. The new prime minister and his aides were hearing a stream of worrying reports from Republican friends in the United States, some of whom who painted Obama as a closet Marxist or a confirmed radical with Muslim roots pursuing a Third World leftist agenda. Would Obama waste precious time chasing illusory "openings" for engagement with Iran while the Islamic Republic completed its final sprint to nuclear weapons? Would Obama be open to the dangerous advice of the pressure-on-Israel crowd and try to impose unacceptable terms for a Palestinian state, terms that the Israeli public and national security leadership believe would lead Israel to war and insecurity, not peace? Would he cluelessly undermine the broader strategic balance on which Israeli and regional security depends?

Israel's anxieties deepened in May 2009. Barely eight weeks after Netanyahu took office, Obama turned global attention to the most divisive issue in the U.S.-Israel relationship: Israeli settlements in the West Bank. Secretary of State Hillary Clinton and special envoy George Mitchell announced loudly that Obama wanted a total freeze on construction of Jewish homes, even in Jerusalem, and that Obama did not consider himself bound by earlier compromises about settlement issues.

Many Israelis, even some who despise the settlements, saw this heavy-handed approach as artless at best, if not downright antagonistic. The episode reinforced the perception that Obama was naïve about the Middle East and easily swayed by the left -- a decision-maker who could be erratic, unpredictable, and dangerous. A theory emerged that placed much of the blame on White House Chief of Staff Rahm Emanuel and Senior Advisor David Axelrod, two American Jews from Chicago. Some of Netanyahu's people painted them as devotees of the strain of Middle East diplomacy that views Israel as the obstacle to peace.

Various acolytes of the American Democratic left, occasionally presenting themselves as representing the true Obama worldview only intensified the impression that Obama's team was unsympathetic to Israel. One after another argued that if only Obama acted to coerce Israel into accepting some perfectly reasonable agreements such as replacing Israeli security personnel in the West Bank with international peacekeepers, peace would be possible.

J Street advisor and former Council on Foreign Relations fellow Henry Siegman, for example, wrote that Israel is no longer a true democracy but an "apartheid regime" under "the influence of Israel's settler-security-industrial complex" that wants to "retain Israeli control of Palestine from the river to the sea." America's "special relationship with Israel is sustaining a colonial enterprise." But "President Obama is uniquely positioned to help Israel reclaim Jewish and democratic ideals on which the state was founded." This will, of course, require "forceful outside intervention." M.J. Rosenberg, formerly of the Israel Policy Forum, wrote that, "No matter who heads Israel's ... government, it is President Barack Obama who holds 51 cards in the deck." FP contributor Stephen M. Walt added, "Unless the U.S. president is willing and able to push Israel ... peace will simply not happen."

This chorus of voices from the Democratic left strengthened the impression in Israel that Obama, or at least some of his top officials, must agree. However, over the past 12 months, some counterevidence has begun to suggest that Obama and his top advisors are not in fact believers in the catechism of the ideological left.

Yes, Obama is drawing down in Iraq, as he pledged in his campaign. But this is a policy embraced by many in the center, not just the left. At the same time, he is greatly increasing the deployment of American soldiers in Afghanistan from 38,000 to 100,000.

Another important part of progressives' agenda is to cut what they saw as bloated budgets for national security, redirecting allocations to underfunded domestic programs. But Obama has rejected this advice and instead increased the Bush defense budget from $513 billion in fiscal year 2009 to $537 billion for fiscal year 2010 and $549 for 2011. If defense budgets are one of the best indicators of the direction of policy, Obama's defense budgets mark him as no leftist.

Another key indicator of foreign policy direction is a president's willingness to accept human life costs for national security goals. Obama is putting American soldiers at risk in Afghanistan, and he seems to accept that some level of civilian casualties is a regrettable but unavoidable reality if global security objectives are to be achieved. Obama has greatly increased drone strikes against al Qaeda in Pakistan, undeterred by frequent reports of civilian casualties. In December, the president personally issued the order for U.S. airstrikes in Yemen, killing 35 suspected Al Qaeda agents but also, collaterally, dozens of civilians.

