Obama's First Moves on the Financial Crisis and Foreign Policy

By: STRATFOR

Three weeks after the U.S. presidential election, we are getting the first signs of how President-elect Barack Obama will govern. That now goes well beyond the question of what is conventionally considered U.S. foreign policy — and thus beyond Stratfor's domain. At this moment in history, however, in the face of the global financial crisis , U.S. domestic policy is intimately bound to foreign policy. How the United States deals with its own internal financial and economic problems will directly affect the rest of the world.

One thing the financial crisis has demonstrated is that the world is very much America-centric, in fact and not just in theory. When the United States runs into trouble, so does the rest of the globe. It follows then that the U.S. response to the problem affects the rest of the world as well. Therefore, Obama's plans are in many ways more important to countries around the world than whatever their own governments might be planning.

Over the past two weeks, Obama has begun to reveal his appointments. It will be Hillary Clinton at State and Timothy Geithner at Treasury. According to persistent rumors, current Defense Secretary Robert Gates might be asked to stay on. The national security adviser has not been announced, but rumors have the post going to former Clinton administration appointees or to former military people. Interestingly and revealingly, it was made very public that Obama has met with Brent Scowcroft to discuss foreign policy. Scowcroft was national security adviser under President George H.W. Bush, and while a critic of the younger Bush's policies in Iraq from the beginning, he is very much part of the foreign policy establishment and on the non-neoconservative right. That Obama met with Scowcroft, and that this was deliberately publicized, is a signal — and Obama understands political signals — that he will be conducting foreign policy from the center.

Consider Clinton and Geithner. Clinton voted to authorize the Iraq war — a major bone of contention between Obama and her during the primaries. She is also a committed free trade advocate, as was her husband, and strongly supports continuity in U.S. policy toward Israel and Iran. Geithner comes from the Federal Reserve Bank of New York, where he participated in crafting the strategies currently being implemented by U.S. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson . Everything Obama is doing with his appointments is signaling continuity in U.S. policy.

This does not surprise us. As we have written previously, when Obama's precise statements and position papers were examined with care, the distance between his policies and John McCain's actually was minimal. McCain tacked with the Bush administration's position on Iraq — which had shifted, by the summer of this year, to withdrawal at the earliest possible moment but without a public guarantee of the date. Obama's position was a complete withdrawal by the summer of 2010, with the proviso that unexpected changes in the situation on the ground could make that date flexible.

Obama supporters believed that Obama's position on Iraq was profoundly at odds with the Bush administration's. We could never clearly locate the difference. The brilliance of Obama's presidential campaign was that he convinced his hard-core supporters that he intended to make a radical shift in policies across the board, without ever specifying what policies he was planning to shift, and never locking out the possibility of a flexible interpretation of his commitments. His supporters heard what they wanted to hear while a careful reading of the language, written and spoken, gave Obama extensive room for maneuver. Obama's campaign was a master class on mobilizing support in an election without locking oneself into specific policies.

As soon as the election results were in, Obama understood that he was in a difficult political situation . Institutionally, the Democrats had won substantial victories, both in Congress and the presidency. Personally, Obama had won two very narrow victories. He had won the Democratic nomination by a very thin margin, and then won the general election by a fairly thin margin in the popular vote, despite a wide victory in the electoral college.

Many people have pointed out that Obama won more decisively than any president since George H.W. Bush in 1988. That is certainly true. Bill Clinton always had more people voting against him than for him, because of the presence of Ross Perot on the ballot in 1992 and 1996. George W. Bush actually lost the popular vote by a tiny margin in 2000; he won it in 2004 with nearly 51 percent of the vote but had more than 49 percent of the electorate voting against him. Obama did a little better than that, with about 53 percent of voters supporting him and 47 percent opposing, but he did not change the basic architecture of American politics. He still had won the presidency with a deeply divided electorate, with almost as many people opposed to him as for him.

Presidents are not as powerful as they are often imagined to be . Apart from institutional constraints, presidents must constantly deal with public opinion. Congress is watching the polls, as all of the representatives and a third of the senators will be running for re-election in two years. No matter how many Democrats are in Congress, their first loyalty is to their own careers, and collapsing public opinion polls for a Democratic president can destroy them. Knowing this, they have a strong incentive to oppose an unpopular president — even one from their own party — or they might be replaced with others who will oppose him. If Obama wants to be powerful, he must keep Congress on his side, and that means he must keep his numbers up. He is undoubtedly getting the honeymoon bounce now. He needs to hold that.

Obama appears to understand this problem clearly. It would take a very small shift in public opinion polls after the election to put him on the defensive, and any substantial mistakes could sink his approval rating into the low 40s. George W. Bush's basic political mistake in 2004 was not understanding how thin his margin was. He took his election as vindication of his Iraq policy, without understanding how rapidly his mandate could transform itself in a profound reversal of public opinion. Having very little margin in his public opinion polls, Bush doubled down on his Iraq policy. When that failed to pay off, he ended up with a failed presidency .

Bush was not expecting that to happen, and Obama does not expect it for himself. Obama, however, has drawn the obvious conclusion that what he expects and what might happen are two different things. Therefore, unlike Bush, he appears to be trying to expand his approval ratings as his first priority, in order to give himself room for maneuver later. Everything we see in his first two weeks of shaping his presidency seems to be designed to do two things: increase his standing in the Democratic Party, and try to bring some of those who voted against him into his coalition.

In looking at Obama's supporters, we can divide them into two blocs. The first and largest comprises those who were won over by his persona; they supported Obama because of who he was, rather than because of any particular policy position or because of his ideology in anything more than a general sense. There was then a smaller group of supporters who backed Obama for ideological reasons, built around specific policies they believed he advocated. Obama seems to think, reasonably in our view, that the first group will remain faithful for an extended period of time so long as he maintains the aura he cultivated during his campaign, regardless of his early policy moves. The second group, as is usually the case with the ideological/policy faction in a party, will stay with Obama because they have nowhere else to go — or if they turn away, they will not be able to form a faction that threatens his position.

What Obama needs to do politically, then, is protect and strengthen the right wing of his coalition: independents and republicans who voted for him because they had come to oppose Bush and, by extension, McCain. Second, he needs to persuade at least 5 percent of the electorate who voted for McCain that their fears of an Obama presidency were misplaced. Obama needs to build a positive rating at least into the mid-to-high 50s to give him a firm base for governing, and leave himself room to make the mistakes that all presidents make in due course.

With the example of Bush's failure before him, as well as Bill Clinton's disastrous experience in the 1994 mid-term election, Obama is under significant constraints in shaping his presidency. His selection of Hillary Clinton is meant to nail down the rightward wing of his supporters in general, and Clinton supporters in particular. His appointment of Geithner at the Treasury and the rumored re-appointment of Gates as secretary of defense are designed to reassure the leftward wing of McCain supporters that he is not going off on a radical tear. Obama's gamble is that (to select some arbitrary numbers), for every alienated ideological liberal, he will win over two lukewarm McCain supporters.

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