Atlantic Council Energy & Economic Summit: “New Opportunities in a Dynamic Region”

Session 1: What the November 6 Election Results Mean
for U.S. Foreign Policy

Frederick Kempe,
President and CEO, Atlantic Council

Nelson Cunningham,
Managing Director and Co-Founder,
McLarty Associates

Stephen Hadley,
Principal, RiceHadleyGates,
and Former National Security Adviser

John Tanner,
Vice President, Prime Policy Group,
and Former Congressman (D-TN)

Fuji Ballroom I,
Swissôtel, The Bosphorus
Istanbul, Turkey

9:00-10:15 a.m.

Friday, November 16, 2012

Transcript by
Federal News Service
Washington, D.C.

FREDERICK KEMPE: OK. I think we’ll get started. I’m Fred Kempe, president and CEO of the Atlantic Council. So the way I’m talking into the mic works. Is that right?

MR. : Yes.

MR. KEMPE: OK. So about like this, gentlemen, in front of you, not to the side. And I think we do have a little bit of acoustical challenge here, but this should work just fine.

I – so it says here, good morning, welcome to our first session of the day. But for those of you who have been at breakfast, this is your second session of the day. These two sessions are not disconnected. Whoever was going to be elected president of the United States would have had enormous luck that he was elected into that kind of energy pitcher. And so I think we’ll get a little bit into that as well here.

But with this session, we’re going to do something we haven’t done at this in the four summits that we’ve had, energy and economic summits in this region, and that’s where we’re going to talk about the United States; we’re going to talk about U.S. politics and what it means for the world.

And that’s obvious because we just came away from a very good election. Whether it was historic or not, these gentlemen will tell you. But it didn’t significantly alter the makeup of the U.S. House or Senate, largely left intact deep divisions and polarization that have existed in Congress and in the electorate as a whole. So we got to talk about what did this really change.

In our leaders council dinner before this conference started, Dr. Brzezinski did talk about the historic nature of an African-American not being elected just for the first time but the second time and what that said also about America in a very positive sense globally, but also what it said about the (changing ?) demographics of America, talking about the makeup of the election, how white men voted, how white women voted, how young people voted, how Hispanics and African-Americans voted.

Another issue that we’ll talk about here a lot was fiscal cliff. We’re going to get into that here. In his victory speech, President Obama emphasized bipartisanship. It’ll be – remain to be seen, can we really get over our political polarization. And then finally, of course, foreign policy. It didn’t – it didn’t figure much in the election, or at least it doesn’t seem to have, but there is – but it obviously is going to figure in the second term, so we’ll talk about – we’ll talk about what that means.

So I think that’s the order we’ll go in: What did the American people just do? Will or will it not solve some political problems for us? Number two, fiscal cliff, are we going to be able to steer away from it, or are we going to drive over it? And then number three, foreign policy. And then we’ll get to your questions and make this interactive.

The – our panelists: John Tanner served for nearly 20 years as a member of Congress representing a district in the state of Tennessee. He’s the only one on this panel who has had the misfortune to actually have to run for office and bear the burdens of that; our public servants have to go through quite a bit to serve us in the wonderful way that they do. His terms of service were distinguished by leadership in foreign affairs. He was the president of the NATO Parliamentary Assembly – is that the title? – and currently is vice president of Prime Policy Group, a consulting firm in Washington. And he’s a member of the Atlantic Council’s Board of Directors, the most important designation he’s ever had in his career, I’m sure.

The – Stephen Hadley served as U.S. national security adviser during the second term of George W. Bush. He was deputy national security adviser in the first Bush term, assistant secretary of defense a number of years earlier, along with other government office. We’re enormously pleased that he serves on the Atlantic Council’s Board of Directors, on the executive committee. He’s been – played a crucial role in our establishment of the Brent Scowcroft Center on International Security, which we opened and launched this year.

Nelson Cunningham is managing partner and co-founder of McLarty Associates, also a consulting firm in Washington. He served in the White House as a special adviser to President Clinton on Western Hemisphere affairs and general counsel at the White House Office of Administration. He was a member of the Obama-Biden transition team, foreign policy and trade adviser during the 2008 campaign as well as in the 2004 presidential campaign of John Kerry.

So two Democrats, one Republican; all have a history of working across party lines for the good of our country.

So why don’t I get started with the only practicing politician, though – and I’m not sure you would call yourself practicing any longer – (chuckles) – but if you can just help us understand the election that took place before we get into questions of fiscal cliff and foreign policy. What produced the outcome? What does this election say about America? Is it historic in any way, or – that you would say?

JOHN TANNER: Well, thank you, Fred. I appreciate being here and thank all of you for being here this morning.

This election was, as Dr. Brzezinski said the other night, historic in that the president was re-elected, and I think it pointed to one of the things that is happening in the United States is the rapidly, actually, from a historical standpoint, rapidly changing demographics: 60 percent of whites are now – non-Hispanic – or non-Hispanic whites comprise 60 percent of the country. That is the lowest it’s ever been, and it’s going lower. Forty-six percent of all Americans under the age of 18 are minorities. And for the first time ever, a majority of people in the United States live in cities, which means that those seeking public office must campaign in a very different way than we used to campaign, going from little town to little town. With the cities being urbanized to the extent they are, it is a very different world in terms of campaigning.

