Social and economic debates on tax and spend run through the messages George Osborne will project tomorrow: his actions are fair (the social debate), best for the economy (the economic debate), and necessary, which intersects both debates. Clarity, and Labour’s cause, is aided by disentangling these strands.

Deficit reduction strategies need not only beginnings (start this year, next or when?), endings (completed in this parliament or next?), and content (tax and cuts mix?), but, crucially, they must also say what this content means for tax and spend in each year of this parliament. Political debate has so far failed carefully to pick over budgetary consequences from year to year.

There are opportunities for Labour in this examination. The government plans that cuts will account for three-quarters of the deficit reduction by 2014. However, next year, half the fiscal consolidation comes from tax rises. That spending cuts are intended to take greater strain over the longer-run has obscured the fact that 2011 sees ominous tax rises: increases in VAT and national-insurance.

We rejected spending cuts this year (and we should reap credit for this if the double dip about which Ken Clarke worries materialises). We might now align ourselves with the Economist and Samuel Brittan and oppose the tax rises planned for next year. Keynesian and monetarist economists, much like Labour and Tory politicians, take different views on the effectiveness of public spending as a stimulus. It is hard, however, to argue that dampening consumer spending will not harm a faltering recovery.

Yet, the government claims, in spite of this additional taxation of the already squeezed, that economic growth will accelerate next year to 2.3 percent. This stretches credulity. And if growth doesn’t stay on target it’s hard to see the biggest fiscal consolidation in post-war Britain being executed on the trajectory Osborne envisages.

His growth plan rests on the private sector enterprise currently “crowded out” by the state. While it’s easy (and justified) to be cynical about this, his plan b – to look for more quantitative easing – both threatens inflation and doesn’t convince either. Ultimately, Osborne may be forced, over time, to adopt a third way and slacken his punishing deficit reduction strategy, conceding that we were right and he was wrong.

However, if we are to argue that he is also wrong on tax increases for next year, we have to do so in straightforward acknowledgement of the full implications for our deficit reduction package. Otherwise, we risk a precious commodity: credibility on the deficit.

If we wish to oppose tax rises next year (and, while the Economist and Brittan make this economic case, the political case is that it undermines the perception that we are a party of high tax), and develop our stock in this commodity, we need to flip the coalition’s projected mix of tax and cuts. Where they front load tax increases, we’d focus on cuts. When their cuts really bite, we would be putting more emphasis on the tax component of our package (assuming that the game hasn’t changed entirely due to the collapse of Osborne’s deficit plan).

However, this wouldn’t mean that the cuts we advocate would exceed or even equal the government’s actual cuts. This is because we are not proposing to do as much work in this parliament. Our plan only halves the deficit in this parliament; whereas they intend to eliminate it. They have £40bn of extra fiscal tightening to explain.

Once we have told our truth – identified precisely what we’d cut and tax – we’ll be better able to expose the dangers of this £40bn. Being upfront about addressing the deficit undermines the habitual (and disingenuous) Tory-Liberal comeback that we have no deficit reduction strategy. Once we have clearly laid our cards on the table, the government’s taxes and cuts that would be unnecessary under our plan are more easily exposed.

Our cards need to signpost the way to an economy which can prosper in a world tilting – with Chinese and Indian growth rates racing ahead – ever eastwards. Such an economy needs science funding, green investment and a reformed financial sector. The spending debate shouldn’t just be about how much the state spends, but what it invests in and the coalition is cutting deeply into economically vital spending. Cuts which are deepened by the illogical NHS ring-fence and reconfiguration.

Labour tax proposals should also contain these signposts. We should shift the tax burden onto (unearned) wealth and away from (earned) income. We should also adapt it – absorbing an important lesson on the growth of the deficit – to make receipts less vulnerable to sectoral downturns; especially in finance and housing. A land tax would help on both fronts. This recasting of our tax system should be key to the tax that we argue should increasingly take the strain over the course of our deficit reduction plan.

Winning the economic debate greatly assists in winning the social. The government soils the social debate by conflating it with the economic. As Armando Iannucci tweeted: “I know I promised never ever to piss on tramps but sadly today’s climate means regrettably I may have to do so.”

We need to be able to say that pissing on tramps – or cutting child benefit or pricing kids out of university – is wrong and unnecessary. Because we have an itemised plan for tackling the deficit that doesn’t involve pissing on tramps. We win the social debate when we get to this point. But getting there requires a sufficiently fleshed out economic plan to win that debate.

“George Osborne won’t say this but the only “plan B” that he seems to have is to look to the Bank of England for more monetary easing, which will have to come in the form of quantitative easing (QE) given how low interest rates are. We live in very uncertain times and it is hard to say where any of this is going. But further quantitative easing on the scale which may become necessary due to Osborne’s early and deep cuts would make it more likely that the “ketchup in a bottle” theory of inflation becomes a reality: all the money that has been printed suddenly catches up with us in the form of inflation. If we were to have double dipped, this would leave us with negative growth and inflation. That’s right, stagflation. Osborne might think his macroeconomics takes us back to Thatcher’s 1980s but stagflation is, of course, the curse of the 1970s.”

I note that 19 days later the Economist reported:

“If the economy stutters … the current plan B relies on monetary policy. The Bank of England is expected to resume the quantitative easing (QE)—injecting money into the economy by buying financial assets—which it stopped earlier this year.”

The Economist concurs with me on the nature of Osborne’s plan B. As he has given himself no room for fiscal manoeuvre, his plan B is to abdicate management of the economy to the Bank of England. They share my concerns about what this plan B may mean for inflation:

“Pumping more money into the economy might jolt up inflation expectations, given that inflation has been above the government’s 2% target for most of the past four years.”