Obama was awarded the Nobel Peace Prize as a form of encouragement by European liberals. But his Dec. 10 Nobel acceptance speech could have been written by a conservative: "Nations -- acting individually or in concert -- will find the use of force not only necessary but morally justified," he said in Oslo.

On issues that touch Israel more directly, Obama's choices actually align him more closely with Israel than with his progressive colleagues. Many on the left continue to believe that the United States has not made a good-faith effort at diplomatic outreach toward Iran. But Obama said on Feb. 9, "We have bent over backward to say to the Islamic Republic of Iran that we are willing to have a constructive conversation.... We gave them an offer.... They rejected it.... They in fact continue to pursue a course that would lead to [nuclear] weapons." The intelligence community is producing a new National Intelligence Estimate reportedly assessing a much greater threat from Iran than the 2007 document.

On Israeli-Palestinian issues, Obama and his team have changed the pitch, if not the words to the song, after his initial stumble on the settlements freeze. He has, to the consternation of the J Street left, accepted Netanyahu's compromise and moved on. Mitchell said on Nov. 25, "We believe the steps [toward a partial settlements freeze] announced by the prime minister are significant and could have substantial impact." In a Jan. 7 interview with Charlie Rose, Mitchell said, "The Israelis are not going to stop settlements in or construction in East Jerusalem. They don't regard that as a settlement because they think it's part of Israel." Mitchell had the unusual task of explaining to European allies on Jan. 12 why it is unrealistic to expect a freeze on construction in Jerusalem -- a freeze that he himself had demanded just months earlier.

Obama is also unyielding in the face of demands that he open relations with Hamas. He says this would undermine the peace process as long as Hamas continues to reject the existence of Israel, and it would undermine Palestinian President Mahmoud Abbas and Prime Minister Salam Fayyad. And he is striking a more realistic general tone about the prospects for radical change in the region. In an interview with Time on Jan. 21, he said, "If we had anticipated some of [the] political problems [in Israeli-Palestinian negotiations earlier] we might not have raised expectations as high."

In a series of recent statements, Obama has tried repeatedly to define himself as a man of the center, not the left. At a Jan. 29 meeting with House Republicans, he maintained, "I am not an ideologue." In a Feb. 9 interview with Bloomberg News, he said he is pursuing a "fundamentally business-friendly" agenda and is a "fierce advocate" for the free market. "The irony is that on the left we are perceived as being in the pockets of big business; and then on the business side, we are perceived as being anti-business."

The lesson Obama and his key advisers took from the Jan. 19 Republican upset victory in the Massachusetts U.S. Senate race is very different from the one that is popular among progressives. MoveOn and two allied groups commissioned a poll to show that Massachusetts voters actually wanted a stronger health-care bill than the one Obama was supporting. But Emanuel and Axelrod paid more attention to the fact that the independents and swing voters who voted for Obama in 2008 deserted him in droves, including suburban union members who also helped Republicans win formerly Democratic offices in New Jersey and Virginia. The Obama team is worried that independents and Democratic centrists are fleeing to the GOP. It is not the progressives that they want to woo.

Meanwhile, on the unhappy left, many now think that Obama merely postured as a progressive candidate in 2008 to outflank Clinton in the Democratic primaries. The Nation says he was never "a movement Progressive the way Reagan was a movement Conservative." Emanuel is the new whipping boy for many on the left, who say he cares more about the imperiled reelection prospects of "Blue Dog" Democrats in Congress than he does about scoring policy victories for the progressive agenda.

Of course, this could all be tactical, and not the true measure of Obama's ultimate intentions. But, at least for the moment, the anxiety in Israel is subsiding, and people are taking a more positive view of this president than they did a year ago.



The Real Danger of Debt

The United States is deep in the red -- and doesn't have the political tools to get out.

In 2000, the United States had a balanced federal budget. Today, America has a deficit problem that threatens the country's future. It is compounded by former President George W. Bush's fiscal recklessness, the economic crisis that began with September 2008's financial collapse, President Barack Obama's spending ambitions, and the mysterious ability of the weakened Republican Party to create political deadlock in Congress.

