January 2006
The 2006 State of the Union: Addressing Key Questions of Foreign and Economic Policy
As President George W. Bush prepares to deliver his sixth State of the Union address, his approval ratings have begun to rebound from the career lows he witnessed in 2005. Some analysts have attributed this climb to the recent elections in Iraq and an improved economic outlook. Issues of foreign and fiscal policy are sure to be central to the president’s address before Congress. Is democracy on the move in the Middle East? Is the U.S. military up to the challenge of transformation? Will the United States meet the new challenges presented by China head on? What about relations between the Americas? And what ever happened to al Qaeda? What will drive the economic policy agenda for the coming year? With more families confronting the alternative minimum tax, what, if any, tax changes are on the horizon? With health spending skyrocketing, will this be the year for action on entitlement spending? On the global front, how will the U.S. trade picture shape up in 2006? These and other questions will be the subject of two panel discussions featuring AEI foreign and economic policy scholars.
Panel I: Foreign Policy
Danielle Pletka
AEI
Iran has received much attention of late, specifically on questions of what U.S. policy ought to be and what the current administration has been doing to deal with Iran. In his speech, the president will likely claim that the administration’s strategy of multilateral diplomacy is working and that there is now greater concern regarding the direction of Iranian policies; however, this awareness is the result of President Mahmoud Ahmadinejad’s outlandish statements and not the result of American diplomatic efforts. Iran cannot be contained. The president could suggest alternative strategies to dealing with Iran if current negotiations reach an impasse, but the administration probably has few ideas on this question.
There should be some discussion on India, where the president will visit in one month. It remains to be seen whether the United States can have a peaceful nuclear arrangement with India. The administration’s policy towards India is in direct contradiction to its policy towards Iran on nonproliferation issues.
The victory of Hamas in the Palestinian parliamentary elections could lead to the repudiation of the president’s democratic agenda. Elections that facilitate the spread of terrorism are intolerable. None of the building blocks of a democracy were present in the West Bank or the Gaza Strip. Given the choice between two poor choices, voters chose what was seen as the cleaner party. The president should not view Hamas’ victory as the end to his freedom agenda.
Gary Schmitt
AEI
Although only a few lines of the address will be dedicated to Europe, there is much to discuss regarding transatlantic relations. Tensions that previously existed have greatly diminished. Angela Merkel’s election as chancellor has given Germany more flexibility on the international stage. The demise of the EU Constitution has also strengthened transatlantic relations by taking the steam out of EU projects. NATO is once again the forum for strategic dialogue between Europe and the United States.
It is noteworthy that all European leaders claim to favor Bush’s agenda of promoting democracy. The degree of cooperation on terrorism and nuclear nonproliferation is striking and underappreciated because of divisions that existed regarding the war in Iraq. There has been more progress on Iran than what would have previously been expected. Many questions will need to be addressed in the coming year. First, there are likely to be more difficulties in Afghanistan, and the United States will want Europe to offer more troops. There will be parliamentary elections in Ukraine and a presidential election in Belarus this March. Also, debates will continue as to how to deal with Iran and the new Hamas government in the Palestinian territories.
A last issue that should be mentioned relates to energy supply. Oil and natural gas supply are a growing strategic problem for Europe. While Russia has increased its natural gas exports, it would be good for the transatlantic relationship to discuss ways to diversify the sources of natural gas supply.
Roger F. Noriega
AEI
The president will likely not mention Latin American in the address, which is unfortunate because the administration has a good policy towards the area that is central to the freedom agenda. In addition to pushing trade in Latin America, the president has emphasized democracy and rule of law to spread economic opportunities. Despite the headlines and hysteria, there is an abiding consensus in Latin America in favor of free markets and closer relations with the United States. It is important for Bush to show that he is the Western hemisphere’s real populist, committed to policies that will redistribute power away from elites and benefit the masses.
Bush can push his Latin America agenda forward by establishing guidelines on how to fight corruption, by urging countries to do so, and by providing incentives in the form of access to private sector investment for those states that meet U.S. standards. He should restate his commitment to regional trade and push forward on this front even if faced with Brazilian opposition.
Castro will soon be off the world stage. The United States needs to stand with the Cuban people and demand an actual transition of power, not a succession. Bush must make clear that Cuba will be welcomed into the hemisphere if it complies with the Inter-American Democratic Charter.
Lastly, Bush should remind the American people that three of the four largest U.S. energy suppliers are in the Americas. There needs to be a balanced immigration bill that recognizes the importance of immigrants to the country and accommodates them in a legal way. The Americas can be self-sufficient in terms of energy if leaders adopt the correct policies.
Thomas Donnelly
AEI
China is of increasing geopolitical and economic importance. Moreover, it continues to acquire serious military capabilities so as to intimidate Taiwan, but also to ensure that the United States cannot project its military power in other parts of the world. The rise of China is a global phenomenon that is occurring faster than U.S. policy makers have been able to deal with. Evo Morales and Hugo Chavez are both reaching out to China in order to counterbalance U.S. power in Latin America. China’s relationship with the Khartoum regime allowed it to carry out genocide in Darfur. Chinese influence in the Middle East is also increasing, and referring Iran to the UN Security Council will require China’s approval. The spread of freedom in East Asia has disproved the notion that freedom is a Western ideal. China poses a conundrum for the United States: the freedom question remains unresolved, but economic pressures are such that United States needs to deal with China.
