What next, Mr. President?

The President waves to the crowd before his 2012 acceptance speech.

    On Nov. 6, Barack Obama secured a second term as President of the United States of America. While I congratulate Obama on his victory, I must ask: what exactly, Mr. President, will you do in the next four years?
    The focus of Obama’s reelection campaign was the economy, so it is reasonable to assume that he will make strengthening the economy his top priority. The centerpiece of the President’s first-term economic policy was the American Recovery and Reinvestment Act (i.e. the stimulus), which made long-term investments in infrastructure, green energy, education and manufacturing. Obama plans to enact another, smaller stimulus in his second term, named the American Jobs Act, which will cut income and payroll taxes and increase infrastructure and education spending. The rest of his economic plan consists of an overhaul of the tax code and investments in energy. Obama promises to raise the capital gains tax (a tax on investments and stocks held for more than one year that primarily affects the wealthy) from 15 to 20 percent and to raise taxes on the top two tax brackets from 33 and 35 percent to 36 and 39.6 percent, respectively. His tax plan also includes promises to eliminate loopholes and to streamline the tax code for businesses and individuals. The plan specifies to phase out loopholes for those with incomes over $200,000 and to eliminate several loopholes for large companies, although how it plans to streamline the tax code remains unclear. He also aims to create or extend numerous tax credits for individuals and businesses, such as a $3,000 credit per each worker hired for businesses, cut the corporate tax rate, eliminate the current tax credit for outsourcing and extend the Bush tax cuts and other tax cuts and credits for individuals making less than $200,000 per year.

The President’s energy policy in his next term will be similar to his first term’s energy policy. Obama plans to focus primarily on funding alternative energy while also expanding access to cheap hydrocarbons. He aims to raise fuel efficiency requirements for vehicles, set a requirement that all utilities must produce 80 percent of their electricity by 2035, continue funding and supporting the alternative energy industry and increase gas, oil and coal production by opening up some public lands to drilling and encouraging hydraulic fracking (a new, controversial type of natural gas extraction) while insisting on higher environmental safeguards for drilling and fracking.

    For the President, economic policy and fiscal policy dovetail, which is why he has proposed a plan for cutting the deficit. His plan for reducing the deficit centers around an 80-page deficit reduction plan that he drafted in 2011. Obama calls for raising taxes on the wealthy by eliminating the capital gains tax, raising marginal income tax rates and eliminating loopholes for the wealthy. The plan also incorporates spending cuts. Obama plans to cut $257 billion from discretionary spending, primary by cutting subsidies to agriculture and the oil industry. He will also cut $450 billion from the defense budget, try to cut Medicare’s budget by negotiating with pharmaceutical companies to lower drug prices and to levy an additional Social Security tax of 2-4 percent on those with incomes over $200,000 to try to make Social Security solvent, among other things. According to the nonpartisan Congressional Budget Office (CBO), this budget will cut the debt by $2 trillion and increase GDP growth by 0.6 percent, although the President’s opponents point out that his budget adds $4 trillion to the deficit when compared to the CBO’s baseline budget, which includes the expiration of the Bush tax cuts and sequestration (an imminent series of spending cuts). Despite his willingness to cut the deficit, Obama has stated that he will try to prevent the impending “fiscal cliff” (i.e. the impending combination of the expiration of the Bush tax cuts and sequestration), which is projected by the CBO to put the economy back into recession. Like much of Obama’s economic policy, however, his deficit plan is unlikely to pass through the Republican-controlled House.

Indeed, because the Democrats do not control Congress, the only thing that Obama can be guaranteed to do in his second term is to cement the achievements of his first term. Two of his main accomplishments, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), a banking and financial sector reform law and the Affordable Care Act, still have major provisions that need to be implemented. The main achievement of Dodd-Frank was to require regulatory agencies and new committees set up by the law to draft and enact certain regulations of the financial sector. Only one-half of these rules have been drafted however, so Obama will have to fight to get the rest of the regulations drafted. Similarly, most of the important provisions of the Affordable Care Act, including the individual mandate and the ban on gender discrimination by insurance companies, will be enacted in 2014. Since several states are already trying to fight these provisions through both legislation and governor decree, Obama will have to fight, using the courts, personal influence over state governments and possibly legislation, to ensure that the main provisions of healthcare reform get enacted.