Under Bush, spending was increased, taxes were cut, and the result was huge deficits financed by borrowing. Then came the "Great Recession," as it is being called (I call it a depression because of its probable long-term economic and political consequences). The public debt (the important component of the national debt -- the part that is more than an accounting entity -- that is really owed), which the Bush administration's deficits had caused to double, soared further. It soared because of falling tax revenues, rising unemployment benefits, and rising government expenditures to fight the depression (such as Obama's $787 billion stimulus plan). The public debt reached $7.5 trillion by the end of fiscal year 2009 (Sept. 30, 2009) and is expected to increase another $1.6 trillion this fiscal year and another $1.3 trillion next year. That means it may exceed $10 trillion by Sept. 30, 2011. Almost half the debt is owned by foreigners, and the interest payments to them are a drain on American wealth. Interest rates on the debt will rise as the world economy recovers, increasing competition for capital.

The United States has a deeply wounded economy. At this writing, transfer payments by the government to individuals and families (Social Security, unemployment benefits, tax credits, etc.) exceed the taxes being collected from the household sector. At the same time, private investment net of depreciation is negative. This means that private savings are being borrowed by the government, combined with the government's foreign borrowing, and then transferred to households to enable them to maintain their accustomed level of consumption. People are saving more, but government borrowing overwhelms their saving, with the result that aggregate saving -- public plus private -- is negative. So: negative savings, negative private investment, an incredible ratio of household debt to disposable income (1.25 to 1, though down from 1.39 to 1 in 2007), massive government borrowing to finance private consumption -- not a nice combination.

When the American economy does finally recover, tax revenues will rise, unemployment benefits will fall, and depression-fighting programs will end -- so annual deficits should decline. But realistically, this means only that the public debt will grow more slowly than it will be growing this year and next.

The international dimensions of public debt growing slowly or rapidly from a very high level deserve consideration. At some point, the value of the dollar relative to other currencies will fall; this effect will be accelerated if, as is not unlikely, the "easy money" policy of the Federal Reserve, instituted to fight the depression, results in significant inflation. A falling dollar may endanger the dollar's status as an international reserve currency. Foreign contracts are often denominated in dollars rather than in a local currency. If an oil producer in a Middle Eastern country sells oil to a refinery in a South American country, neither party may be happy to have payment made in the currency of the other party's country because by the time payment is due, the value of the currency may have changed to the advantage of the other party. By providing that payment will be made in U.S. dollars, the parties can hedge against changes in the value of the local currencies. For such hedging to be effective, however, the value of the dollar has to be stable. If it becomes unstable, the dollar may cease to be the principal international reserve currency, accounting at present for almost two-thirds of international currency reserves -- a status that allows the United States to run a trade deficit (up to a point) costlessly because foreign countries need to hold U.S. dollar reserves to supply dollars in exchange for local currencies to businesses that have dollar-denominated contracts.

It is true that as growing deficits reduce the value of the dollar relative to other currencies, while making imports more expensive, American exports will grow, implying a shift of workers and capital from services to manufacturing. But the shift, reversing a long-term decline in manufacturing relative to services, may be a painful and protracted one, just as China's transition from an export-led manufacturing economy to a domestic consumer economy is likely to be painful and protracted. Any major restructuring of a country's economy will produce heavy unemployment as a byproduct until the restructuring is complete.

The adjustments that will be needed -- if the economy does not outgrow an increasing burden of debt -- to maintain the U.S. economic position in the world may be especially painful and difficult because of features of the American political scene that suggest that the country might be becoming in important respects ungovernable. The perfection of interest-group politics has brought about a situation in which, to exaggerate just a bit, taxes can't be increased, spending programs can't be cut, and new spending is irresistible. If one may judge by the Bush administration's fiscal improvidence, these tendencies are bipartisan.

