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US Foreign Policy in The Age of Penury

By Paolo von Schirach

August 29, 2009

WASHINGTON – Afghanistan is a huge mess. According to most informed experts, America, after its successful 2001 campaign that ousted the Taliban government, wasted more than six years doing almost nothing constructive over there; thus allowing the situation in a country terribly poor, terribly under resourced and chronically disorganized to fester and progressively deteriorate into real chaos. Opposition forces, Taliban and non Taliban, regrouped and became more aggressive. War Lords resurfaced. The opium cultivation and trade flourishes. The weak central government in Kabul lost control of at least forty per cent of the territory. Now, the resurgent Taliban and affiliates dominate in various provinces.

US-led reconstruction efforts have been misguided, poorly directed, and, on balance, ineffective in “winning hearts and minds”. The most recent Afghan presidential elections have been a messy affair. Whoever will win, the victory will appear suspect, given massive fraud, low turn out and the violence and intimidation that successfully prevented many people from voting in several provinces.

Of course, there is now a new US strategy, a renewed effort led by a credible counterinsurgency professional, General Stanley McChrystal, while former UN Ambassador Richard Holbrooke is now a high profile special envoy to the region. And finally, President Barack Obama himself clearly indicated in policy speeches that America will not let go.

More troops have been deployed to Afghanistan, with more to come. The civilian side of the operation will also be both radically overhauled and enhanced. USAID is now engaged in massive recruiting, in order to have a “civilian surge” that will add badly needed expertise on the ground.

So, can America finally get it right and “fix Afghanistan”? Well, the intention appears to be there. Actions have been taken and they seem credible –for now. So, reviewing these policy shifts, can we say that now, finally, everything is under control? Can we safely blame the Bush administration for these years of almost criminal neglect that allowed such a dangerous deterioration at every level?

Yes and no. It is a tricky situation. While the will may be there, in plain language there is no real money to pay for any of this. More broadly,  Afghanistan will give us the measure of America’s ability to conduct a major, multi-faceted international security and reconstruction effort in this new and in many ways unprecedented era of deep fiscal distress. All we are doing or planning to do in Afghanistan will have to rely on borrowed funds, just as most other governmental operations. Is this sustainable? And, if so, for how long? Of course, there is nothing new in financing a war through public debt. What is new here is that we are financing “everything” through debt and thus foreign military operations may soon be viewed as luxuries that we can no longer afford.

Regarding Afghanistan, the willingness to carry on seems to be there. But America’s long term staying power is another matter altogether, as it is contingent on two resources: one uncertain (will) and the other (cash) in short supply. The first one is subjective. It has to do with the actual resolve and willingness to see this through. Bloody counterinsurgency in a primitive and instinctively hostile country is difficult business any day. “Victory”, even in the most modest definition of the term, will require several years. While experts declare confidently that America’s resolve will carry into 2010, as Obama and the Democratic Party will need to show a united front on this “war of necessity” before the mid-term elections, it is quite obvious that we need a lot more than one year to fix this. Will the political resolve last beyond November 2010? Who knows….

And political resolve in front of uncertainty and mounting casualties will be affected by the other issue not at all directly connected to the war effort but very likely to affect it and indeed determine its long term viability. And the issue is financial resources –or lack thereof.

To put it simply: will the continuing US fiscal crisis –that is our huge and growing public debt– dampen America’s ability to conduct protracted foreign operations –operations that, important as they may be, have not been presented as existential threats?

At some point, when there is no money, something has to fall off the table. Foreign policy interests, and Afghanistan is a key one right now, are vulnerable; unless, as I said above, there is a consensus that this war is of vital importance to America’s survival. Of course, the Obama administration has correctly pointed out that a resurgent Taliban may once again offer sanctuary to Islamic fundamentalists who may use this base as a training ground and as a launching pad for more attacks against the US –just like 9/11. But, although the 2001 connection between the Taliban, Osama bin Laden and the Twin Towers is established; it is also getting old and, in the case of many people, probably stale if not altogether forgotten. So, a “Beware of another 9/11” war cry may not stiffen many spines at a time in which public opinion and law makers are concerned with foreclosures, unemployment and cuts in basic domestic services.

