Iraq Five Years In: Should the U.S. Stay or Go? Summer 2008 www.belfercenter.org Experts Sound Calls for Action on Economy ith the United States economy still in Congress and the Federal Wturmoil, economists affiliated with Reserve to stimulate the the Belfer Center are deeply involved in help- economy. Additionally, in a ing the federal government develop sound Wall Street Journal oped on policies to mitigate the damage. March 7 titled “How to Martin Feldstein, Harvard economics Stop the Mortgage Crisis,” professor and member of the Belfer Center Feldstein noted that the Board of Directors, is outgoing president of housing-related risk is the National Bureau of Economic Research, greater than anything since Martin Feldstein, Lawrence Summers, Jeffrey Frankel, Paul Volcker the organization that is officially charged with the 1930s. He called for a declaring a recession. Feldstein expressed his program of federal loans to individuals to pay prices down even further. personal opinion on the matter in a speech in down part of their mortgages, secured by their Lawrence Summers, Charles W. Eliot March, saying that the United States is in a future incomes. University Professor at Harvard and a mem- recession that could be “substantially more One way such a program might work, ber of the Center’s board, has called for the severe” than those in the recent past. “The Feldstein said, would be for the federal govern- government to seriously examine ways to help situation is bad, the situation is getting worse, ment to lend each participant 20 percent of refinance mortgages that consumers can no and the risks are that it could get very bad,” that individual’s current mortgage at a very low longer afford. “If the government, by step- Feldstein said. interest rate. She/he would pay it back in 15 ping in and engaging in transactions where it years. In the meantime, the individual would could well make a profit, can contribute immediately pay down his existing primary importantly to that, that’s a very worthwhile Feldstein noted that the mortgage, substantially reducing interest and effort for the government to engage in,” housing-related risk is greater principal payments. This would have the effect Summers said in March. than anything since the 1930s. of also reducing the possibility that the indi- vidual would have a negative equity mortgage. In doing this, it would lower the risk of more Summers called for the Feldstein has called for action by both widespread defaults that would push house government to examine ways to help refinance mortgages. Iraq: Stay or Go? Center Analysts Explore the Options Summers also has advocated more credit The President-elect has brought you on as region. He/she has asked for your comprehensive counseling and increased aid to state and local National Security Advisor based on your analyti- analysis of the best way forward in Iraq. You are governments that have been hit hard by the cal capability to think clearly about Iraq and the to draft a memo outlining three strategic options. economic crisis. (See Summers, page 11.) One option should provide the newly-elected pres- Paul Volcker, former chairman of the Fed- R E ident an opportunity to deliver on his/her politi- eral Reserve and a member of the Belfer Cen- T N E cal promise to withdraw troops as rapidly as ter International Council, has suggested a C R E possible. The others should focus on how best to broader role for Fannie Mae and Freddie Mac F L E defend and advance American vital national in mitigating the crisis, as well as tighter gov- B interests within Iraq and across the region, even ernment oversight of investment banks such as if that requires some adjustment of what was said Bear Stearns. The U.S. government stepped in in the campaign. to assist JP Morgan in taking over Bear Stearns in March, raising new questions about the role raham Allison, director of the Belfer of the government in shepherding the country Center, and Meghan O’Sullivan, Cen- G through the crisis. ter senior fellow and former deputy national “Unless the Fed’s initiative can somehow From the Front Lines: Brigadier General (ret) security advisor for Iraq and Afghanistan, be contained to a single aberrant incident— Kevin Ryan, Belfer Center senior fellow, assigned this task to students in their “Central discusses counterinsurgency strategies in Iraq which seems quite unlikely—a direct responsi- Challenges of American Foreign Policy” class. with Colonel John Tien, an Army War College bility for oversight and regulation follows,” Interestingly, Allison notes, 90 percent of the and National Security fellow at the Kennedy Volcker said at the Economic Club of New students were for rapid withdrawal from Iraq School this year. In 2006/07,Tien commanded a York in April. battalion of a thousand troops in Iraq