Looking exclusively at the foreign policy of American Presidents:

Bush (43) is to __________, as Obama is to ____________.

a) Reagan; Eisenhower
b) Nixon; Truman
c) Truman; Nixon
d) Eisenhower; Hoover

Show your work.
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c) Truman; Nixon

Yes, this is meant to turn an eyebrow or two, but just hear me out. There are essentially two different world views: Realism/Pragmatism and Progressiveism/Liberalism. Realists essentially believe that a nation's power (economic, military, & soft) should be the main concern in foreign policy, whereas Progressives believe that ideals - human rights, freedom, democracy, et cetera - should be the main concern in foreign policy.

Too often, we get tied up in party politics, and are mislead into believing that if the Democratic President does something then it must liberal, and if a Republican president does something then it must be conservative. When we look exclusively at foreign policy, we can say with certainty that this is not the case. George W. Bush's foreign policy was often called "Neo-Conservative," but don't let the name fool you it as "Neo-Conservatism" is essentially classic Progressivism/Liberalism; it was just re-branded so that it would be more palatable for conservative voters. "Transforming the Middle East, and spreading American values, through regime change in Iraq" is textbook Liberalism (CSMonitor, 2003) which closely mirror's Truman's ideological views in the lead up to and beginning of the Cold War (for more on Truman and the beginning of the Cold War email me for a copy of my Master's thesis).

On the other hand, saying to Iran "If countries like Iran are willing to unclench their fist, they will find an extended hand from us," is a textbook example of pragmatism - the kind of diplomacy Nixon used when opening up relations with Communist China during the Cold War (State Department, 2009).

Which do you prefer? If a country we dislike has something we want, should we work with them or against them? Bear in mind the costs of war (IRWatch: Are Wars Good for the Economy?, On Deficits and Stimulus).

On Deficits and Stimulus

I had quite a lively response to my previous post "Are Wars Good for the Economy?", and decided a followup post was in was in order.

I don't disagree that government spending can boost the economy, by definition it adds to GDP. The only concern I have is with deficits and debt. When the the economy is doing well, you should balance your budget or run a surplus, and when the economy is doing badly, you should borrow to increase GDP through spending or tax cuts (which one you choose can be battled out later, I actually like that this one has a mix of the two). The problem as I see it is that we were running huge deficits before the economic crisis, and while it is definitely in our short term interest to go even more into debt to get us out of the economic funk, it is in our long term interest to show the international markets we're borrowing from that we're going to spend responsibly in the future and that we won't run huge deficits when our economy is growing again. If our international lenders don't think we will be fiscally responsible in the long term, they would stop lending and things would get much worse and fast.

And small note on war and the economy, there have been significant extenuating circumstances the times when war has been seen as stimulative in the past, and there are even more examples of when it has been anything but stimulative. I hope that spending that money on making stuff at home instead of on blowing stuff up overseas might have a slightly more stimulative effect. My fear is that looking back we'll find that it doesn't matter what you spend government money on, it matters how you finance it.

Becoming the Land of the Setting Sun

Dear Japan,

Japan we love you, but it’s time that you faced the fact that you’ve got a problem. You mean a lot to us - so much so that our new secretary of state went to visit you before any others. But after the lost decade of the 1990s, you can hardly afford to have your GDP shrinking at twice the pace of the GDPs of America and Europe - 12.7 percent last quarter according to Bloomberg.
It breaks my heart to say this, but you need to come to grips with the fact that if you keep this up, you won’t be the world’s number two economy for much longer.

We’ll still be there for you, but you have to understand that we have problems of our own. I know that it may hurt your feelings, but you should know that our new leaders might suggest sometime soon that is time for you to officially establish a military to help us out with East Asian security. On the surface it may look like we are being selfish, or that we are trying to leave you, but you don’t need to worry - our special relationship is not over, it’s just changing. Please understand that this request comes out of a deep respect for you and our belief that it could even help to revitalize your manufacturing industry. Just understand that we still care about you, and we only want what’s best for you. Please stay in touch, and let us know if there's anything we can do to help.

Sincerely yours,
-America

Are Wars Good for the Economy?

There is a myth that wars are good for economies, and as evidence people point to World War I and World War II. This is not the case. It is important when discussing the extreme budget deficits and borrowing during World Wars 1 & 2, that America was mainly borrowing from its own banking system. More importantly, America was neutral during much of both of these wars, and during that time Europe was purchasing weapons and borrowing money from us, and it was the eventual repayment of these loans enabled the post war booms in America following both wars. America was doing great after the World Wars, but Europe was not. England and France lost their empires, and Russia and Germany lost even more.

Some have said that the only way to get out of our current economic funk is by entering into a war, or using an equivalent amount of government spending. The fact is we've been at war for seven years. The problem is that we've borrowed all of the money to conduct those wars, and thus our economy worsens.

Looking back at the example of World War II, the United States is playing the role of the European countries, while China is playing the role of America - sitting back and lending as we get in way over our heads.

Speaking macro-economically, war and long term overspending is not good for the economy. It is good for the lenders, but not the debtors.

Financial Winners and Losers in 2007

Acknowledging of course that stock markets are only a small window on the actual health of economies, it is interesting to note the winners and losers in 2007 in the major world stock markets.

American Stock Markets:
Nasdaq: +9.8%
Dow Jones: +6.4%
S&P 500: +3.5%

World-wide winners:
Shanghai Composite: +97%
Hong Kong Blue Chips: +39%
Germany's DAX: +22%
London's FTSE: +3.8%
France's CAC: +1.3%

And I'm sorry to say to my Japanese friends that Japan's Nikkei was the big loser of 2007 with an overall decline of 11%.

残念だけど不幸中の幸いだ。

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Sources: Forbes (Asian Markets), Reuters (US Markets), AFP (European Markets)