So, the question is: beyond the mid-term elections of 2010, will this administration have the ability to carry public opinion behind a war that is going to be long, bloody and costly; while America has to deal with this immense fiscal hole? The optimists assert that the cost of the war effort in Afghanistan, in dollar terms, amounts almost to a small rounding error, if compared to the size of the overall budget deficit. They say that, being in the hole for a trillion and a half or for a trillion and 600 billion are not that different; and so lack of money should not constitute an impediment to continuing operations. This may very well be true in the short term. This is a very fluid environment in which the Democrats solidly control power; while the Republican opposition is disorganized and unfocused and certainly at this point reluctant to attack the president on national security issues. But what will happen in a few years is anybody’s guess.

The simple point is that history shows that a Great Power experiencing terminal loss of economic might simply ceases to be e Great Power. Insolvency means that ambitions need to be scaled back. All sorts of face saving rationalizations may be devised to justify retreat; but retreat it will be, as lack of money, in the end is the most critical variable affecting the ability to project power and influence.

In the American Century, America did many things abroad. Many of them wrong or ill advised. But defeat, when it came, was political; not economic. We did not leave Viet Nam because we were poor. We left because the war was poorly conceived, horribly executed and extremely unpopular at home.

From now on, unless the relative impoverishment of America can be reversed, money increasingly will become an issue. On top of “Can we win this one?” others will add “Can we afford this one?” And this is new for America. Whether the issue on the table will be Afghanistan –and if are serious about it, it will have to be—or something else, the ability to fund military and other foreign operation on the scale we are used to will become a subject for increasingly heated debate.

Politics is always about the allocation of scarce resources. But, as the already scarce resources shrink significantly, the fight for a piece of them will become more intense and the strongest constituencies will win. Foreign and security policies, lacking a direct attack against the US, will be shortchanged. The open question is “how much”. In the case of Afghanistan it is easy enough for politicians to redefine success down.

The “De Luxe” outcome (whatever time it takes) would be Afghanistan as a successful democracy well on its way to economic development, with education and jobs available for most. Whereas, the “Low Budget” definition of victory is the acceptance of a weak and corrupt central government; cutting deals with local war lords; paying them off so that they will do the dirty work of keeping the Taliban away and poppy fields down to a more tolerable level.

Afghanistan this way will stay poor and messy, but our minimal goal of sanctuary denial to the Taliban may have been achieved, at least for a while. And if the Taliban will not give up? Well, in this case we shall revisit all this when this may happen. And guess what: uneasiness about an open ended long term commitment to Afghanistan (pointing to the “Low Budget” scenario as the direction we may be headed to) is already surfacing. Russ Feingold, a liberal Democratic Senator from Wisconsin, expressed concerns in an editorial in The Wall Street Journal, (“The Road Home from Afghanistan”, August 29-30, 2009). Depending on how things go, concerns can morph into outcries and vocal opposition.

So, depending on how much political will and how much money we have in hand, we may have to redefine our goals. My prediction is that, just like in the case of Britain and France after WWII, we shall redefine down “the national interest” so that it will be commensurate to how much cash is actually in the register.

And this de facto America retreat may be a real problem, not just for America; but for the world. As clumsy and misguided as America may have been in the conduct of its foreign and security policies, it is hard to believe that there are better under studies ready to take over and do better.

But how bad is the economic and consequently fiscal picture, the picture on which our future as a Super Power, including the conduct of our military and civilian operations in Afghanistan, depends so heavily?

So far the energies of the Obama administration have been focused mostly on containing the damage of the domestic economic crisis and on the complex battle to get some sort of health care reform passed.  But, as economists discuss all this, the real focus of Government action has been, not so much on investments in new growth, but on measures aimed at alleviating the pain. And these transfer payments, while important in supplementing depleted family finances, cost money, thus adding to our debt, as we wait for the recovery to take hold. While the Government clearly wants a stronger economy, a Democratic president and a Democratic Congress right now are bent on spending more money to help those mostly in need. So, the focus is on aid to the poor, unemployment compensation and, of course, extending health care coverage, among other things.

