Obama’s foreign policy: am I my brother’s keeper?

Paradoxically, US foreign policy has always been focused on neighbourly expansion of territory without the pursuance of global hegemony.

“Am I my brother’s keeper?” This is the well-known question touched upon by President Obama in Vermont on a campaign trail on 30 March this year and will be the underlying feature in almost every question thrown at him on the evening of 22 October at Lynn University, Florida, where he will share a platform with Mitt Romney to debate US foreign policy. 

Within the context of general political economy, domestic and foreign policies are two scions of the same nation. That is, despite not sharing the same citizen-proximity effect usually displayed by issues such as social security and healthcare, foreign policy like all national policies rests on significant domestic socio-economic elements for the structure of its shape. For the United States, foreign policy, as compounded by the dark day of 9/11, has persistently reflected the domestic ambitions, voracious appetite and fears of that nation. 

Universal rights

Questions of US ambition are manifested in its long period of domestic economic dominance and global military supremacy. Foreign policy is largely synonymous with questions pertaining to the use of military might to expand US sphere of influence, platform for trade and consumption and keep at enough distance the launch pad of a foreign attacker. Although, both Pearl Harbour and 9/11 pierced the perceived impregnability aided by delineation of the Pacific and the Atlantic oceans, the latter event coloured the distinction between security policy and respect for social justice.

Aware of this debacle, President Obama on the second day of his administration, signed three executive orders for the closure of Guantanamo Bay, review of the use of military trials for terror suspects and ban of torture technique (such as water-boarding) for interrogation. This was applauded by all who valued universal laws designed to protect the rights of an individual against detention without trial. 

The President succeeded in outlawing the use of torture but the complexity of partisan interests, the balance and check procedure in-built into the US system and an apparent lack of political will ensured that he could not deliver on the promise to close Guantanamo Bay within a year of his administration. Congress denied him funding for the transporting of the detainees into the US, their trials on US soil and for the $80m needed to build a prison in Illinois to house the detainees. 

The President in 2011 reversed his executive order and, subsequently, signed the National Defence Authorisation Act 2012, which allows for the indefinite detention of any persons, irrespective of nationality, suspected of acts of terrorism against the US. Nevertheless, allowances within the system still provides for the President to make good on his initial promise either through releasing the detainees via the courts or through a national security waiver – which more or less requires his administration to vouch that the relevant detainees would not again be found engaging in terrorism.

The failure of the administration to formulate a clear detention policy is not reflected in its counterterrorism policy, where the President has authorised extensive use of predatory drones in snuffing out terrorists regardless of their existence in a sovereign state.  While this practice of extra judicial killings creates a debatable issue of breach of international law; it similarly accords with parts of that same law and the UN Charter which allows for the right of self-preservation – a notion wide enough not to preclude the duty of preventive intervention particularly in a situation with a demonic previous history exhibited in the acts of 9/11.

Security and Trade

President Obama essentially denounced the war in Iraq because it concerned the use of military force against a sovereign state that posed no existential threat to its neighbours or the US - similar issues to those that dovetailed the debates on legality of military intervention in Libya and now Syria. Although, the President was tilted into the Libyan crisis by the Cameron-Sarkozy alliance, his reluctance to join in is perpetually etched in the term that describes the US ‘‘as leading from the back’’ in ousting Gaddafi. While this particular approach has attracted criticism and can still be detected in the President’s approach to Iran’s nuclear weapon issue, North Korea and Israeli-Palestinian conflict, it nevertheless strongly identifies with the foundational US foreign policy approach. 

From the beginning, the constant theme running through his country’s foundational steps was paradoxically focused on neighbourly expansion of territory but not of pursuance of global hegemony. This line of thinking yielded the famous Washington’s Proclamation of Neutrality (which prevented the US from entering the French Revolutionary War against Great Britain), produced the Monroe doctrine (that widened the issue of security to include the security of United States’ neighbours) and allowed for Buchanan to reconfirm that a policy of non-intervention in the domestic concerns of others was subject only to the exception of self-preservation. Buchanan’s approach germinated the Olney Corollary (which took the process of expansion for trade and security into Latin America) and allowed a platform for Roosevelt’s Corollary to impose obligations on neighbours not to allow a condition of deterioration that would encourage intervention. 

While the US under Woodrow Wilson sought destruction of dictators and upholding of the rights of peoples of foreign nations the approach was, however, paradoxical in that not only was Wilson suppressing rebellion at home, he was at the same time according to the international community the need to respect the sovereignty of all states irrespective of size – the very basis of the fundamental tenets of both the defunct League of Nations and the United Nations.

The President appears different from his recent predecessors, since the administration of George H. W Bush and the end of the ideology duel enveloped in the Cold War, in not only reconciling and recognising these underlying approaches but also the reputational effects of intervention and its consequences of limiting the effectiveness of diplomacy as a tool for restricting the self-interest instincts of nations in the international sphere and hindering multilateralism. This approach is more vivid in his look ‘East First’ trade policy – which has somewhat seen the US indirectly monitor and strive to match China’s military and economic presence in the region through alliances in south-east Asia and via linkages in economic interests particularly in cooperation within APEC, ASEAN and forming stronger relations with India, South Korea and Australia (where the US now has a military base in Darwin).

The approach of the President rather than revealing any isolationist or appeasement tendencies measure the extent of a direct threat to the US, its immediacy and the level of mutual interests of significant regional partners in the issue.  Where these factors are high, as in Syria, Iran and Libya, the Obama administration’s tendency is to head for multilateralism and respect for UN procedures. 

Conclusion

For the Obama administration, the notion of being the keeper of one’s brother is a shared obligation that requires the "protectee" to, at least, have neighbours with interests that aligns with its own and those of the protector and for the protector to consider those interests vital enough as an addition to the safeguarding of its security and promotion of trade.

Barack Obama. Photograph: Getty Images
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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?