They are also doubtful about the effectiveness of further QE as a stimulus:

“The bigger worry is that, while banks remain so reluctant to lend, more QE will prove inadequate to counter fiscal austerity.”

The Economist goes on to suggest that Osborne may not want to proceed with fiscal tightened at quite the pace he has proposed:

“The overall fiscal consolidation is tilted towards spending cuts, which will account for three-quarters of the deficit reduction by 2014. But next year, tax rises will make up nearly half of it. The main rate of VAT, a consumption tax, will rise in January from 17.5% to 20%, and national-insurance contributions will also go up in April. Depending on what the data show in the coming months, a temporary reprieve on tax rises might be a good idea.”

I’m pleased that my reading of Osborne’s strategy is shared in so many respects by the Economist. We’ll have to wait and see whether he sticks to the dangerous course on which he has embarked. I fear that George may not be for turning.

What?

That is surely the sound of a President splitting hairs to such an extent as to abdicate leadership. While the Economist’s chronicling of the American left’s despondency with Barack Obama says as much about the lack of backbone and realism on the part of the American left as it does about Obama, this backbone would be significantly fortified by genuine leadership from Obama. 

He seemed to show this leadership when he initially appeared to endorse the plans for the Cordoba Centre in NYC with words which Alex Massie accurately described as his ”best words in god knows how long”. Yet he quickly rowed back from this act of principled leadership with the words I quoted at the start of this blog.

The likes of Harry Reid and Howard Dean may have shamefully betrayed the best American instincts in voicing opposition to the Centre. But Obama should be bigger and better than that.

If ‘yes, we can’ means anything it should mean, at least, ’yes, we can do things in a different way from right-wing Republicans’. I’ve consistently argued that Obama should reach across the aisle to form a radical centre with reform-minded Republicans and these Republicans have consistently proved themselves conspicuous by their non-existence. Obama’s instinct is invariably to seek compromise and to split the difference and such instincts on the part of the President are a precondition of America finding a radical centre. But non-Democrats being willing to play ball with Obama is also a precondition of a radical centre and this precondition has not been satisfied. The right response to this is not equivocation but for the President to draw some lines in the sand.

And a line in the sand should have been drawn over the Cordoba Centre.

Obama should have been clear that the aim of Al-Qaeda is to divide Americans against Americans; to make American Muslims be Muslims first and Americans second. It is astonishing that the likes of Newt Gingrich and Sarah Palin have opposed the Centre with logic – I use the term loosely – consistent with that of Al-Qaeda. America, obviously, needs to rise above such logic and demonstrate that it embodies and will continue to embody virtues of plurality, tolerance and diversity. This is why the Cordoba Centre matters. If it doesn’t go ahead, America will have compromised on and been seen to have compromised on its most precious values.

America is a beautiful idea as much as it is a wonderful country. Just as Al-Qaeda is an appalling idea as much as it is an organised terrorist network. If Obama can’t spell out and stand his ground on the relevance of the Cordoba Centre to this, he’ll only have himself to blame if the Democrats find themselves lacking in activists in November. Ok, some Republicans will be even less likely to his friend but they don’t want to his friend anyways and Obama should stop pretending that they do. Instead, he should concentrate, like Harvey Milk said, on giving his supporters some hope. This doesn’t mean stopping being pragmatic; stopping cutting deals with Congress where they have to be cut, as they had to be on health care.

But it does mean clearly and unambiguously articulating your most important beliefs, even if these beliefs may not be shared by everyone. In fact, it is even more important when they are not shared by everyone. Obama seemed to promise all things to all people when he became President, which always made his presidency a hostage to fortune, but the very least that we could expect him to be was more sane and humane than the administration that went before him and Republicans of that vintage. This demands that he sees the Cordoba Centre for what it is – everything that is best about America – and says so very loudly and clearly. Everyone who cares about all that is best about America should hope that he is capable of this.

The Economist writes:

“As Russia burns to a crisp, thousands of kilometres to the south-west torrential storms visit unprecedented flooding on Pakistan. Both events can be attributed to the same large-scale pattern of atmospheric circulation. They are also both the sort of thing climate scientists expect more of in a warming world.”

It concludes:

“Both heatwaves and heavy precipitation are more common everywhere than they were 50 years ago. Reflecting the latter trend, the Indian monsoon has been seeing more of its rainfall in extreme events than it did in the past. No single one of those events can be directly attributed to climate change; nor can Russia’s heatwave. The pattern of increases, though, fits expectations—and those expectations see things getting worse.”

Khan provides some perspective on the comparative challenge which the floods create for Pakistan:

“On top of the war against the Taliban, with almost daily suicide bombings, a separatist uprising in the province of Baluchistan, a hostile neighbour, recession, inflation and unemployment, Pakistan seems to face a natural disaster almost every year. Nothing, though, compares to the catastrophe of the floods … 14m people — about one in 10 of the population — need help … Two million people are now homeless, electricity grids have been closed down to prevent electrocution, water supplies are contaminated, livestock drowned, 1.7m acres of crops destroyed, bridges, roads, schools, whole villages swept away. Experts have warned of the high risk of a cholera epidemic and further monsoon downpours are forecast.”

Pakistan’s President, who, according to Khan, ”is alleged to have acquired up to $1.5 billion (£960m) through corruption” continued with a planned trip to the UK to launch the political career of his son, Bilawal Bhutto Zadari, heir apparent to the Bhutto dynasty, rather than attempt to attend to this devastation. Unsurprisingly, Khan reports, this exacerbated ill-feeling towards the government, who have been unable to fully address the problems created by the floods.