And almost all the other measures have consisted in spending massive amounts of money with the aim of fixing and stabilizing sectors in crisis. The banking sector is no longer sinking but it is still taking in water; as evidenced by the rapid depletion of the FDIC bank deposits insurance funds dedicated to guaranteeing depositors in case their bank goes under. Well, plenty of banks have gone under and many more are likely to follow. So, although we may not have more epic disasters like another Lehman Brothers or the danger of Citi requiring another major capital injection, things are still dicey. Then we have, of course, the gigantic auto rescue plan. And it will take years to see what will be the viability of the re-born General Motors.

All in all, the economic news is no longer dramatic; but the picture is hardly inspiring. There are cheerleaders who proclaim that we have touched bottom and that things are looking good, witness the nice performance of the stock market in the last few months. But a more realistic assessment would tell us that, while we may have indeed successfully averted disaster and a real depression, we are still sick, very sick. The recovery will be slow, with lots of uncertainties; while the bill for this gigantic rescue effort is massive. Of course, when you just managed to avoid death, the cost of care may not be your primary concern. But, as soon as life will get back to something resembling normalcy, the financial and fiscal picture will come to the fore. How are we going to pay for all this?

In the meantime, and this is the basic proposition I am making here, as we are trying to fix the mess and as we lick our wounds, nobody has really tried to gauge the impact of this epochal economic disaster on America’s future standing in the world.

Until the financial tsunami hit us in 2007 and 2008 we were “the” Superpower. Not just militarily but also financially and economically. While there were worrisome trends, such as a chronic trade and balance of payment deficit, America’s policies were backed by the incredible size of the economy and by the almost unsurpassed ability of American firms to reinvent themselves, to innovate and add value. America’s might was about aircraft carriers and air born troops, yes. But behind these assets stood Wall Street, Silicon Valley, a vast and world dominant information ad communication technology sector, 3M, General Electric, United Technologies, Pfizer, Du Pont, AIG and, once upon a time, mighty Detroit. America had most of “everything”: Olympic medals, record numbers of patents, Nobel Prize winners, billionaires, state of the art technologies, substantial investments in R&D.

Now we still have the largest military in the world, but neither we nor the rest of the world can be too sure of the size and strength of the economy that stands behind them. And, whatever the assessment of the current situation may be, nobody knows if our predicament is temporary or the inception of a terminal illness. Clearly, longer term, America’s place in the world will be determined precisely by such a trend. If we are on our way down economically, there is no way that we shall be able to sustain foreign policy commitments and the assets and the hardware needed to secure them –and that includes whatever we may wish to do in Afghanistan.

It was cheerfully said at the very beginning of the Obama administration that, while everybody agreed that America needed a drastic Government cash injection, the same sharp stewards of the economy were fully aware that they needed to put together very soon a credible plan that would show the determination to reduce public spending and the federal deficit in the long term. In other words: shock therapy now; followed however by fiscal sobriety later on, in order to prove to the international financial markets that America is not Mexico or Argentina.

And these statements regarding future policies were very wise. As a superpower we should really care about safeguarding the international perception of our ability to continue to be an economic powerhouse; because our ability to project power rests on the resources provided by a large and dynamic economy. So, this was the public relations pitch at the time:

“Listen up, World. OK, we had a bad patch; a very bad patch….But, hey, we are Americans. True to form, we shall pull ourselves together and we shall do whatever we need to do, not only to get back on our feet, but to beat expectations in doing so, showing you, the World, once more, that one should never underestimate American ingenuity, fortitude and resilience”.

Alright, this is what they said; and we believed it. The trouble is that this is not going to happen as announced. At least not within the initially envisaged time frame. As always, things turned out to be more complex and more difficult than initially estimated. Deep, deep trouble with the financial system. Tight credit conditions for many businesses still delay new investments. A deep housing crisis. Worse than imagined unemployment. And, worst of all, millions of consumers in tatters. Millions are unemployed. Many more millions have no cash left. Thus they cannot make the economic wheels turn. No cash equals not many purchases and thus anemic businesses.

