Dean Baker
de Volkskrant (Netherlands), March 8, 2008

In het Nederlands

The Democratic nomination is not entirely locked up at this point, but it will take an extraordinary set of events to prevent Barack Obama from winning. In spite of losing primaries in two big states this week (Ohio and Texas), Senator Obama still enjoys a substantial lead in pledged delegates. The nomination will ultimately be determined by delegates at the Democratic convention in August, 80 percent of whom are chosen by votes in state primaries and caucuses. The other 20 percent are elected officials and state and local party officials.

Obama’s lead in elected delegates is likely to increase in the eleven state primaries and caucuses remaining, since this list includes six states in the deep South and West, regions where Obama has consistently won by large margins. While it would be foolish to count out a politician as skilled and determined as Senator Clinton, it is not too early to start thinking about the main policy contours of an Obama administration.

An Obama administration is likely to pursue a substantially different course from the current administration in both international and domestic affairs. There is a widely held view among the public that the country has gone seriously off-track in both areas and an Obama administration would have a mandate to pursue a substantially different course.

Internationally, the Iraq War is the most blatant example of the failure of the Bush administration, but there is a more general sense that the United States no longer has the same standing in the world that it did a decade ago. Obama will seize on this attitude to take the country’s foreign policy in a very different direction.

One of Obama’s big selling points throughout the primaries was that he spoke up openly against the Iraq War in 2002 when the Congress was still debating whether to authorize the war. The war is hugely unpopular. There was never any expectation that the United States would be tied up in a long and costly war. Even the relatively small segment of the public that supports the current military effort holds the view that victory is just around the corner. Therefore they expect that it will be possible to withdraw most of the troops from Iraq in the near future.

Obama is virtually certain to work out a plan that involves getting most U.S. combat troops out of Iraq fairly quickly. The key question is how his administration will respond if sectarian warfare intensifies as the soldiers withdraw, or if the Kurds or Shiites make an effort to break off from the country. Neither problem is likely to prevent a withdrawal. After the bloodshed of the last five years, the ability of the United States to tolerate violence in Iraq is quite high, especially if U.S. soldier are not in the middle of it. Obama is also likely to be able to apply enough pressure to ensure that a formal break-up of Iraq doesn’t occur.  

Obama has made a point of criticizing Bush (and Clinton) for neglecting the war in Afghanistan. He is likely to maintain and even increase the U.S. military presence in the country. This will be a position that he will have strong political motives to maintain since he will argue that Afghanistan is the war that we should have been fighting, not Iraq.

Obama will have to make important decisions with regard to the growth of the left in Latin America. The Bush administration has been largely hostile to the left-wing governments that have been elected in response to a quarter century of economic stagnation. Obama will approach the region with a more open mind. He will almost certainly try to find common ground with the region’s new leaders, such as Cristina Kirchner in Argentina and Rafael Correa in Ecudaor. It is also likely that he will try to reach an accommodation with Hugo Chavez in Venezuela. How far that goes remains to be seen, but he is likely to abandon the policy of unmitigated hostility if for no other reason that it is alienating the United States from the other countries in the region.

As a general rule, an Obama administration is likely to move away from the unilateral approach of the Bush years. The war in Iraq is recognized as being a painful and costly mistake. The country will not be anxious to have another such venture any time soon and a President Obama is likely to respond to this sentiment by trying to seek solutions in cooperation with the country’s traditional allies, and ideally solutions that do not involve military action.

It is also virtually certain that Obama will bring the United States back into the Kyoto process. He has indicated that he recognizes the need to take action on global warming. However, he will have to overcome considerable domestic opposition to taking any meaningful steps. While there is more awareness that global warming is a serious problem, and that it is human caused, there is still very little appreciation that effective measures will involve substantial costs and changes in behavior.

While Obama is likely to face a very full international agenda, he is also likely to face an economy that demands his attention. The United States economy is rapidly sinking into a recession as its housing bubble deflates. House prices are currently falling at double-digit rates. This price decline is likely to continue of its own momentum, leading to the loss of trillions of dollars in housing wealth. This will put enormous strain on the financial system and lead millions of people to lose or abandon homes in which they have no equity.

The loss of housing wealth also leads homeowners to curtail their consumption, which is the main factor driving the recession. President Obama is likely to face a labor market with an unemployment rate that is at least a percentage point higher than it is currently. There will be considerable pressure for short-term stimulus measures to which he is likely to respond. The enormous failure of monetary policy that created this fiasco will also give Obama an opportunity to take a more active role in guiding Federal Reserve Board policy, although it is far from clear that he would take it.

Beyond the immediate problems facing the economy, Obama will face enormous pressure to extend health insurance coverage and fix the country’s health care system. Insuring the 47 million people without insurance was the most important domestic issue in the Democratic primaries. He will not want to face re-election without making some serious progress in extending health care coverage.

In order to pay for any extension of coverage on a sustainable basis it will be necessary to reform the health care system in ways that bring costs under control. The United States spends 17 percent of its GDP on health care, close to twice the OECD average. It has almost nothing to show for this extra spending in terms of outcomes. In order to make health care affordable, Obama will have to contain costs in ways that hurt the insurance industry, the pharmaceutical industry and the doctors. These are all very powerful lobbies, which will pose formidable obstacles to reform.

The United States will also have to find a new position in the world economy. It is unlikely to continue to be the world’s pre-eminent consumer. This will either be by choice, or because the Asian countries get tired of losing money on their massive holdings of dollar reserves. Either way, the dollar is likely to continue to fall in value. A devalued dollar will improve the trade balance, which will remove much of the pressure that Obama might feel to pursue a different trade path.

Nonetheless, he is likely to push for including labor and environmental standards in new trade deals. The trade policy pursued over the last quarter century has been explicitly designed to place downward pressure on the wages of less educated workers by exposing them to competition with low-paid workers in the developing world, even as the most highly educated workers remained largely protected from such competition. While Obama may not be prepared to reverse this policy, he will feel the need to at least make the symbolic gesture implied by the inclusion of labor and environmental standards in future trade agreements.

Apart from the fact that we still can not be certain that Obama will win the nomination, much less the presidency, there would be more uncertainty surrounding such a historic presidency than is generally the case. The meltdown of the housing bubble and the resulting financial turmoil will make the economy more unsettled when the next president takes office than at any point since Franklin Roosevelt became president in the middle of the Great Depression. At the same time, the war in Iraq will demand the president’s immediate attention and virtually necessitate a new direction in international affairs. This situation will give President Obama an enormous opportunity to shape the country’s future.


Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer ( He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.