On social policy, Obama supports gay rights, gender equality and immigration reform. The most important social policy for Obama is women’s rights, judging by the amount of focus he placed on it in his first term. The President aims to expand free contraceptive access to women, pass the Paycheck Fairness Act, which aims to make it easier for victims of wage discrimination to discover if they are being discriminated against and to seek justice and to try to pass other bills that combat sexual violence and wage discrimination. The President believes that women should be allowed to get abortions, so he will likely oppose potential legislation that restricts access to abortions, both in Congress and at the state level. In terms of gay rights issues, Obama supports legalization of same-sex marriage, although how he plans to achieve this is unclear, as it can only be accomplished by amending the Constitution. He also plans to enact the Employment Non-Discrimination Act (which bans hiring discrimination based on sexual orientation and gender identity) and repeal the Defense of Marriage Act, which defines marriage as between a man and a woman for federal purposes. On the issue of immigration, the President’s platform notes his support for reforming and streamlining the immigration process, although his platform lists no explicit reforms. He is a noted supporter of the DREAM Act, which would provide illegal immigrants who are students or soldiers in America with permanent residency status, and he would probably make trying to pass the DREAM Act his biggest goal as far as immigration is concerned. Since he has described his failure to pass the the DREAM Act as the biggest failure of his first term, it is reasonable to expect that he will make pushing for the DREAM Act one of his top priorities in his second term.

Although Obama fought for all of these issues in his first term, the extent to which he would be able to achieve them in his second term is limited due to both the limited Constitutional role of the President and the fact that the House is controlled by Republicans. The most important way that Obama can influence social policy is through whom he appoints to the Supreme Court. Four justices are in their late 70s and are thus likely to retire. The Court, which is split 5-4, is set to rule on cases concerning the constitutionality of the 1968 Civil Rights Act, the Defense of Marriage Act, the constitutionality of affirmative action and California’s Proposition 8, among other important social issues, so who Obama appoints to the Court will have long-lasting effects on social issues.

The foreign policy of Obama’s second term, like his first term, will be centered on slowly ending the War on Terror while preparing to face other, more long-term threats. Obama’s primary foreign policy challenge in his next term will be to ensure that the 2014 withdrawal from Afghanistan goes well. The success of the withdrawal will be contingent on whether Afghan security forces are able to fight terrorism on their own in 2014 and whether the Afghan government will be able to become functioning, strong and non-corrupt, so the President will likely focus on making these things happen in his second term. Even after the Afghanistan withdrawal, Obama will have to continue to fight terrorism. He will probably continue his policy of drone strikes in Pakistan and Yemen, and will have to manage the backlash and opposition that they generate, although he has offered no specifics.

The President’s primary foreign policy plan is to shift American power away from the Middle East and towards Asia. The centerpiece of this effort will be to continue the “pivot” to Asia, which is the rebalancing of American power (especially military power) towards East Asia and especially China. The President promises to shift 60 percent of our military strength to Asia by 2020, an effort that is already underway, and to attack China’s allegedly unfair trade policies, although he probably will not do so due to the risk of starting a trade war. He also will likely reach out to American allies in East Asia, especially India, and continue to invest in military hardware for South Korea and Japan. Unfortunately, he has offered few specifics on other major foreign policy issues, including Iran, the rise of the BRICs (Brazil, Russia, India and China) and the economic crisis in Europe. Judging from his first-term’s record, Obama will likely try to reach out to Brazil and India, increase sanctions on Iran while continuing both covert military actions against Iran and create efforts to find a diplomatic way to remove Iran’s nuclear weapons and ignore the crisis in Europe.

Barack Obama has a difficult four years ahead of him. He will have to fix the economy, prevent the deficit from spiraling further out of control, protect the rights of minorities and refocus our foreign policy towards long-term threats, all while having to battle strong Republican opposition in Congress. I wish him good luck. He’ll need it.

How to contain Brazil

    As American presidential candidates and pundits alike yammer about the threat posed by a rising China, the rise of another potentially unfriendly superpower closer to home has been ignored. This nation is Brazil, the seventh richest country in the world1, ahead of Britain, and the third highest GDP growth rate2 from 2000 to 2010. Although Brazil is not nearly strong enough to challenge American hegemony, it is powerful enough to frustrate U.S. policies and actions in ways that harm U.S. interests. Therefore, the United States should not only take actions to convince Brazil to support the U.S., but it should also work to break up Brazil’s power.