Gigantic Government spending thus far has prevented collapse –and there is wide agreement that swift and massive action was necessary. The issue now is how much more do we need to throw into the pot and for how long more. Clearly no one wants to pull the plug too soon, lest the whole recovery would melt and we would have to start all over. But the Washington insiders along with Wall Street and international markets are also fully aware that the more we spend, the more debt we pile up and the longer it will take later on to reverse course and engineer a credible debt reduction strategy that will prove that America is both willing and capable to become once more fiscally and financially sound.

And with fiscal soundness, as we said, we regain flexibility and options in matters that are important, even though not immediately threatening, such as insurgencies in faraway places like Afghanistan. But in the meantime, at least for now, this obvious correlation between cash in hand and ability to conduct costly operations is virtually ignored. Nobody is commenting on the impact of our dire fiscal picture on the conduct of US foreign and security policies. In other words, given our concentration on the domestic agenda, nobody has put forward the following difficult question: “With what kind of resources can a superpower horribly in debt continue pursuing interests that may be vital and there again may not be, depending on how we look at them”? Can you exert power when everybody knows that, yes, you have the biggest war machine in the world, but financed with borrowed money? They can see your hardware and your marines. But at least some of them will start calculating how many more years of this you can afford, given the size of your fiscal burden.

As I said, at the moment, this issue is still under the radar. And, reviewing the international political scenario, there are not that many candidates who, contemplating America’s implosion, can credibly assert the mantle of international leadership. Certainly not Europe which does not have the inclination. Japan is not doing so well either. A vastly diminished Russia may have the desire; but not the matching capabilities. Emerging and more confident China is another matter, of course. But it will take a while, assuming its ability to sustain growth and social cohesion going forward.

Any dispassionate observer should conclude that America’s pre-eminence, despite many failures, on balance is a good thing. The problem is that we do not know if it will be possible to emerge from this horrendous economic disaster with genuine new strength and confidence. The world should hope that we will, as any aspiring world leaders are unlikely to do better than the clumsy –at times both presumptuous and naïve– but basically good United States of America.




Better and Cheaper Health Care for America?

WASHINGTON– The health care debate has morphed into a free for all inelegant cacophony; resembling at times mean food fights or may be  bar brawls. These fights often feature emotionally charged, angry citizens who attack law makers in town meetings because…well…because they are angry at “everything”. And now they have a target. They are mad at another Government attempt, (health care reform), at intervening in the lives of the people. So, this is opposed by many, as a matter of principle. Because……well, because anything concocted by Washington these days is suspect. So, hapless Congressmen are attacked for what nefarious stuff their constituents think, believe, assume or just suspect will be included in this still half baked reform plan.

Much of this emotion appears to be a way for people to vent their existential (literally) frustrations. The vehemence of some attacks against the health care reform blueprints is clearly not in sync with what is actually on the agenda. But now, this is the new Zeitgeist and, apparently, anything anti-Government goes. And so, the Government is accused of trying to surreptitiously nationalize health care without saying so. The Government is accused of secretly plotting schemes that would in effect amount to euthanasia, denial of care for the elderly and/or terminally ill patients in hopeless conditions. And so on….

Separating fact from fiction is difficult. Who knows what people are really angry about? Certainly, their own circumstances, on average at least, are not brilliant. But, if this is so, it would appear that now any opportunity to attack any Government action is fair game. Is the rage about health care in any peculiar way connected to the failure of the stimulus package to produce the magic healing that it was supposed to yield?

Or is it more broadly that the American public, after having briefly flirted (2006-2008) with the idea that “Big Government” is necessary, friendly, capable and basically “Good”, has quickly reverted to the old Yankee skepticism about what public powers can do? It has been said, probably correctly, that Middle America is on average right of center. The people’s focus is on individual empowerment. Big Government may be acceptable in truly exceptional circumstances to fix exceptional problems. But, as a rule, Government is not trusted to be able to do the right thing.

Notwithstanding the marked shift to the left going back to the elections of 2006, the US Congress has exceptionally low public opinion ratings, around 30% favorable. So, the same people who voted the Democrats into office seem to have second thoughts. Otherwise, how could we explain why are so many people now instinctively fearful that whatever the Democratic majority in Washington, (Congress and the White House), may be concocting on health care, this will translate in less service at a higher cost? Maybe it is because, intuitively, they feel one or two things. The first one is that Government cannot deliver. Government may be good when it sends welfare checks and other subsidies. But it cannot be trusted to do complex things, such as health care reform, right. The other thing is that Americans intuitively feel that they are not being told the whole story.