Into the void and despair left by a natural disaster and an ineffectual and ineffective government step jihadi-linked charitable organisations, who, Khan writes, ”have been very effective at providing aid in times of crisis. The 2m children in Pakistan’s madrasahs are provided with free shelter, food and limited education where there is no government-funded alternative.”

Khan is right that “the floods are likely to lead to massive poverty and unrest in an already volatile nuclear-armed country.” She’s also right that this is potentially a geopolitical catastrophe and is certainly an immense human suffering, which demands our fullest response. However, as climate change not only makes our weather warmer and weirder but also threatens festering niches for extremists to exploit, it seems the kind of situation which may become increasingly commonplace. It should motivate us not only to address the immediate suffering of Pakistan but to redouble our efforts to both mitigate climate change and to improve the ability of all parts of the world to adapt to its already inevitable consequences.

As Neil Buckley describes in the FT today, Russia’s infrastructure has coped poorly with the demands placed upon it by the fires. Given that Russia is a richer country than many in the world, this gives us some indication of how ill-prepared many countries must be for the adaptive challenges that climate change will surely present them with. Where states fail to meet these adaptive challenges, extremists could well step up to the plate. In this context, the dirty power stations which the Conservative-Lib Dem coalition are now set to allow to be built are not just ill-advised features of our energy and climate change policies but also potentially add to the security threats facing the UK.

Painter doesn’t, however, draw the more contemporary parallel: the movement that powered Barack Obama into the White House was driven by a sense of moral injustice, while the Tea Party movement, the most visceral counter reaction to this victory, is motivated by a sense of moral outrage. They are outraged with the ‘socialism’ of Obama-care, outraged with the free market perversion that is the bank bailouts, outraged with the extension of the big government leviathan that has been the fiscal stimulus, outraged by illegal immigration, outraged with plans to build a Mosque near Ground Zero and outraged by the indifference of Washington DC to all of this. They want their country back.

But who took their country from them?

Some fusion between socialists and al-Qaeda, which may very well be personified by Obama. His middle name is Hussein, after all. Sarah Palin trades on the same suspicions that the name Hussein arouses when she describes the proposed Cordoba Centre in NYC as the ’9/11 Mosque’. “Of course”, as Alex Massie sarcastically points out, ”it’s planned as a tribute to al-Qaeda and of course it’s perfectly reasonable to suppose that all muslims are really just the same and we know what that means don’t we?”

The main contribution of Newt Gingrich, the former Republican speaker of the House of Representatives, to the debate on the Cordoba Centre has been to declare, ”there should be no mosque near ground zero so long as there are no churches or synagogues in Saudi Arabia”. As the Economist points out, “to Mr Gingrich, it seems, an American Muslim is a Muslim first and an American second. Al-Qaeda would doubtless concur.”

Sarah Palin’s contribution to this debate has been more illiterate, just as offensive and has passed the bumper sticker test: her argument can be condensed into the space available on a bumper sticker. And, as certain as night follows day, the bumper stickers have arrived. And the t-shirts. They are a celebration of a misspelling in that they build on Palin’s infamous ‘refudiate’ tweet to attack Obama and socialism.

It is striking both how easily they conflate a dispute about a Mosque with Obama and socialism and how willing they are to proclaim, literally as a badge of honour, Palin’s spelling error. This proclamation speaks to the anti-intellectual fire in the bellies of many of Palin’s followers; many of whom make up the Tea Party movement. What they want, as Palin puts it, “is a commander-in-chief, not a constitutional law professor lecturing us from a lectern”.

Palin has an ability to tap into a raw nerve that many middle and working class Americans seem to have about being ‘talked down to’ by a liberal, east-coast elite. This raw nerve makes her straight-talking the stuff of authenticity and empathy. Her misspelling, and the condescending response to it, has deepened this emotional connection between her and her followers. “She validates me and she validates my life”, as I recall one of her followers once telling a TV camera. No constitutional law professor could ever provide such validation.

Now, it’s all too easy to look at this and sneer about people clinging to their guns and their bibles. Obama once seemed to do exactly this. However, reading this fantastic reportage from the FT makes me wonder whether something else is going on.

“Mention middle-class America and most foreigners envision something timeless and manicured, from The Brady Bunch, say, or Desperate Housewives in which teenagers drive to school in sports cars and the girls are always cheerleading. This might approximate how some in the top 10 per cent live. The rest live like the Freemans. Or worse.”

The Freemans are a family in Minneapolis that the article very movingly describes.

“Last year the bank tried to repossess the Freemans’ home even though they were only three months in arrears. Their son, Andy, was recently knocked off his mother’s health insurance and only painfully reinstated for a large fee. And, much like the boarded-up houses that signal America’s epidemic of foreclosures, the drug dealings and shootings that were once remote from their neighbourhood are edging ever closer, a block at a time.”

There are some harsh economic realities underlying the position that the Freemans’ find themselves in.

“The slow economic strangulation of the Freemans and millions of other middle-class Americans started long before the Great Recession, which merely exacerbated the “personal recession” that ordinary Americans had been suffering for years. Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the ­multiple is above 300.”

Michael Spence, a Nobel Prize-winning economist, reflected upon the consequences of this economic position by telling the FT:

“I have this gnawing feeling about the future of America. When people lose the sense of optimism, things tend to get more volatile. The future I most fear for America is Latin American: a grossly unequal society that is prone to wild swings from populism to ­orthodoxy, which makes sensible government increasingly hard to imagine. Look at the Tea Party. People think it came from nowhere. While I don’t agree with their remedies, most Tea Party members are middle-class Americans who have been suffering silently for years … To be pessimistic about the future is so new for Americans and so strikingly un-American.”