Brazil’s rising power status is questioned by nobody. Brazil’s rise is a true success story; a fight against both an unforgiving geography and relentless inflation3 that kept the country in endless poverty despite high growth. Brazil’s rainforest geography, lack of easily accessible arable land (most arable land is deep in the interior rainforest) have provided significant obstacles to growth. The natural barrier provided by the Amazon ensures that all trade and thus all major cities are confined to the Atlantic Ocean, which further frustrates growth because the Great Escapade, a high wall of mountains, runs along the coast except for in a few small pockets, confining Brazil’s cities to these small pockets and thereby preventing transportation links between Brazilian cities and the development of economies of scale.3 Brazil shot up to prominence once the forests were cleared and roads built, creating farmland and  enabling the rise of a middle class of small farmers.3 Further, the implementation of the Real Plan (named for the Real, the new Brazilian currency created by the plan) in 1994 brought inflation down from 45 percent in 1994 to one percent in 1996 by tightening monetary policy, floating the currency, and tying the Real to the dollar.5 While this destruction of inflation hampered growth by tightening credit and cutting deficit spending, the Real Plan vastly increased the purchasing power of most Brazilians, decreasing the poverty rate by 10 percent in two years5 and creating a consumer economy in Brazil from scratch. It is the largest country in South America, both in terms of population and wealth. Despite having growth decreased by the Real Plan, Brazil’s growth rate remains high, as mentioned before. Further, this growth appears to be here to stay: Brazil’s economy is largely based on agriculture, and its products, particularly soybeans (needed for tofu, food additives and animal feed) and sugar cane (used as biofuel and food sweetener) are in high demand and will likely remain so in the future.6 The Brazilian people’s high purchasing power, and the fact that the Brazilian poverty rate is plummeting, ensures the long-term health of the domestic consumption economy as a main driver of growth. Brazil has also discovered enormous oil fields: Brazil sits on 50 billion barrels of oil, enough to propel it into the top five oil producers by 2020,7 and some estimate that 70-100 billion barrels more are located offshore.8 Although Brazil slumped in 2011, this slump was largely the result of faltering consumer spending, a problem that can be easily overcome. Likewise, Brazil's inflation crisis, which is largely the result of excessive foreign investment from China, can be solved through tighter currency regulations. 14, 3

This wealth has translated to regional dominance. The Brazilian state-owned firm Petrobras controls the Bolivian natural-gas industry, the largest sector in the Bolivian economy, and almost all Bolivian agricultural products are shipped to Brazil. Large numbers of Brazilians have migrated to Paraguay, and Brazil is the largest investor in the Paraguayan economy, particularly in its energy sector. Brazilian cash drives Uruguay’s financial industry, the main driver of Uruguay’s economy, and Brazilians now own a majority of Uruguay’s farmland.3 All told, Brazil is the largest direct investor in Latin American nations and the most powerful country in the region, giving it the status of regional hegemon.

In the past, Brazil’s power has been checked by that of its neighbors, particularly Argentina. Argentina benefits from many large navigable rivers (which facilitate trade) and the fact that most of its territory is large arable plains, which facilitate not only large-scale agriculture but economies of scale and giant cities. Historically, these geographic advantages have played out in the way one would expect: Argentina wore the pants in the Argentina-Brazil relationship. Argentina dominated the Southern Cone region (Uruguay, Paraguay, Argentina and Southern Brazil) that formed the heartland of South America after Argentina’s victory against Brazil in the 1825 Cisplatine War. By dominating this crucial, resource rich region, Argentina rose to global prominence and was even able to challenge European powers, seen most recently in the Falklands War. Although modern Argentina is but a shadow of its former self, it remains the second most powerful country in South America and the only potential threat to Brazil.

