The Obama Doctrine: Moneyball America by Bill O’Grady of Confluence Investment Management

Over the past three years, we have witnessed what appears to be a steady erosion of American power. Russia annexed the Crimea and has encouraged a rebellion in eastern Ukraine, undermining the sovereignty of a European nation. This apparent invasion was considered by Western observers to be the first hostile acquisition of territory since WWII.

The breakdown in the Middle East has become another problem. The U.S. allowed the Arab Spring to unfold with little interference; to some extent, the administration encouraged the developments. The U.S. took a secondary role when intervening in Libya, allowing France and Britain to lead operations. That action has devolved into a disaster; Libya stands divided as various ethnic and sectarian groups fight for control. Syria has become a major problem as well. The administration has pressed for the removal of Syrian President Assad but hasn’t created conditions to foster his exit. The decision not to bomb Syria after Assad used chemical weapons, a self-proclaimed “red line” by President Obama, further gave the impression of disengagement.

Russia’s recent decision to send military equipment and personnel to Syria suggests that Putin is filling a power vacuum in the region. Sunni allies in the region are becoming increasingly concerned that the U.S. is not going to continue to play the role of outside stabilizer in the region.

Yet, the Obama administration recently announced that it would send U.S. Naval vessels within 12 miles of the artificial islands that China is building in the South China Sea. Although military advisors have been pushing for such incursions for some time, the president’s decision to take this rather aggressive step is in direct contrast to the passive response seen in other areas of the world.

In this report, we will examine President Obama’s foreign policy, using the construct of Ian Bremmer’s recent book, Superpower.2 After discussing President Obama’s foreign policy and the potential effects, we will examine how the next president may shift from the current policy. As always, we will conclude with potential market ramifications.

The Obama Doctrine

On a return trip from Asia on Air Force One in the summer of 2014, a number of news outlets reported that President Obama was unhappy with some of the press corps’ criticisms of his foreign policy and suggested that the best way to manage America’s foreign interests was, “don’t do stupid sh*t.”3 Needless to say, the synopsis fell far short of what most foreign policy experts or political figures would deem an appropriate American foreign policy.

Although the president’s flowery comments were generally panned, they were probably a clear expression of the administration’s view on foreign policy. To use Bremmer’s three models, we suspect the president believes he is operating a Moneyball America model, where the U.S. carefully selects which foreign policy goals to accept and pursues the ones that best fit America’s core interests. In a sense, this model is the most difficult to manage because the leadership must first correctly create a hierarchy of goals. Once the hierarchy is established, the hegemon must communicate clearly the areas it intends to support and the areas where it will be less involved. Once the direction of emphasis is established, the hegemon must manage the area of prominence and also seek regional hegemons to create a balance of power which will stabilize the lesser regions, with the global hegemon lurking over the horizon if a lesser region becomes unstable.

The president’s 2014 West Point speech was probably the most complete expression of the Obama doctrine. It indicated that hard power would not be used recklessly, and working with allies, rather than unilateral actions, would be more common. The position is defensible; the wars in Iraq and Afghanistan, though nominally supported by allies, were mostly U.S. operations. Libya was not. However, because the administration has not clearly expressed how these goals would be worked out in practice, America’s allies and enemies are both left to decipher U.S. policy on a case-by-case basis.

The Moneyball America model has a number of problems; perhaps the most difficult issue is tied to the correct signaling of policy. For regions of lesser interest, the global hegemon must pick regional hegemons carefully; like a good parent, the global hegemon must be careful not to signal overt favoritism. That is a difficult task. It is also hard not to signal that the global hegemon is weak in the areas of lesser interest. Regional hegemons will have a good deal of latitude, which might be perceived as weakness on the part of the global hegemon by powers in other areas of the world. Thus, when the global hegemon acts aggressively in the area of primary interest, the odds of an escalation rise because the powers in this area are assuming that they too can be regional hegemons. Although the global hegemon can appreciate the flexibility the Moneyball model offers, the rest of the world will struggle to know what the hegemon will do in various circumstances.

Since the foreign policy of Moneyball America is worked out over time, we can eventually figure out what events will probably trigger a president to act and what areas will not generate a strong response. The following is what we see from the current administration:

Europe: American foreign policy has tended to be Euro-centric. The U.S. has fought two major wars in the last century to prevent Germany from becoming the dominant power in the region. The U.S. was willing to engage in a Cold War against the Soviet Union, which required a strong commitment of both military power and economic support. This entailed demilitarizing most of Europe and providing the continent’s security. President Obama appears to be less willing to become aggressively involved in the area. The U.S. did not aggressively counter Russia’s actions in Ukraine and the Crimea, and has mostly remained uninvolved in the financial travails of the Eurozone tier nations. Administration defenders would probably dispute this characterization of Obama’s European policy, suggesting that sanctions have been effective against Russia. Although it is clear that sanctions have hurt, the sharp drop in oil prices was likely a bigger reason for the weakness of the Russian economy. In addition, the sanctions implemented could have been much tougher; forcing Russia out of the S.W.I.F.T. system would have crippled the country. It appears that the administration is signaling that Russia is mostly Europe’s problem and the U.S. will only offer modest support.

Middle East: The U.S. became committed to the security of this region at the end of WWII when President Roosevelt and King Ibn Saud met on a ship in the Red Sea. The Middle East is the world’s key region for oil production and stands at the crossroads of Asia, Africa and Europe. During the Cold War, the U.S. fended off the Soviet Union’s attempts to gain a foothold in the region and unwound the imperialist era by maintaining security while the Europeans abandoned their former colonies. The U.S. continued to secure the region through two leadership changes in Egypt, the Iranian Revolution, the Iran-Iraq War, the Persian Gulf War, Iraqi sanctions and no-fly zones, and the ouster of Saddam Hussein.

Candidate Obama campaigned against the Iraq War, a potent issue

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