As the swings from the civil rights to the conservative movements and from the Obama to the Tea Party movements attest, movements are both part of and create the weather of American politics. However, perhaps, one doesn’t have to be a fully signed up Marxist to see these movements as being in some senses superstructures determined by the economic base. The Tea Party seems as much about the economic exasperation of the anxious middle as about guns and bibles. Still, it is testimony to the enduring power of movements and conservatism in America. As the likes of Palin fire fear of the other – be that ‘socialists’, Muslims, illegal immigrants or anything or anyone who isn’t carrying a gun and a bible – and China’s rise heralds an era of contested modernity, it’s hard not to share Spence’s concerns that the Tea Party are a harbinger of more angry and troubled times in America.

Let’s hope that enlightened government from Obama can avert this. But no matter how intelligent Obama’s policies may be, they are unlikely to resonate unless the arguments for them can be summarised on a bumper sticker.

The Daily Telegraph isn’t normally essential reading for Labourites. But yesterday it should have been, especially for Harriet Harman. Fraser Nelson set the backdrop to the politics of the deficit and the “emergency” Budget, to which she, as acting leader, will respond. This week’s report from the new Office of Budget Responsibility (OBR) dramatically changes this political context. Nelson has been quick to realise this and, while our instincts differ markedly from his, we need to be equally fleet-footed.

The limited discussion on the deficit in the leadership election has denied our candidates the opportunity to demonstrate this quality. Though, of course, they could engineer such an opportunity for themselves. I’d be impressed if any of them do flesh out a more substantial economic platform, not least as The Economist is right to note that, “nothing will make or break the next leader of the opposition like his response to the government’s austerity programme”.

The coalition, preparing the ground for the scorched earth to come, has grasped any and every opportunity to exclaim their horror that “it is even worse than we thought”. Labour, apparently, have not just cooked the national books, but eaten and spat them out again. It’s what we always do. We can’t help ourselves. It is the coalition’s duty to pick up the pieces; in the national interest, of course.

The coalition has pushed this story since its creation. It matters whether it is believed. It wasn’t until after black Wednesday that the spectre of the winter of discontent stopped being a drag on Labour’s support. If the deficit is perceived as Labour’s deficit, then the pain of reducing it will be a similar drag. However, a major spanner has been thrown in the coalition’s attempts to embed this perception. As Nelson observes, “something is going badly right” for the British economy.

The OBR reported earlier in the week, as Nelson noted, that unemployment “will be almost 200,000 lower than had been feared. Economic growth will not be quite as strong but the tax revenues – which are far more important – will come in much more strongly than Mr Darling gloomily forecast.” So, the reality is that public finances are in better shape than the Treasury forecasts bequeathed to the coalition gave them to expect.

How troubled George Osborne must be that this reality, so out of kilter with his desired spin, has been presented by the OBR. After all, he established this body, as Nelson puts it, with the intention to “demolish the economic Potemkin Village that Gordon Brown built during his time in Downing Street and reveal the full extent of his fiscal vandalism”. Yet, rather than exposing Labour irresponsibility, the OBR has shown “Mr Osborne’s election goal – to abolish “the bulk” of the structural deficit by 2014 – would have been easily achieved had Mr Darling remained in place. No more taxes need to be raised, or budgets cut, to honour this Tory manifesto pledge.”

This is a tremendous vindication for Darling and inconvenience for Osborne. If Osborne now persists with plans to cut further and faster than intended by Darling, he will be doing so for reasons of political belief, not economic pragmatism. Nelson understands this and urges him to press on “because he wishes to restore the power balance between state and society. A true liberal believes that people spend their own money more wisely and effectively than government can do on their behalf.”

While Rachel Reeves has expertly explained why comparisons – encouraged by the scaremongering spin of the coalition – between the UK and Greece are spurious, our deficit does require careful management. However, there is a world of difference between the careful prudence of Darling’s plan and the ideological, small-state zeal that would carry Osborne beyond it. Nelson encourages Osborne in this direction because “with Labour embroiled in a five-way leadership contest, he will never face weaker opposition”. Precisely why we must be vigilant against him.

What the formation of the coalition told Philip Stephens about David Cameron was that “he is a Conservative in the centrist tradition of Harold Macmillan rather than a radical such as Margaret Thatcher”. However, we need to be ready for his Chancellor leading the coalition on a distinctly Thatcherite course in his first Budget. Having scrapped the Child Trust Fund and the Future Jobs Fund this might be no surprise, particularly after the coalition agreement made, as James Purnell noted, “no mention of abolishing child poverty. Of reducing inequality. Of protecting education funding. Of guaranteeing jobs for the long-term unemployed.”

In responding to Osborne’s Budget, the key distinction is between actions that can be justified as decisions of economic necessity and those that are driven by political belief. We strip ourselves of credibility if we do not acknowledge the necessity of some pain. We can absorb more of this pain in the form of taxes than Osborne will propose, but we can’t hide from the need for some spending cuts. To remain credible we need openly to concede this, but we also need clearly to identify the areas in which Osborne is acting as the ideological vanguardist that Fraser Nelson wants him to be, losing sight of the sober economic reality presented by the OBR.

That this reality is much brighter than the coalition’s spin is a credit to the decisions we made in office. We need to be equally strategic and forensic in our economic decision making in opposition.

Disappointed and, according to Mark Lynas, insulted by the Chinese in Copenhagen.  A Health Care Bill that isn’t yet on the statute; is much delayed on his original timetable; and, by his own admission, is only “nine-tenths of a loaf” - some would say that half a loaf is nearer the mark and it comes with lashings of pork barrel whatever way you look at it. An Afghan strategy that even he doesn’t seem wholly convinced by and the backdrop to which Andrew Sullivan commented upon by saying:

“Obama arrived in China last month as a fiscal supplicant, not the leader of the free world. He cannot corner the Iranian regime without Russian or Chinese support. He cannot even get Israel, a country receiving $3 billion a year in aid and protected by America’s veto at the United Nations, simply to cease its construction of settlements in East Jerusalem or the West Bank.”