Recognizing the threat posed by Argentina, Brazil has undertaken a number of successful measures to ally itself with Argentina. The two countries consider each other to be in a “strategic alliance,” and their militaries collaborate extensively.9 Brazil and Argentina have collaborated on designing military aircraft, and their militaries frequently drill together. Most importantly, the two countries have shared details on their top-secret uranium enrichment plants with each other. Further, Brazil supports Argentina in Argentina’s claim over the Falklands Islands, Argentina’s biggest foreign policy issue.10 However, the main way in which Brazil has formed a cohesive power block in South America is economically, through the Mercosur trade agreement that involves Brazil, Argentina, Paraguay and Uruguay i.e. Brazil and the Southern Cone nations. Mercosur is a free-trade organization with a standardized external trade policy, similar to NAFTA or ASEAN. Mercosur has led to great amounts of trade and migration between Brazil and Argentina, deepening their ties. Mercosur is also the main means by which Brazil controls the Southern Cone: while individual deals brought local nations into Brazilian suzerainty, Brazil sets the common foreign policies of the region through Mercosur.10

With its one major enemy removed, and its status as regional hegemon fully secured, Brazil stepped on to the world stage. Brazil leads the UN mission in Haiti, has tripled its foreign aid budget since 200811 and has participated in 27 UN peacekeeping missions. However, Brazil’s stint in the international arena has been anything but beneficial to the U.S. Historically, Brazil has been unfriendly to the U.S.; Brazil worked with the Chinese and the Soviets during the Cold War and refused to oppose Fidel Castro’s Cuba. Brazil refuses to cooperate with American demands, seen in Brazil’s unwillingness to pacify its neighbors or crack down on drug lords in neighboring countries.12 Another major source of friction between the two nations is an incident in which Brazil negotiated with Iran in 2010, despite explicit U.S. instructions not to interact with Iran. Economically, Brazil has been working to exclude the U.S. from South America through economic integration unions such as Mercosur and was the main opponent of the Free Trade Area of the Americas in addition to raising tariffs on U.S. agricultural goods. Further, Brazil has worked to actively oppose U.S. actions. Brazil has opposed American anti-drug lord operations in Colombia and has even insisted that any American military actions in South America be approved by Brazil first. Brazil has also opposed most recent U.S. foreign policy, particularly the War on Terror, the invasion of Libya and the U.S. attempt to pass a UN Security Council resolution condemning Syria. Overall, Brazil’s attitude towards the U.S. is one of suspicion: Brazil regards the U.S. as an obstacle to its rise and thus is unfriendly towards the U.S.13

The United States ought to undertake a two-pronged approach to protecting its interests from Brazil. First, the U.S. needs to reach out to Brazil in order to show the Brazilian government that American interests and values are aligned with those of Brazil. Value-wise, both countries are Western-style republics that value democracy and liberty. Brazil benefits from the security provided to it by U.S. hegemony and is made wealthy by the freedom of navigation the U.S. Navy provides. The U.S. should try to convince the Brazilian leadership, through state visits and possibly through incentives such as subsidies for sugar-cane based biofuels from Brazil, that U.S. hegemony benefits Brazil. Second, the U.S. must try to peacefully frustrate Brazilian regional hegemony. This can be done in two ways: by assisting South American nations that are opposed to Brazil and by creating an alternative to Mercosur. Already, Brazil’s rise has hit opposition from several South American countries, particularly Venezuela, Colombia and Bolivia. The U.S. can reach out to Colombia by providing more assistance in attacking drug operations there and by increasing trade to Colombia, which would pull the country away from Brazil. Likewise, U.S. investment in developing Bolivian resources, particularly in the emerging and strategic lithium industry, could make the U.S. Bolivia’s main trading partner and thus bring Bolivia out of Brazil’s shadow. Although Colombia and Bolivia are the two pieces of low-hanging fruit, efforts to strengthen ties with South American nations to weaken Brazil’s grip on the region must be made with most South American countries. The centerpiece of this weakening of Brazilian hegemony should be the creation of an alternative to Mercosur. Mercosur is already faltering, as it is becoming obvious that the organization exists solely as a means to further Brazilian power and not to promote free trade.3 If the U.S. were to create a free-trade organization in South America incorporating the Mercosur countries and other South American nations, this would tie South America to the U.S. instead of Brazil, especially if this free-trade organization was more of a free-trade organization than Mercosur is. Inevitable Brazilian opposition to such an organization can be circumvented by offering membership to the other Mercosur nations first, and then letting peer pressure kick in.