America used to have a liberal and a conservative party, though both were loose coalitions lacking European-style rigid ideological uniformity. The Democrats, the liberal party, favored big government and therefore big government spending -- and therefore high taxes to pay for the big spending. The conservative party, the Republicans, opposed big government and big government spending, and therefore favored low taxes. These were coherent positions. For Democrats, however, favoring heavy taxes was a political albatross, while for Republicans the albatross was opposing big government spending. Beginning with Ronald Reagan and continuing with George W. Bush, Republicans squared the circle by abandoning their opposition to big spending while redoubling their commitment to low taxes. Belatedly, the Obama administration has decided that while still favoring big government spending (indeed more than recent Democratic administrations have done), it too wants to keep taxes low -- not as low as the Republicans want, but low enough that deficits that swamp those of the Reagan and Bush years are looming.

The decline of bipartisanship is lamentable; it is small consolation that fiscal imprudence is bipartisan. The parties play leapfrog when it comes to spending. From the standpoint of economic policy, the United States has only one party, and it is the party of profligacy.

As real interest rates rise as a consequence of a growing public debt and declining demand for the U.S. dollar as an international reserve currency, U.S. savings rates will rise and, by reducing consumption expenditures, slow economic activity. Economic growth may also fall as more and more resources are poured into keeping alive elderly people, most of whom are not highly productive members of society from an economic standpoint. The United States may find itself in the same kind of downward economic spiral that developing countries often find themselves in.

American political culture is sick, but the broader social culture may also impede renewed economic progress. America's growth has been promoted by the "can-do" attitude of its people, their rejection of fatalism, their individualism -- qualities conducive to innovation, ambition, and hard work. But the rejection of fatalism is also a major factor in the country's soaring medical costs, as its old people (and often their children) insist that every effort be made, at taxpayer expense, to extend their lives. As a result, 25 percent of Medicare costs are incurred in treating elderly people in the last few months of life. American individualism is also a barrier to fiscal belt-tightening through tax hikes or spending cuts. A can-do attitude can and often does express itself in a refusal to worry about looming crises. Americans can overcome any challenge. So not to worry! Qualities that promote a country's fortunes in one era may undermine them in another.

Because of the low U.S. inflation rate and the Federal Reserve's determination to keep interest rates very low, the dollar has become a favorite tool of the "carry trade," endangering the world economy. By borrowing U.S. dollars cheaply (because U.S. interest rates are being artificially depressed by the Federal Reserve in an effort to ease credit and by doing so stimulate economic growth) and exchanging them for foreign currencies to lend or invest, traders can earn generous profits -- though not without great risk. The carry trade may be a factor in recent rises in commodity prices; indeed, there is fear of new bubbles as a result of all the dollars sloshing around in the world economy. This poses dangers for the global economy because the carry trade is susceptible to runs. If a speculator borrows dollars in the short term to minimize interest expense and uses them to buy rupees, say, and the dollar surges in value relative to the rupee, the speculator may have to sell his rupees in a hurry to repay his lenders. If so, the value of the rupee will fall farther relative to the dollar, which may precipitate a run on rupees as speculators unload them. And because of the integration of the world's financial systems, a run on a foreign currency can harm other countries' economies.

The Fed has made clear that it intends to keep short-term interest rates rock-bottom low for some time, reassuring the carry traders that the Fed is not going to pull the rug out from under them by open market operations designed to reduce U.S. bank balances, a policy that would increase the value of the dollar in relation to other currencies by reducing the amount of money in circulation (the U.S. money supply is essentially the sum of all U.S. bank balances), and by doing so would increase interest rates on dollar loans. The Obama administration is doing nothing, moreover, to prevent the dollar from falling in value relative to other currencies -- the government wants it to fall in order to spur exports, import substitution, and a mild inflation -- and a falling dollar makes the carry trade more profitable. The carry trader borrows dollars with which to buy currencies that can be invested at higher interest rates than the cost of borrowing the dollars -- and then, after cashing out the investment, he returns to the lenders dollars worth less than when he borrowed them.

The Greek fiscal crisis has caused the value of the dollar to rise sharply against the euro, and if this new valuation of the dollar persists it will hurt U.S. exports and could also trigger a crisis in the carry trade. This is a further illustration of how globally connected the U.S. economy has become -- and why getting America's fiscal house in order is an urgent priority.

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