All of which simply serves to illustrate my point: How devoid of power the most powerful can be. That’s not to excuse any disappointments that President Obama may have caused or to defend his record (though, there is much more to defend than the increasingly naysayer conventional wisdom suggests). It is simply to place his presidency in context.

This is a context in which his power is more obviously finite and constrained than has been the case for most modern US presidents. Internationally, this is the consequence of the “unipolar moment”, first proclaimed, I think, by Charles Krauthammer in 1990, waning (or, perhaps, being more obviously exposed as the hubristic delusion it always was). Domestically, this is the bitter fruit of what appears to Paul Krugman to be an increasingly dysfunctional Senate. This is a dysfunctionality that means that the Democrats control the presidency and both Houses but are still held to ransom by (dilute to taste) filibustering, partisan, pork barrel-seeking Republicans.

The international dimensions of this are well illustrated by Philip Bobbitt.

“What if Iran simply agrees to limited inspections, and continues enrichment to the point where weapons-grade nuclear material is created? What then? … Israel has resumed the construction of settlements in the West Bank, and it seems clear that Abbas cannot sustain domestic support in the face of the challenge from Hamas if he goes back to the negotiating table without even a temporary freeze on settlement expansion. Obama has little leverage on this issue—as his predecessors also found—but has committed himself to the proposition that “talks must begin and begin soon.” Or what? … Having previously announced it would not renew talks in the six-party format, North Korea has now indicated to the Chinese that it would re-engage in that forum, provided the US simultaneously opens bilateral talks. The US has insisted, quite sensibly, that regional multilateralism is the best way forward. But what if North Korea continues to refuse?”

The growing worry is that the Iranians, Israelis and North Koreans – not to mention the Chinese, Russians, the Taliban and others – have concluded that “nothing much” is the answer to every “What then?” In other words, as the Economist notes:

“The doubters argue that, however decent and articulate, Mr Obama is gaining a reputation as someone who can be pushed around. This month, after the president pandered to China by refusing to meet the Dalai Lama, China pushed for more by banning questions at his Beijing press conference with Hu Jintao, its president. When Mr Obama demanded that Israel stop all work on its settlements in the occupied territories, Binyamin Netanyahu, its prime minister, defied him and still, staggeringly, won praise from Hillary Clinton.”

It is even said that this praise from Clinton lays the groundwork for her to run against Obama for the Democratic presidential nomination in 2012. This argument goes that she will need an issue on which to split with Obama to do so and support for Israel would fit this bill. It is to be hoped that this argument is nonsense. But the mere suggestion that the President does not command the absolute and complete loyalty of all of his team implies weakness in a manner as profound as the swipes and pushed envelopes that have come his way via China, Israel et al.

The counter to this line of argument is also provided by the Economist:

“Mr Obama has pulled off the urgent tasks of starting to withdraw troops from Iraq and resetting America’s dysfunctional relations with Russia. He has boosted the G20 as a new global forum. This week Israel announced a partial settlement freeze. With health-care reform under his belt, he will soon be able to turn to world affairs with his status enhanced. Besides, you could hardly accuse Mr Obama of timidity. In three speeches in Prague, Cairo and Accra, he set out a new foreign policy that rejects the Manichean view of his predecessor. He means to negotiate deep cuts in nuclear weapons, make peace between Arabs and Jews, engage Iran, heal the climate and establish America as the strongest and most upright pole of a multipolar world. Yes, this work lies ahead, but how much can you ask in a year of war and recession?”

Health care reform is, just about, under his belt and it is hard to argue with the view of the Obama camp that this reform needed to be taken on in the first year of his presidency before mid-term elections which are likely to further undermine his ability to impose his will upon Congress. His presidency moves into a new phase with this reform behind him. However, perhaps, there are lessons to be learned for this next phase from the protracted way in which this reform was secured.

While the dysfunctionality of the Senate bemoaned by Krugman may make it all the harder for Obama’s will to prevail, it is important, no matter how great this dysfunctionality, that Obama exerts a will. In other words, he needs to lead. The tactics of how he does so can be debated, but the President does need to show genuine leadership. As Clive Crook writes:

“Mr Obama promised to strive for consensus. On issues such as energy policy, healthcare, education and immigration, there is no reason why moderates on both sides cannot make common cause. That is something many Americans long for. It was the great hope independents had of Mr Obama. In his first year, he rarely even tried. He simply chose not to exercise this kind of leadership.”

I must confess that I am both surprised and disappointed by the absence of such leadership. I anticipated that it would be forged on the radical centre (or center). Crook is right to worry that the absence of leadership that works towards such radicalism threatens “a drubbing in 2010 that will do for Mr Obama’s agenda what the wipe-out of 1994 did for Bill Clinton’s”.

While a drubbing can be averted, it is likely that the mid-terms will weaken the Democrats in Washington. This underlines the importance of strong leadership from the centre, of the kind which Crook described thus:

“On health, on energy, on public spending, independent voters want him to exercise centrist leadership, as he promised he would. Can’t he even pretend? For the sake of his Democratic majorities, he had better show voters he is listening, even if his allies in Congress are not.”

