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I was asked the other day about the coming election and what I thought about it.  I mentioned that foreign policy has become the main issue for me, and barely got the words out of my mouth before I was promptly interrupted.  He could not believe that I wasn’t concerned about the economy.  To which I replied, “Not really.”  He was incredulous and wouldn’t listen to anything I had to say.  So I decided to put to paper these issues and hopefully clarify.

First, I am concerned about the economy.  Unemployment will rise, consumer confidence will fall, earnings will disappoint, the market will go down, and times will be hard.  But, it’s not the end.  We act as though we’ve never seen a down-turn in the markets before.  Yes, trillions of dollars have vaporized, and portfolios have suffered, but these things happen.  Indeed, if you are not prepared for something like to happen, and are not ready to accept the risk of it happening, then you should not put money into the stock market (or housing market for that matter).  And guess what?  The markets will come back up again, and then surprise! they’ll go back down again too.  As much as they would like to you have you believe, Congress can not repeal the business cycle. 

That being said, this time is a bit different.  The explosive growth over the past 30 years has been driven, for the most part, by leverage.  (If you can make money with borrowed money, why not borrow a lot of money, and make even more?)  Well, now it’s getting hard to borrow money just to get a tank of gas.  With the credit markets stalling, business has down-shifted a couple gears.  Even so, we’ll make it through it.  The coming year or two will be hard, but we’ll make it, and hopefully we’ll be that much better because of it. 

How does this relate to the presidential election?  Short answer: it doesn’t.  A simple consideration of timelines bares this out.  Consider that the next president will not be in office for 3 months – thus, any legislation they want to sign into law (and believe me, they want to sign it, not send it to Bush to sign), will not happen until then.  In addition, given the speed at which Congress moves, it’ll probably be another couple months before an actual bill in on the president’s desk.  And then, add on top of that the logistics of implementation, and we’re talking summer 2009.  How much of an effect will any legislation have on the current crisis next summer?  (The answer here is “very little, if at all”.)  This is what I mean when I speak of the lack of impact of the coming election on the current credit crisis.  However, don’t misunderstand me; the current nominees can have an impact: they are both currently active members of the Senate.  It is there that they can impact the current situation, and it is there that they should demonstrate both their ideas for resolution and their ability to lead.  Don’t hold your breath.

But (and this is a really important qualifier), there are other economic issues that will have an impact, and will indeed be decided by the election: taxes, for instance.  Obama is dead-set on raising taxes on the rich.  (Why isn’t anyone asking how 95% of people will get a tax break when only 60% of people actually pay taxes?)  As FDR very poignantly demonstrated, it is possible to extend and deepen down-turns, and Obama (along with Pelosi and Reid) is willing to demonstrate it once again, ready to raise taxes, and allow the Bush tax cuts to expire.  All in the name of the nebulous concept of “fairness”. 

So what is more important to me this election cycle (besides my lack of desire to become a ward of the federal government)?  I suppose I could put it under the umbrella of foreign policy.  You see, there are events happening around us that are of greater concern than a drop in the DOW.  Essentially, we’ve pushed our luck and spread ourselves too thin, and created opportunities for others to take advantage.

I’m sure everyone is familiar with Russia’s invasion of Georgia a couple months back.  But who has thought about it since?  It is a small, inconsequential state of the former Soviet Union.  Who cares?  I do.  As does everyone else in NATO, and everyone who lives in a former Soviet state or adjacent to a former state. 

To put it simply, Russia demonstrated for the world three things.  First, they are back.  We can no longer ignore Russia and its military capability.  To be sure, it is no where near its former glory, but it is certainly no longer inconsequential.  Second, the U.S. is so tied up in its present engagements that it could not offer a response to Russia, beyond strong rhetoric.  That’s right: the U.S. couldn’t do anything about it.  I don’t know about you, but that’s cause for serious concern to me.  This inability leads us to the third: NATO has becoming little more than a piece of paper.  And that, dear reader, makes a world of difference to those countries that were vying for NATO membership, and yet share a border with Russia.  Georgia had been courted and courting NATO membership.  What did it do for them? 

Iceland has answered our question: they will receive billions in aide from Russia, and be in their debt.  Iceland is already a member of NATO, and they don’t even share a border with Russia.

And here is where a little knowledge of history comes in.  The underlying purpose of NATO when it was conceived was to contain the Soviets.  The Soviet Union fell nearly 20 years ago.  So what has been driving NATO recently?  Trade agreements?  A way to address Iran?  It certainly makes for an interesting debate.  But what did/do the Russian think about NATO?  A major threat to their national security maybe?  What would we think if Iran started working deals with Mexico and Cuba?  And then announced plans to install missile defense systems there? This should sound familiar, since that very thing happened to us not too long ago (Cuban Missile Crisis – I’ll help you with the hard ones).  What would our reaction be if something similar happening today? 

