This will be a significant week for President Barack Obama as he undertakes his first overseas mission, with important issues on the table. Meantime, the Congress will continue vetting his budget proposal and, in New York, a special House election takes place Tuesday, one that is being (mistakenly) billed as a referendum on Obama.
Global economic recovery. The United States and China have invested major public dollars in economic stimulus. In the U.S., it amounts to a whopping 6 percent of our GDP. The Federal Reserve also has reduced interest rates to what amounts to zero. Yet European countries, in particular, have opted instead to fight recession with fiscal and monetary gradualism.
The so-called Group of 20 meeting of the world's leading economic players convenes this week in London. Obama will urge stronger spending and easier monetary policy on them. But he will have a skeptical audience. First, European countries, given their past histories, have a pervasive fear of inflation. Not mincing words, the Czech prime minister last week characterized the U.S. policy of big budget deficits, easy monetary policy, and massive public spending as "the road to Hell." Germany, the European Union's powerhouse economy, remembers the post-World War I hyperinflation which led to Adolf Hitler's ascendance to power.
EU economies are in recession but not nearly so deep as the one we are experiencing, partly because unemployment and other benefits are more generous there. Our partners there fear inflation more than stagnation and have acted accordingly. All G-20 members also feel resentment that Made in USA mortgage-backed securities and other exotic investment inventions triggered the current global slump. They are ill disposed to bailing us out of what they see as principally an American-made problem.
Bottom line: Obama will do well to get "in principle" statements from the G-20 pledging cooperation in fighting recession.
Afghanistan/Pakistan. After the G-20 sessions, Obama will head to Prague for meetings with NATO partners. He will try there to extract new troop and money commitments from them for the continuing struggle against the Taliban/Al Qaida in Afghanistan and western Pakistan. He will have a tough assignment there as well. Whether the American President is Bush or Obama, our partners still have no desire to incur casualties or strain their budgets for what they see as principally an American struggle.
True, terrorism has touched their countries as well. But their historic experience makes them gun shy regarding ambitious ventures in countries which have buried even well-meaning interventions by the West.
Bottom line: As at the G-20, Obama will do well to get even token troop and monetary commitments to supplement our expanding effort in this part of the world.
The Budget. While Obama is traveling, both House and Senate will continue their attempts to produce a smaller version of his budget submission. The deficit spending in the Obama plan has worried both Congressional Democrats and Republicans. To make the numbers look better than they are, Democrats have chosen to focus on the period of the next five years rather than the following five years, during which deficits are projected to explode.
Obama has signaled his flexibility regarding the budget, just as he did regarding his earlier economic stimulus plan. In the latter case, House Democrats seized the initiative and produced a nearly $800 billion plan which provides little stimulus or jobs either this year or next. This time the momentum will be in the other direction. Some 50 House Democrats and some 15-20 Senate Democrats are likely to jump ship and join Republicans in producing a budget that will cut back on Obama's proposed energy, education, and health-care initiatives.
The New York election: Referendum on Obama? The special election Tuesday in New York's upstate 20th Congressional District (to replace newly appointed Sen. Kirsten Gillibrand) is being billed by both major political parties as "a referendum on Obama." Both parties, and allied interest groups, have put big money into the race. The race has drawn media interest because it is the only contest in front of us. But it should not be seen as a referendum on a Presidency which is not yet three months old.
Both candidates have vulnerabilities unrelated to the national administration. As with most Congressional contests, it should be seen as a local race to be decided on local issues and the candidates' personalities. It will not have the "far reaching consequences" predicted by Wall Street Journal columnist John Fund last week. Discount breathless cable-news analyses claiming anything of the sort.
Next, Mexico. Shortly after his return to the U.S., Obama will head to Mexico, where Secretary of State Hillary Clinton did advance work last week. Mexico is in the midst of an all-out war between drug cartels and the federal government. (The the lines are less clear than you might think, since a high percentage of Mexico's elected and appointed officials are owned by the cartels). Clinton asserted, correctly, during her Mexico visit that U.S. demand for illegal drugs is fueling Mexican drug production and smuggling. But that is true worldwide, whether the drugs are being produced in Mexico, Afghanistan, the Middle East or elsewhere for consumption in many countries where demand is high.
New U.S. drug czar Gil Kerlikowske, the former Seattle Police chief, would be the first to tell us that decades-long efforts to reduce U.S. demand have had little effect. Our practical options for attacking the problem, in Mexico, are extremely limited. Money to Mexican law enforcement? Likely it would be stolen or misused. Tighter controls at the U.S. border? Certainly, but it will remain porous. Technological and training support? Sure, but it will be marginal.
Bottom line: At the end of the day, this is Mexico's war and it will be decided in Mexico.