But there are plenty of willing allies for Obama in Congress who want the Democrats to behave in this way. A key example being Mark Warner, excellently profiled in the Washington Post this week. That he defines his philosophy as “radical centrism” should be a massive hint that this is the kind of Democratic Senator that Obama needs to work with and through to build consensus, bi-partisan if at all possible, for his agenda. It may be indicative of where things have gone wrong for the Democrats and Obama in the past year that the sense that Warner feels a little left out in the cold by his party pervades the Washington Post profile. It cites John J. Castellani, president of the Business Roundtable, an association of chief executives of large U.S. companies, saying of him:

“Obviously, in 2008, America voted for change. But they are maybe finding out now that they didn’t want to vote for big government spending that’s unchecked, or government intervention to a very, very low level into the economy. Mark Warner really represents that kind of middle ground that wants government to help solve problems but not so much interfere with all areas of the economy.”

There is nothing that Democratic Senators like Warner would like more than to work with the President on this middle ground to get America’s economy growing as strongly as it can do in 2010, control public debt and to seriously correct the US’ disturbingly high unemployment. These are causes which, if approached in the right way, these Senators are likely to be able to build bi-partisan support for. Moreover, in terms of the Democrats avoiding mid-term meltdown, we really are looking at a case of “it’s the economy, stupid”.

Obama should be Bill Clinton-like in recognising the political centrality of the economy and also take some lessons from another great Democratic pragmatist: LBJ. While we can all join Anthony Painter in hoping that Afghanistan does not see Obama transformed into Barack B Johnson, Obama should seek to be - pace E. J. Dionne Jr - LBJ-like in terms of working Congress and building up support for his policies amongst Congressmen.

So: insofar as his domestic agenda is concerned, the course which I would recommend to President Obama in 2010 is to reach out to the nation and Congress, particularly colleagues like Warner, through centrist leadership, with a strong focus upon improving America’s economic outlook. This will be the best way to be economical with (indeed, grow) his political capital (which is now dangerously low after the ending of his all too brief honeymoon in the White House). Furthermore, the policies of true radicalism are invariably to be found in policies that are that are the stuff of such leadership, rather than the stuff of Democratic or Republican sacred cows. Essentially, independent voters remain the key demographic (and the biggest threat to Obama being a two term President would come if the Republicans selected a candidate more capable of reaching out to them than someone like Sarah Palin) and the policies which appeal most to these voters are also the policies which will do most to change America in the ways that it should change.

Improvement in America’s economic prospects is a key linkage point between his domestic and international agendas. Niall Ferguson claims that noting that “the yawning US current account deficit was increasingly being financed by Asian central banks, with the Chinese moving into pole position, was, for me at least, the eureka moment of the decade”. He’s right to see this as such a moment and to see this as “the decade that tilted east” and away from the supposed uniploar dominance of the USA.

Given that the Chinese are re-cycling the massive trade surplus that they are running against the US to finance the US current account deficit, part of the correction to this – and an end towards which Obama can work with the likes of Warner – is to reduce the Chinese trade surplus by growing American exports. Another part is to control public debt. There are great opportunities for the American (and British) firms that come to satisfy the wants and needs of the rising middle classes of the BRIC economies, who have got rich (or richer) by producing the exports that are the stuff of the trade deficits (and maxed out credit cards, etc) experienced by both the US and the UK.

But the imbalances in the “Chimerica” economy are too substantial to be corrected by the innovations and efforts of American exporters alone. We’ve have all, allegedly, become Keynesians in the past year or so, but while there has been much talk of fiscal stimulus, there has been much less of the deep concern which Keynes had about surplus economies, which lead to the creation of the Bretton Woods system (though, this system did not conform to the plans Keynes actually had).

There is, perhaps, no better indicator of the way the world has changed than that today the relationship between the Chinese economy (running a massive trade surplus) and the American (running a massive trade deficit) directly parallels the relationship between the American (running a massive surplus) and the British (running a massive deficit) at the time in the 1940s when Keynes’ concerns about surplus economies fed into the debate which resulted in Bretton Woods. 

It is no coincidence that what Derek Scott has described as the “re-emergence of genuine capitalism, including large-scale private sector capital flows” has come about in the decades after the demise of Bretton Woods. This development has been broadly welcome, lifting millions of people in places like the BRIC economies out of absolute poverty. But Bretton Woods increasingly seems something that if it doesn’t exist, as is obviously now the case, is in need of (re)invention. What is required, in essence, is some global mechanism to correct for the imbalances between surplus and deficit economies that are the real story of the economic crisis. 

Andrew Sullivan is, of course, right to lament that ”Britain in the late 1950s had a friendly superpower to whom she could surrender global hegemony. America has no such luxury”. In contrast, the future seems one of contested modernities, with values and visions that would please most Americans and Europeans being ever more marginalised. One of the great dangers that I perceive in coming decades is that the ”west” will react to this by lashing out in ever more ill-advised and dramatic ways. It is again hard to argue with Niall Ferguson’s argument that great episodes of violence occur at the end of empires and the end of America’s empire seems much closer than its beginning.

This would seem much more likely if the “right nation” were to swing back to the right under a President Palin or similar in 2012. The alternative to World War III under Palin, given the absence of a friendly superpower, is to now fashion a multilateral world in which it is much more likely than otherwise that American (and European) interests and values will be best served in the decades to come during which the notion of a unipolar world will be as laughable and out-dated as the excesses of the British Empire now seem (or, at least, the notion of an American unipolar moment may be so, but the Chinese Charles Krauthammer may be closer than many would wish).  

The creation of the global institutions that will form this multilateral world and attempt to steer our Chinese century, now a decade old, is one of the great tasks of Obama’s presidency, and will most probably be passed on to the next president, whether they are as under-qualified or ill-prepared to execute this task as Sarah Palin or otherwise. Obama has made a solid start in this regard, not least through the beefed up role of the G20, but there is much more that remains to be done and, given the significance of the imbalances within the “Chimerican” economy to literally almost everything else, I would commend something along the lines of a Bretton Woods Mark II as a prime candidate for the next round of global institutional building.