At this point the debate has been framed and thus it is probably futile to try and redefine it. And yet, let me be futile, and try nonetheless. Here is a basic assessment. The problem with this health care reform plan is that it does not touch the existing fundamentals. Maybe a bite here and there; but no structural change.

Let me explain: on health care, here are the fundamentals. Number one, we have a system that encourages and rewards financially doctors and all other practitioners for performing more stuff, more interventions on patients. If we leave this untouched, then the only realistic way to cut cost, even as we extend coverage to millions, is to ration care. Long term, there is no way around this. Number two, we have to confront the fact that, as a nation, our life styles have deteriorated, thus increasing the incidence of many, otherwise avoidable, chronic, (and thus costly), diseases . We are increasingly more sedentary and increasingly obese. All this causes a growth of maladies, such as hypertension and diabetes that could be substantially reduced, assuming drastic changes in nutrition habits and level of exercise on the part of millions of Americans.

So, like it or not, we have runaway health care costs because of two negative factors perversely combined. We live unhealthy lives that increase the incidence of many otherwise avoidable diseases. At the same time, the providers have a vested financial interest in having more rather then fewer sick people around. “Your doctor prospers when you are sick”. Of course, all this is obfuscated by the medical insurance system that creates a screen between the patient’s out of pocket cost and the doctor’s bills. But eventually something has to give. Insurance costs go higher in order to pay for all these procedures. And we have ended up with the most expensive health care system within the developed world, both as a percentage of GDP (16% as opposed to a 10-11% average) and on a per capita basis (around US $ 7000 per person as opposed to an average of about US$ 3,000). This is astonishing.

If these two issues, structurally and unfortunately combined, one about people’s bad habits, the other about the economic structure of health care provision that encourages more treatments and thus higher cost, are not radically dealt with, the only way to cut cost is by mandating cost cuts.

But this is not how the issues are presented. Which is to say, the policy-makers now debating the issues are not transparent and truly honest about the nature of the problem. They say that they want reform to guarantee coverage to all and affordability. And the say that they can ensure sustainability through smart changes that are actually going to reduce overall cost. But without addressing and radically transforming the fundamentals, this reform cannot succeed as intended. Sure enough, we may cover more people and improve the system here and there. But, longer term, we shall not cut cost, because the system encourages and rewards doctors for doing more stuff.

But nobody says this. Details aside, health care reform has been presented as a benign, major social intervention, guided and directed by Washington. Now, this sounds great. But, indeed, probably too good to be true. This idea of getting more, for more people, at a lower cost, while possibly believed by some reform advocates, is disingenuous pie in the sky. “More for less”? Within a formula concocted by and regulated in Washington? It usually does not exist. And this is why some, perhaps a bit paranoid, smell a rat and look for the catch, the fine print, the swindle that they assume must be built into a system too good to be true. This is why people fear fuzzy details. What about these “experts commissions” that will have to evaluate and recommend best practices that would “streamline” medical protocols? On the surface, this is rather innocuous. It would be about examining what is available and recommending best practices. “Oh yes? –says citizen Joe Public–Well, what if these experts start mandating cheaper, outdated practices under the disguise of efficiency? Isn’t this an oblique way to allow denial of care, under another name?”

But this paranoia, if sometime bizarre, about untoward schemes and secret plots is blossoming because fundamentally the Government is unwilling to tell the whole truth. Health care cannot be treated as a workshop where you take your car when it develops a malfunction.

Health care should be about the promotion of “Health” and this the real “Prevention”, (as opposed to the more pedestrian understanding of prevention entailing testing and screening everybody in order to find disease). Health care should be a lot more than curing sickeness. Health begins with good personal habits, good nutrition, plenty of exercise and the avoidance of addictive substances such as illicit drugs, smoking and alcohol abuse. And it is not that we do not know anything about this. When policy makers made up their mind to go to war, literally, against tobacco, they did so.