and was when they began, but by the time they wrote Jeffrey Frankel, James W. Harpel Profes- responsible for securing Tal Afar and Ramadi. He their memos, “more than half were for leaving sor of Capital Formation and Growth and a helped start the Al Anbar Awakening in Ramadi in 75,000 plus troops there for long time.” which Sunni tribes denounced Al Qaeda and faculty affiliate of the Belfer Center, argues started partnering with U.S. and Coalition Forces. continued on page 4 continued on page 4 FROM THE DIRECTOR R E T N E C R E F L E But we could be four times as efficient—at B least as efficient nationally as California or maybe even Japan. (See Oil ShockWave, page 3.) The Oil ShockWave Forum and the broader economic situation underline the need ow more than ever, the current eco- Insight from Down Under: John Howard (left), for informed policymaking. But that is not the former prime minister of Australia for four terms nomic situation drives home the rela- N only subject that needs attention. We have been (1996–2007), discusses critical issues involving tionship between the economy and national working closely with Congressional staff, Asia with Lawrence Summers, member of the security. Several of our Belfer Center col- Belfer Center Board of Directors. Howard spoke Administration officials, and others in Wash- leagues—among them Larry Summers, Marty at a Belfer Center seminar in March regarding ington, D.C. on a number of pressing issues. Feldstein, Paul Volcker, and Jeff Frankel— his assessment of challenges facing Australia Ash Carter, Matt Bunn, and I have all testified not only warned about the coming economic and Asia. recently before the Senate Committee on troubles well ahead of the rest of the pack, Homeland Security and Governmental Affairs. These issues were on the agenda of the they also are leading the search for solutions. Former Senator Bob Graham and Eric Rosen- Belfer Center International Council’s annual (See more on their work on pages 1 and 11.) bach are putting together a project to train meeting in April, and members were joined by Along similar lines, our recent Oil Shock- members of the Senate Intelligence Committee. Center scholars and practitioners in discussing Wave Forum event vividly illustrated the secu- In addition, John Holdren and Kelly Gal- these and other critical issues and brainstorm- rity implications of a disruption in oil supplies. lagher are helping Congressional staff develop ing best ways forward. The Council, whose Former Treasury Secretary Bob Rubin, U.S. auto policy, while Rob Stavins is working membership consists of leaders in a wide range Meghan O’Sullivan, Summers, and others closely with international policymakers on forg- of fields throughout the world, provided valu- played the role of U.S. Cabinet members ing a successor to the Kyoto Protocol. able counsel as always. developing a proposed U.S. response to a dev- astating oil crisis. Center’s Energy Team Works with India on Clean Coal Policies The U.S. is highly vulnerable in a situation in which elfer’s Energy Technology Innovation coal sector’s efficiency, while other countries decide to BPolicy (ETIP) research group is in the minimizing social and eco- midst of an exciting initiative, engaging with logical impacts of the deliberately withhold oil for the Indian government, industry, and acade- nation’s reliance on coal. strategic reasons. mics, on addressing various challenges in the One major result from Indian coal sector. Because of coal’s abun- their work in India has been dance, it plays a critical role in India’s energy, a series of high-level work- We also are working with Securing Amer- while at the same time contributing to its shops, convened by the ica’s Future Energy (SAFE) to produce an oil social and environmental problems. Led by influential Indian Planning Ananth Chikkatur crisis simulation game for use in university Research Fellow Ananth Chikkatur, in collab- Commission and ASCI. classrooms, based on lessons learned in Oil oration with Senior Research Associate Ambuj The overall goal of the ShockWave. The game provides a useful way Sagar, ETIP’s work is helping chart an envi- workshops is to assess the to engage students in grappling with a realistic ronmentally responsible way forward for the current state of knowledge scenario that drives home the vulnerability of Indian coal sector. about India’s coal reserves, U.S. dependence on oil imports. We believe it determine a plan of action will provide a valuable supplement to classes for filling knowledge gaps, on foreign policy, energy and the environment, Because of coal’s abundance, assess key processes and public policy, or even general government. (To it plays a critical role in India’s technologies for more effi- order the case, see: www.belfercenter.org/oil.) energy, while .