The window of opportunity for success in such building is rapidly closing. While the Copenhagen conference itself may be the stuff of such a multilateral world, the outcome of this conference suggests that the Chinese are more interested in looking forward to a very different kind of unipolar world from that envisaged by Krauthammer than working in and through multilateral institutions (i.e. one that would be the stuff of the Chinese Krauthammer’s world view). As one developing country foreign minister said to Mark Lynas: “The Athenians had nothing to offer to the Spartans.” The obvious way to change this dynamic is for the Spartans to have more to offer the Athenians, which, to my mind, takes us back again to the importance of strengthening the American economy, and in turn to Obama working productively with the likes of Warner.

It might seem inane and obvious to propose that America seek to strengthen its economy, but Niall Ferguson is also right that this will require a serious plan for the management of public debt, which may very well require the slaying of some spend-and-tax, Democratic sacred cows, meaning that strong centrist support and leadership will be needed to carry through such a plan. Not least as China’s population is more than four times that of the USA, in the longer-term, it also seems likely to require a immigration system that both provides the labour needed by the American economy and commands the broad support of the American electorate. Such a system is again something which centrist leadership is best able to deliver. 

It might also seem inane and obvious to argue - as I do when I argue that the US should seek to improve its economic performance relative to China and the importance of American exports to Chinese growth - that the negotiating position of American is improved by increased American strength and prestige, but this cuts to the core of many of pivital exchanges confronting America. It is as true around the G20 table as it is in the counterinsurgency battle with the Taliban or battles of will with Iran, North Korea or anyone else. 

The way in which these exchanges are likely to play out could be walked through in game theory models (and such models probably exist in the State Department and elsewhere) but, as any game theorist knows, threats are only of consequence if they are credible. It is clear that American strength is declining as compared with the heady days of the alleged unipolar phase and it is also clear that Obama seems less eager to use force than a Palin or a Dubya (which might be what, ultimately, leads us to the nightmare of a President Palin). However, it is equally clear that America is not without force and influence. To bring this to bear in the great exchanges that confront Obama, a willingness to use this force and influence has to be credible. That’s to say real and seen to be real. In other words, as Obama himself put it in a section from one of his speeches citied by the Economist: “Rules must be binding. Violations must be punished. Words must mean something.”

So: insofar as his international agenda is concerned for 2010, I suggest that President Obama continue to work through and towards the kind of multilateral institutions that will best protect American (and European) interests and values when the world is very much less unipolar than it has been, but without having this faith in multilateral institutions confused with American weakness and seeking to ensure that American strength is brought to bear credibly on all the vital engagements with China, Iran, Israel, North Korea, Russia, Afghanistan, Pakistan et al ad infinitum that confront the US.

This is an agenda that Europe should warmly support. However, it has all too sadly been the case that, while Obama is the President that Europe dreamed of, European governments have been far too slow and unwilling to support Obama in material ways.

If Europe really wants the change that Obama promises, this must change. If liberal America (or liberal anywhere) really wants the change that Obama promises, it too must change. It should stop moaning about Obama and start supporting him. Indeed, all with a stake in the change that Obama seeks (i.e. everyone), should come to genuinely be the change that they want to see in the world. After the poetry of his victory, the prose of the presidency can seem a painful hangover, but change never did come easy.

 ”We tend to think”, as Michael Tomasky notes, ”that Rosa Parks sat on a bus, Martin Luther King gave some great speeches, decent Americans recoiled at racist violence on the nightly news, and boom, change happened. The reality was that nine long years passed from Parks’s act of civil disobedience until Lyndon Johnson signed the civil rights bill – nine years of often mundane and inglorious work.” (That is, of course, by no accident or coincidence the same LBJ that I praised earlier in this blog). “And even then, the civil rights bill didn’t really fix the problem of African Americans being denied the vote, so Congress had to go back the next year and pass the voting rights act.”

Change is tough. But change is already here. “Measured against what different groups of voters thought he had promised – everything they desired – the administration’s performance looks poor”, argues Crook. “Measured against what voters were entitled to expect, it looks much better.” That provides much for liberals to take solace in as they redouble their support for Obama and the Democratic candidates in the mid-terms, but it is what is at stake in terms of the future that should really motivate them in seeking to fortify their President. I am scared of the climatic scenarios painted after the failure of Copenhagen and would be very scared indeed if I came from the Maldives, but the prospect of World War III should scare us all very much more no matter where we come from.

In making recommendations that seek to avert this outcome and bring about the most possible positive change under President Obama, I have probably argued for things which may annoy some liberals or people on the left: “radical centrism”, focusing on the economy, controlling public debt, not being afraid to be prepared to use force to enforce the rules of a multilateral world. I’m sorry if I’ve upset anyone in these ways, but, may be, one lesson of Obama’s first year in office, contrary to what his campaign may have left some people thinking, is that it isn’t possible to please all of the people all of the time.

No one would read Max Weber’s Politics as a Vocation and ever think this possible. However, if this classic text were as widely read and understood as it should be, then, possibly, the kind of leadership from Obama and support for this leadership, which I have argued for here, would be more readily forthcoming. Perhaps, this might be a little worthwhile reading for many of us in what remains of the Christmas holidays.

“How times change. When George Bush’s treasury secretaries first visited China, Wall Street was booming, America’s economy was growing and the president’s emissaries routinely lectured their Chinese hosts on the need for freer financial markets and a more flexible yuan. But as Tim Geithner, the current treasury secretary, prepares to make his maiden trip to Beijing on May 31st, Wall Street is synonymous with greed and failure, America’s economy is on its knees and it is the Chinese who have been doing the lecturing. With America’s budget deficit soaring and the Fed’s printing presses running at full speed, China is complaining loudly of the risks that inflation and depreciation pose to its huge stash of dollars, and arguing for an alternative to the greenback as the world’s reserve currency”.