Brazil’s rise cannot be halted, nor should it be. However, Brazil’s economic strength need not imply regional hegemony, a fact that can be ensured by increased U.S. involvement in South America. 

Pictured above: A Brazilian oil platform, the first to tap the massive and newly discovered "sugar loaf" deposit off of Brazil's coast. Platforms like this one will catapult Brazil into the ranks of the world's largest oil producers and ensure Brazilian economic growth for decades.

Citations

1. "Brazil." CIA World Factbook. CIA, 2 Apr. 2012. Web. 6 Feb. 2012.

2. International Monetary Fund. World Economic Outlook Database, September 2011. N.p.: n.p., 2011. IMF.org. Web. 6 Apr. 2012.

3. The Geopolitics of Brazil: An Emergent Power's Struggle with Geography. N.p.: STRATFOR, n.d. Print.

4.  Clemons, Benedict. The Real Plan, Poverty, and Income Distribution in Brazil. N.p.: IMF, 1997. Finance and Development. Web. 6 Apr. 2012. .

5. Pielow, Christian. "Brazil – A New Future." The Executive Search Blog. Blue Steps, 9 Nov. 2010. Web. 6 Apr. 2012.

6. "Filling Up the Future." The Economist 5 Nov. 2011: n. pag. The Economist. Web. 6 Apr. 2012. .

7.  "A Big Oil Discovery." The Economist 12 Feb. 2008: n. pag. The Economist. Web. 6 Apr. 2012. .

8. Shifter, Michael. "Argentina-Brazil Relations." World Politics Review. Trend Lines, 22 Dec. 2010. Web. 6 Apr. 2012.

9. "Brazil reiterates support for Argentina, denies any blockade to the Falklands." MercoPress 1 Feb. 2012: n. pag. MercoPress South Atlantic News Agency. Web. 6 Apr. 2012. .

10. Varas, Augusto. Brazil in South America: From Indifference to Hegemony. N.p.: FRIDE, 2008. FRIDE. Web. 7 Apr. 2012.

11. "Speak Softly and Carry a Blank Cheque." The Economist 15 July 2010: n. pag. The Economist. Web. 7 Apr. 2012.

12. Alberto Moniz Bandeira, Luiz. "Brazil as a Regional Power and Its Relations withthe United States." Latin American Perspectives 33.3 (2006): 12-27.JSTOR. Web. 7 Apr. 2012. .

13. Hakim, Peter. "Why the US and Brazil Can't Get Along – A Story of Turf, Ideology, and Interests." Foreign Affairs Latinoamerica (Mar. 2011): n.pag. Inter-American Dialogue. Web. 7 Apr. 2012.
14.  "Brazil News." The New York Times 7 Dec. 2010: n. pag. The New York Times. Web. 6 Apr. 2012.

observation on the economy

Below is a list of every major American panic (recession or economic collapse in modern parlance) in the 18th and 19th centuries. See if you notice a pattern.

Panic of 1796: Lack of regulation led to the bursting of the land bubble in 1796, causing a financial crash. The crash soon escalated into a depression that caused economic hardship in both America and Britain.
Panic of 1819: Unregulated overspeculation in Western lands led to economic collapse and depression.
Panic of 1837: Caused by overspeculation in Western lands by unregulated "wildcat" banks. Western expansion briefly stopped because millions lost their wealth, and millions in government funds were lost when several hundred banks collapsed.
Panic of 1857: Too much grain production, overspeculation in land and railroads, and inflation caused by inpouring California gold caused a major economic crisis that is widely considered to be the first international economic collapse, since it was felt throughout all of Europe and in America.
Panic of 1873: More railroads were built than were necessary, causing many railroad financiers to go bankrupt on their railroad investments. Further, lack of regulation in the gold markets allowed Jay Gould and James Fisk to acquire almost all of the market by bribing government officials. When Gould and Fisk began to pull their money out of gold because of a miscommunication, the market collapsed. This panic was so severe that it was known as the Great Depression until the actual Great Depression of the 1930s.
Panic of 1893: Unregulated overspeculation and overbuilding in railroads caused the railroad bubble to burst. This is identical to the cause of the Panic of 1873. This was the most severe depression of the 19th century, with millions losing their jobs.