Bush has committed the United States to a long war in the Middle East that will be determined by the ability to sustain a large land force in the area. While much effort has been expended to make our soldiers better, it is difficult to understand why the size of U.S. army’s land force has not increased. The level of effort sustained in Iraq and Afghanistan is equal to eighteen brigades. The general rule of thumb is that for every soldier deployed abroad, there should be three people in the service. Using this logic, there should be fifty-four brigades on active duty, when in reality there are only thirty-three brigades. This small land force constrains U.S. policy towards the Middle East.
Reuel Marc Gerecht
AEI
The president will speak about Iran and the nuclear question. The real is question is whether the United States will make a serious effort to promote democracy and regime change in Iran. The U.S. covert program in Iran was actually bigger in the 1980s than it is today. Iran continues to support terrorism and to disturb the Middle East. The United States needs a covert and overt effort to push democracy in Iran. If Bush makes any mention of containment, it means that he is not serious about democracy promotion in Iran.
The policy towards Iraq is on autopilot: either the counterinsurgency will be successful using mostly Iraqi soldiers, or it will fail. The process of political development is moving forward, but this in itself will not defeat the insurgency; only a proper counterinsurgency strategy can accomplish that goal.
The war against terrorism is going better than people think. Holy warrior killing by al Qaeda operatives may be hurting their popularity, as the killing of innocent women and children tends not to impress. There are fewer holy warriors in Iraq than one would expect, especially compared to Afghanistan.
It is impossible to exclude fundamentalists from democracy. It is better to bring them into the political system sooner rather than later. Nevertheless, Hamas is a worst-case scenario because it is operating in a weak state where terror is fused into state activities. There is a chance for evolution, but it will likely not be a pleasant process.
Panel II: Economic Policy
Norman J. Ornstein
AEI
I will be covering the political aspects of the speech while leaving the econometrics to the people sitting next to me. Bush has found himself in the middle of the second-term blues with an approval rating around 42 percent. We know he has the potential to achieve a rating in the low 50s, but this will be a significant challenge considering he faces a Congress that is in disarray. The Congress is reform minded, individuals are scrambling for leadership positions, and there is an agenda overload. Such issues on the agenda include immigration, lobbying, and the renewal of the Patriot Act.
One of the major questions is whether the president will characterize himself as a uniter or a divider during this State of the Union address. Another significant question is how much initiative he will take on his domestic agenda in the upcoming year. He specifically mentioned during the reelection campaign that he would not simply be a caretaker during his second-term. Action was swiftly taken after his reelection on education, with the No Child Left Behind Act, and tax reform. It will be interesting to see whether he continues to focus on these issues. My guess is that he will tackle health care. Voters might be more receptive now than in years past because of our unprecedented situation. Even though there has not been significant growth in the number of uninsured, there are a lot of people who are on the brink and feel the threat of no insurance in the future. It has also caught the attention of large corporations. However, it will be quite difficult to work with this health care crisis considering the current budget.
Phillip L. Swagel
AEI
The state of the economy is very good. The consensus among most economists is that the bad GDP data last Friday was due to a combination of one-time factors and that the economy will be strong in the beginning of 2006.
Yet, it is important to examine if everyone is gaining. It seems clear that so far the recovery gains have gone to owners of capital rather than workers. What is so puzzling to economists is that productivity has increased without an equivalent increase in real wages, which defies one of the most consistent rules in economics. Many attribute this to the underlying dynamics of globalization. Whatever the reason, I predict that the lack of growth in real wages relative to productivity will be a short-term phenomenon.
In terms of fiscal policy, it has become apparent spending restraint is hopeless. The cost of health care is really the primary concern. Many people are calling for a repeal of the Bush tax cuts to help with the costs, yet these tax cuts only account for 2 percentage points of GDP. This would do little to pay for entitlements that are predicted to rise by 18 percentage points. Therefore, it seems that in the long run it will be necessary to increase taxes.
Goals in other areas should be to reduce barriers that limit the building of new refining capacity to maximize efficiency in the energy sector, to maintain open trade to extend the productivity gains in the United States, to end the tariff on soft-wood lumber from Canada to reduce the harmful effects this tariff has on low-income housing, and reevaluate the value of our investment in pre-kindergarten education.
Joseph Antos
AEI
The president will have to cover health care in this State of the Union because of the major dissatisfaction that many have with the current program. Poor people will continue to be a concern, but the real pressure is coming from the baby-boomers who are concerned about the well-being of their parents and the status of the system for themselves. Bush will likely not mention many details about health care reform, but it is almost certain that he will emphasize individual ownership with the goal of making people manage their own health care more efficiently. Health care cannot really be a plus for the president during this speech, but it will give him the opportunity to reach out to the 20 million or so who have not participated in the program and also pledge to the people that are participating that the system will be fixed.
Kevin A. Hassett
AEI
It is very difficult to characterize the Bush administration by a single economic theme because we have seen one of the most incoherent sets of economic policy during President Bush’s term. Tax cuts have been very similar to those executed during the Reagan years, but Reagan actually cut spending in such areas as defense while the Bush administration has actually increased overall government spending to record levels. The upcoming year will be the last opportunity for the administration to fix its ambiguous image regarding economic policy because once the presidential election campaigns begin, all eyes will be on the candidates.
What challenges should President Bush address going forward? I think that there might be some tinkering on Medicare, but the likelihood that the president will be able to initiate major change is small. I believe a significant issue is the potential loss of our comparative advantage in science and technology. Because of the U.S. supremacy in science, we have been able to offset our losses in manufacturing and perform quite well economically. However, our scientific supremacy is currently being challenged more seriously than it ever has. Even though it will not change the incoherency problem within the administration, it is crucial that our nation’s performance in science be addressed.
AEI interns Colin Kelly and Paul Stewart prepared this summary.