Of course, changing the personal habits of tens of millions of Americans is much more complicated and it will take years. So, it is difficult. But the pay off could be immense. People on balance healthier would need less care and thus the cost of insuring them and paying for services when needed would be significantly lower with cascading benefits in every direction. Healthy people are more productive. They show up at work. They do more. Reduced health care cost would benefit all who pay for it: businesses, individuals and Government.

By the same token, we have to change the nature of the medical profession and the expectations of those who engage in it. Right now it is mostly fees for services. And thus the doctors are inclined to overdo, because that is the way of increasing their financial gain. So, true health care reform has to break the connection whereby a doctor makes more money only if they “find” more stuff to do for the patients, with the result that many procedures are redundant, wrong or at least unnecessary.

You want real reform? Then address these issues. “Alright –someone might say– but this is gigantic, it is too difficult. We cannot do all this”. Instead, we are going to tackle other aspects that are still worthy: the plight of the uninsured, portability of insurance, more transparency about billing, streamlining of procedures. Fine. Let’s be more modest in our goals. But let us be honest and admit that this is like overhauling an old car; not about introducing a new model. And –most fundamentally– let’s stop pretending that, by tinkering here and there, we are going to cut cost.

Admittedly, structural reform may be truly overwhelming. But this is where the real problems are. If most doctors were paid a monthly salary, unrelated to the number of procedures that they prescribe, the perverse incentive that leads to overdoing and thus over billing which in turn leads insurance companies to jack up their premiums would vanish. If people on average led healthier lives, the demand for services would also shrink, at least to some extent. But this would mean that doctors, now mostly free entrepreneurs whose economic gain is determined by how many treatments they perform, would become employees. And who wants to tell doctors that this is the end game?

As for the relevance of personal habits on the “National Medical Bill”, surprisingly, while this whole health care debate was unfolding, a huge news item indicating that the doubling of obesity in America is costing about 150 billion dollars a year, (due to obesity related ailments), was not referred to at all in the debates. Why? Because this is a peripheral non issue? Well, 150 billion is by no means the bulk of the cost of medical treatments, but it is a very substantial chunk. And, as obesity is increasing exponentially, amidst the quasi indifference of the guardians of health care, this figure is likely to go higher. Now, obesity is caused in most cases by bad personal habits and ignorance about the value of proper nutrition and exercise. Assuming appropriate education, most of it could be reversed, with an obvious impact on the national health care bill. But nobody says any of this. Maybe there is fear of offending large numbers of voters. Maybe they could get scared. They might start thinking that, as their obesity induced diabetes is their own fault, going forward it may not be covered by insurance. Or something like this.

Be that as it may, the truth is that, while a great deal of disease does indeed happen randomly, or may be due to heredity, personal habits do matter. But do we hear any of this in a debate that is supposedly aimed at improving not just the reach but the rationale and the “quality of life” of Americans through a more enlightened health care delivery system? Not really.

So, here is a drastically different way of addressing health care goals.

Number 1: we as a nation take responsibility for embracing a healthier life style. This would have to include individuals in their daily lives. It would have to include public and private schools and many other institutions that provide millions of prepared meals on a daily basis. And it would have to include the food industry that will commit to withdraw the processed foods that are low in nutritive value and high in all the bad stuff (sugar, fat, salt) that induces over eating and obesity.

Number 2: we stop paying doctors on the basis of the number of procedures they perform. Other systems of compensation may be devised, as long as the financial interest of the doctor is no longer tied to how many things he does to a patient. Of course, there is nothing outlandish about any of this. Indeed, there are already hospitals and clinics in which doctors are salaried employees. Assuming that the level of financial reward for these professionals is commensurate to expertise and skills, then doctors could really focus on what is best for the patients, severing this perverse link that creates an incentive for doing more, and billing more, regardless of real merit.

Short of this, whatever the outcome of this round of reform, if we really want to get America’s cost down to the average of other modern countries, there is only nationalized health care –yes, a government run program!– or any other modality that would effectively ration availability in order to contain cost within pre-established limits.

It is time for the elected representaitives to level with the public and tell them the truth. All this stuff about re-jigging this health care system so that magically it will do more for less is unrealistic and disingenuous; with the added side effects of further eroding the confidence of the public in governmental actions and its effects.