If you don't see it, here's the pattern that I get from this data: every American economic crisis and depression of the 18th and 19th was caused by unregulated speculation, followed by that speculative bubble bursting catastrophically. Usually, the culprit was overspeculation in land (i.e. real estate), or in the last 20 years of the 1800s, railroads. So opponents of regulation may want to read up on their history, because under-regulation has a tendency to cause massive economic collapses every two decades or so.

Why we need more ships

There are two problems facing the economy right now: unemployment and the deficit. Meanwhile, both the Navy and experts at the Department of Defense maintain that we need at least 313 [1] ships for our navy to remain the most powerful in the world, compared to the current total of 286. As the main focus of our geopolitics shifts to the Indian Ocean and the South China Sea, one thing becomes apparent: we need more ships. Thankfully, we now have an opportunity to kill three birds with one stone.

Even with recent advances in technology, shipbuilding remains a labor-intensive industry. For example Ingalls Shipbuilding, a mid-size shipyard in Mississippi, is the largest private employer in the state, employing over eleven thousand workers. [2] Like most other heavy manufacturing industries, shipbuilding creates additional jobs as local services, like restaurants and gas stations, needed to support the shipyards. In the case of Seaspan Marine corp., in British Columbia, the construction of a shipyard that employed 1,000 residents created an additional 3,000 jobs nearby. [3]

Despite the common perception that heavy industry jobs are low paying and require no expertise, modern shipbuilding requires mostly skilled workers, such as shipwrights, electricians, and millwrights, which all require years of training and are highly transferable trades. The industry also requires highly skilled workers, such as marine and computer engineers and health officers.
However, much of the benefit of shipbuilding is very indirect. Ships require an enormous supply chain of parts, most of which are located in the United States. Thus shipbuilding creates enormous amounts of jobs in a way that few other industries can. [4]

The benefits to national security of more warships are obvious. Nevertheless, merchant vessels are also required for our security. In a future major conflict, which most experts expect to be naval, losses to US merchant shipping would be severe, and there is no guarantee that foreign shipyards will be willing to rebuild American shipping. Also, in a conflict ships in the United States Merchant Marine can be called up to transport troops and supplies. Further, technologies developed in merchant shipyards can and do transfer to improving military ships (such as high speed ferry technology being used in the Independence class Littoral Combat Ships), and merchant shipyards can be repurposed for building, refitting and repairing navy ships.

How this creates jobs and would increase national security seems clear. Reducing the deficit, however, is not quite as clear. The addition of a great number of jobs means a great amount of tax receipts. Although the expense required to build shipyards and ships will be great, the tax revenues will eventually surpass the initial investment.

There are several possibly criticisms of such a policy, namely that shipbuilding can be replaced by other heavy industries that the US already dominates, and that foreign shipyards, namely those in Korea (who produce the majority of merchant vessels) will undercut American shipbuilding.
What sets shipbuilding apart from other heavy industries like automobiles and aviation is that while the US currently dominates most other industries with little threat from foreign nations, shipbuilding is one of the few industries where the US lags. GM and Boeing are still the largest companies in their field, but only one American-flagged vessel has been laid down in the past decade. Since this industry is so critical to our national security and our prosperity (90% of trade travels by sea) we must keep it strong. Also, the complexity of ships means that their parts chains are larger than those for other industries, spreading the benefits further.

While it is true that most merchant ships are now built in Korea, there is little reason this has to be the case. America has a long history of shipbuilding, and currently has several massive shipyards, albeit for military vessels. All that is required is an influx of capital from the federal government.
Thus, I propose two fairly simple things: provide funds and incentives for the construction of merchant shipyards on American soil and give shipbuilders an incentive (both monetary and in the form of guaranteed protection from US Navy warships) to register their ships under the American Flag.

Citations1 http://www.military.com/forums/0,15240,187044,00.html Navy Surface Force in Deep Trouble
2 http://www.huntingtoningalls.com/is/about_us/about_us.html Ingalls Shipbuilding
3 http://www.vancouversun.com/life/Shipbuilding+boom+creates+demand+qualified+workers/5718883/story.html Shipbuilding boom creates demand for qualified workers, The Vancouver Sun, 16 November, 2011
4 http://www.boilermakers.org/resources/commentary/V41N3 We Must Build More Navy Ships