Irrational Exuberance Lives On

by | Feb 20, 2009


Irrational exuberance is alive and well. Spawned by Obama’s candidature and sustained despite his recent setbacks, many people still seem to believe that all manner of foreign policy challenges can be overcome.

One of the most interesting parts of Barack Obama’s rise to power was the frenzied enthusiasm he garnered along the way. Even the mob-fearing Germans turned out in their thousands to hear him deliver unwelcome policy missives (“The Afghan people need our troops and your troops; our support and your support to defeat the Taliban and al Qaeda”). At times, Obama’s presidential candidacy verged on a cult of personality.

There were a few skeptics, to be sure. But most were curmudgeonly analysts or political adversaries. Few of the change-deniers seemed, well, seemed to be quite with it. In the main, people sang “Yes We Can”, swayed to Obama’s rhetoric and believed with all their hearts.

Little more than a month after his election, the sheen has not quite come off Obama, but his administration has taken a few direct hits. Tom Daschle, a former senator, was nominated as health secretary. As with two other Obama nominees, it subsequently emerged that he had failed to pay all his taxes, and he was forced to withdraw his name from consideration. The new treasury secretary, Timothy Geithner, has proved les adept at handling the economy that hoped. His first press conference saw markets tumble.

Despite these set-backs, there is no shortage of exuberance. Even hard-bitten analysts believe that in 2009-2010, world leaders can agree on a new NPT regime, establish a follow-on to the Bretton Woods systems, re-start the Doha round of multilateral trade talks and hammer our a climate deal in Copenhagen. Some even think that the entire multilateral system can be re-ordered while the US deals with NATO’s Afghan mission, Iran’s nuclear programme, Pakistan’s potential collapse, Russia’s rise, and the threat posed by a festering Middle East.

However, the truth is this agenda is probably too broad for one president, even two terms and certainly for the many stakeholders that now have to be brought into any of the global deals. The multilateral system will not be revamped, but remain a mosaic. If we are lucky, the economic crisis will be contained, but do not expect a new kind of managed globalization. George Soros has called for a eurozone government bond market, but it is hard to see European governments accepting such an overtly federalist move (which, incidentally, they rejected when the ECB was originally set up).

As to the many structural issues –- the NPT regime, climate change, the trade talks –- one or two may be solved, but certainly not all and certainly not in the next two years. Politically, trade-offs will have to be made between Iranian help in Afghanistan or an Iranian nuclear bomb. Between European unity or European energy security. Perhaps even between our economic well-being and poverty-alleviation elsewhere.

Like in the NICE decade — non-inflationary constant expansion — in which people forgot economic gravity, so people now seem to have taken leave of their foreign policy senses.

But a new world awaits. It may not look much different than the 19th century: power politics, “concert of Europe”-style diplomacy, inequality of states, spheres of influence, and interests, not values, as the driving forces behind international politics.

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