I’m glad you asked.  As it turns out, Russia is indeed poking around in our backyard (just like we are poking around in theirs).  They have sent bombers and nuclear submarines to Venezuela.  In a shout out to Russia, and full of nostalgia I’m sure, Nicaragua’s President Ortega recognized South Ossetia’s independence. 

No longer constrained by a political ideology, Russia can support whomever and whatever suits their purposes.  Like the drug trade.  They did it as communists, and they probably don’t have a problem doing it now either.  How does that affect us?  Answer: Mexico.  Mexico has been overrun by drug traffickers.  I’m not exaggerating when I say that the Mexican government as lost control of the northwestern portion of Mexico, and are losing control in Mexico City.  I’m not talking an overthrow of the government.  This is the Mafia’s hold on Chicago, just on a larger scale.  Sponsored by a potentially hostile state.  On our border.  (The cartels are already crossing our border at will, using tactical units, committing homicide, and then driving back.)

Russia can afford it too.  They are stuffed with petrodollars: their reserves right now are over $700 billion.  Yeah, they could write a check for the cost of Congress’ bailout plan.

Let’s go a little deeper shall we?  Consider the rhetoric of the “War on Terror”.  It has been called the fight of our lifetime, one of the most important issues of the day, etc.  To be sure, over the past few years, it really was one of the biggest issues.  But have we painted ourselves into a corner?  Both presidential candidates have expressed their support of the War on Terror.  They do have somewhat different definitions of what it is exactly, and where it should be fought, but they are in agreement at least that much. 

If we think in terms of tactical matters, we are currently committed to both Iraq and Afghanistan.  Without imposing a draft, our military is pretty much at its limit, at least in terms of large-scale involvement.  Enter Russia.  They invaded Georgia, and we couldn’t do anything about it.  What would we do, and from where would the support come?  If we suddenly pulled out of Iraq, Iran would step in and gain control (not a good thing).  Get out of Afghanistan, the Taliban steps back in, and Bin Laden is free to roam again (also not what we want).  Would we do either to “save” Georgia?  No, of course not.  But what about NATO?  Would we come to the aid of a NATO ally?  How would we do that?  Make no mistake, this was one of the very reasons Russia invaded Georgia – to demonstrate the ineffectiveness of being a part of NATO, when you could be allied with them. 

And therein lies a fundamental issue for Obama.  The Democrat tradition has been to wait to engage in a conflict until the last possible moment, and even then to only go in with allies.  Who, specifically?  Europe, if we’re going to be precise.  But what can Europe do?  Seriously, what European state has the ability (and will) to stand up to Russia?  The European Union?  They can’t even agree on how to save their economies.  The EU is little more than an economic pact, not a militaristic one.  If a few states fall to Russia, fine, as long as it’s not us.  (Remember something we used to call nationalism?)  Chancellor Merkel ran to Moscow to ensure Germany’s natural gas supply.  We have to realize that at the end of the day, we won’t be able to count of Europe for major military support.

Think about the criticism Bush has received for the small presence of troops in Iraq from other countries, the so-called “Coalition of the Willing.”  Anyone care to think about how many troops countries like Portugal, Romania, and Albania really had to spare?  But I digress.

If we continue to emphasize the War on Terror, how long will we be in Afghanistan (both McCain and Obama have expressed support for our presence there)?  Russia would love for us to stay there forever.  And they would know: they were stuck there for about 10 years, and they had 4-5 times as many troops on the ground as we currently do. 

Think about how much you have heard politicians speak about the War on Terror recently.  Then consider the fact that Secretary Gates has opened the possibility of “reconciling” with the Taliban.  It appears we are giving ourselves an opening to exit Afghanistan, just as we are tiptoeing out of Iraq.  The implication being that they’ve realized they painted us into a corner, and have therefore severely limited our options.  Only an exit from Iraq and/or Afghanistan would give us the maneuverability to we once enjoyed 8-10 years ago.

But (and here is yet again another one of those important qualifying conjunctions), oil prices have more than halved in the past couple months.  As many are keen to point out, some of our key adversaries are funded by oil sales.  At $150/barrel, they had enough to start influencing political agendas.  As an aside, this to me is a bit of mud in the eye of those you sigh longingly for $5/gallon gas and $200+/barrel oil.  The rationale is that it would then bring us cleaner, or at least different, energy alternatives to oil.  But at what cost?  Filling the bank accounts of Putin, Chavez, and Ahmadenijad?  Everything has its trade-offs, and we should be willing to admit them. 

The dropping oil prices will have a demonstrable effect on Iran and Venezuela, but not as much on Russia.  It will certainly give them pause, but the window off opportunity is closing.

So where do we go from here?  As Charles Krauthammer put it, “today’s economic crisis, like every other in our history, will in time pass. But the barbarians will still be at the gates.”  The question we are left with is who do we want manning the gate?