This came after 21 May when the magazine revisited the notion of decoupling: “emerging economies (have) become more resilient to an American recession, thanks to their strong domestic markets and prudent macroeconomic policies”. This was a popular thesis a year ago but lost ground as the global slump hit. However, the Economist argues that the idea may be regaining credibility, with China key to this regained credibility.

“China is exhibit A of this new decoupling: its economy began to accelerate again in the first four months of this year. Fixed investment is growing at its fastest pace since 2006 and consumption is holding up well. Despite debate over the accuracy of China’s GDP figures (see article), most economists agree that output will grow faster than seemed plausible only a few months ago. Growth this year could be close to 8%. Such optimism has fuelled commodity prices which have, in turn, brightened the outlook for Brazil and other commodity exporters”.

Anatole Kaletsky has also noted the significance of economic linkages between China and Brazil, as well as China and South Africa.  

“Commodity-producing countries such as Brazil and South Africa have obviously benefited from China’s overtaking of the US and Europe as the world’s main consumer of raw materials. As long as the Chinese economy keeps growing, Brazil is assured of demand for its iron ore and soya, South Africa for its platinum and coal. Thus the success of the huge fiscal stimulus package announced by the Chinese Government in December has turned out to be much more important for these countries than similar measures in the US or EU”.

So, as Kaletsky puts it, this has meant that America has sneezed but much of the world seems germ-free. The role of China in this trend might suggest that in contrast to decoupling, we are witnessing a coupling of economies to China rather than the US. Kaletsky goes on, however, to make an observation that is more supportive of the decoupling thesis:

“Even more important than the growth of trade with China is that many of the emerging economies, including Brazil and South Africa, have had the financial resources to implement their own independent stimulus packages”.

This capacity of emerging economies to take forward their own stimulus packages appears to be part of a changed world order, with China – twenty years after Tiananmen Square – pivotal to this changed order. Yet, as Martin Jacques, will argue in a new book that he will launch with an event at the RSA on 22 June, “we have barely begun to understand what life will be like when China rules the world”. The blurb on the RSA website about this event goes on to state:

“For well over 200 years, we have lived in a Western-made world, one where the very notion of being modern is inextricably bound up with being Western. The twenty-first century will be different. The rise of China, India and the Asian tiger economies means that, for the first time, modernity will no longer be exclusively Western. The West will be confronted with the fact that its systems, institutions and values are no longer the only ones on offer.

“The central player in this new world will be China. Continental in size and mentality, China is a ‘civilization-state’ whose characteristics, attitudes and values long predate its existence as a nation-state. Although China is clearly influenced by the West, its extraordinary size and history mean that it will remain highly distinct, and as it exercises its rapidly growing power it will change much more than the world’s geopolitics. The nation-state as we understand it will no longer be globally dominant, and the Westphalian state system will be transformed; ideas of race will be redrawn”.

This is why Jacques argues that we are moving into an era of contested modernity. But Kaletsky still frames the rise of China in somewhat western terms by observing:

“The story of South Africa and Brazil in the past decade (has enabled a) transition successfully to pluralistic, liberal free-market democracies.

“Whether China ever manages a similar transition is, of course, the great historical question of the 21st century. But if it forces China to direct economic development towards the needs of its own citizens, rather than the tastes of US consumers, the financial crisis is likely to accelerate China’s evolution into a pluralistic market economy, rather than slowing it down”.

“Car ownership in China – an important badge of middle-class status – is only 2-3 per cent”, as the Financial Times recently observed. The economic development of China will expand this middle-class, which may lead to the kind of transition that Kaletsky envisages. That said; China has already changed massively in the past twenty years but the grip of the Communist Party upon power in China seems more secure now than it did at the time of Tiananmen Square. Why? 

“As a result of the effective combination of governance reforms and co-opting the rich and the middle class”, the Financial Times explains, ”few analysts believe the party will face a serious threat over the next decade”. These governance reforms mean that the Communist Party is a very different beast from what it was twenty years. Change in China is likely to be such that it will face further calls to evolve in coming years. This will lead, claims the Financial Times, to “pressure to introduce deeper political reforms”. But will these reforms lead to China taking the kind of transition to western democratic norms as foreseen by Kaletsky or will they result in the Chinese producing a governance model that takes the “highly distinct” form anticipated by Jacques?

As well as the internal management of the increased power held by China, there are, of course, questions to be asked about the external use of this power. On the eve of Barack Obama’s much heralded speech to the Muslim world, for example, it is interesting to note that the Economist also recently concluded: “If China is at all serious about joining America as a global leader, this is the time for it to shoulder its responsibility by helping to punish Mr Kim”. Mr Kim, of course, is the leader of North Korea. Things which definitely can’t be decoupled are the nuclear ambitions of North Korea and Iran. The ambitions of the later are a key point of context to Obama’s speech. However, the coupling of North Korea and Iran also, in turn, couples together the efforts of the US and China to respond to the ambitions of North Korea and Iran.

This is a profound change to the world order but is to say nothing of the ”neo-colonialist” tendencies that some see in Chinese “land grabs” in Africa. We have grown used to the empire of liberty, as a current Radio 4 series describes the US, dominating a unipolar world order but, perhaps, we should be preparing for another empire, quite possibly with less regard for liberty, as liberty is generally understood in the west, to be a significant player in a multipolar world of contested modernity. Given that we have elections to the European Parliament tomorrow, one wonders what Europe’s role will be in such a world. Sadly, marginalised, I fear, unless we can quickly raise our game very dramatically.