So the other factor, I think, in this campaign was the social issues that some of the Republican candidates, particularly in the primary, wanted to address and some in the races around the country for the United States Senate that resulted in a very pronounced gender gap between men and women. There was also an age gap with younger people not as concerned, perhaps, about some of these hot-button social issues as some of the older people in our electorate. And so with the – with the changing demographics and with the social issues being more a part of Republican primary and Republican races across the country, it resulted in the re-election of the president when it really was historic from the standpoint of no president really has been re-elected when our economy was performing as it is and the unemployment rate was as high as it is.

MR. KEMPE: Just expand on that a little bit. You know, are we looking at a situation where you could have – if demographics were headed in this direction, and if Democrats are capturing the bigger change in the demographics, does this mean that we’re going to have several terms ahead where Republicans are going to be challenged and Democrats are going to be the ones capturing the way the United States is turning?

NELSON CUNNINGHAM: Yeah, the demographic changes that John Tanner put his finger on are really – are dramatic. And I think they are, and they’re clearly heading in one direction, which is the United States is becoming more diverse. Soon – I think by 2040 – there will be no majority race in the United States. There’ll be a series of pluralities. You’ll have whites, Asians, blacks, Hispanics but no majority.

One of the favorite statistics for understanding exactly what’s happened – exactly the pace of change: Barack Obama lost the white vote by 20 points. White voters preferred Mitt Romney by 20 points over Barack Obama. Now, in 1988 Michael Dukakis also lost the white vote by 20 points. The different is, Michael Dukakis lost the white vote by 20 points and was defeated in a landslide. Barack Obama lost the white vote by 20 points and won a commanding victory. That tells you that the – that the minority votes are – have completely changed the way that our politics is going to be played.

We all recall, back when Richard Nixon was president, Ronald Reagan was president, California was seen as a key part of the electoral coalition that would continue to elect Republican presidents as far as the eye could see. What happened in California in the early ’90s was, because of some anti-immigrant legislation that the Republican governor supported and tried to pass, the Hispanic vote in California flipped from being divided to being almost entirely Democratic. What’s happened since then, in every election since 1988, California has gone Democratic, and that has been because of its huge size and the huge number of electoral votes, that has been a – put a huge wind at the back of Democratic politicians.

Now, the largest state that goes Republican regularly is Texas. By 2020 – my friends in Texas tell me that by 2020 Texas will be a blue state, that Texas will go from being reliably Republican to being reliably Democratic, and that’s because of the growth of the Hispanic vote, particularly in southern Texas. One, if Texas flips and becomes blue, it’s hard to see a path toward electoral victory for Republicans.

So what do Republicans need to do? They need to figure out how to appeal to these new demographics. And what’s interesting is that just in the weeks since the election, we’ve seen some of the new leaders in the Republican Party, those who are looking at 2016 are immediately turning toward thinking about, how does the Republican Party appeal to craft a message that will get Hispanic voters, perhaps African-American voters and young voters? And that’s the debate we’re seeing right now.

MR. KEMPE: Thank you for that. And let me turn to Steve. And also gentlemen, as you want to jump in on each other, let’s just make this a conversation. But in this opening round on what did the American voters just do – you’re the foreign policy guy here, but – and having served as national security adviser – but I ask you to put on your hat of someone who served in Republican administrations and just someone who watches the evolution of the American electorate. And Steve, as you look to this, what do you think was important about this election from a domestic political standpoint?

STEPHEN HADLEY: Oddly enough, what may turn out to be the most important thing is that the Republican lost, and that may turn out to be a very good thing because if we hadn’t lost, the notion would have been, we could do the same old, the kind of coalition that’s been around for the last 10, 12 years. But we didn’t, and it was – as was suggested, it has already provoked some very good soul-searching among Republicans, and it’s needed because these things are not written in stone. When George W. Bush ran for president in 2004, he took over 40 percent of the Hispanic vote. Governor Romney took barely 23 percent of the Hispanic vote. Well, that makes all the difference. And that is why President Bush, you know, won states like Colorado – (inaudible) – Nevada and some of the swing states where there was rapidly increasing Hispanic population. So it doesn’t have to be this way. And –

MR. KEMPE: And that’s – and that’s 40 percent of a smaller Hispanic vote, and 23 percent of an ever-increasing –

MR. HADLEY: Right.

MR. KEMPE: Right.

MR. HADLEY: But, you know, unfortunately, the Republicans got on the wrong side of the immigration issue. This would look very different if President Bush – if the Senate had been willing to go along with the immigration plan that Republicans and Democrats came together behind I think in 2005, 2006 and then lost narrowly in the Senate.

So this has provoked very good soul-searching. I think Republicans, when they lose elections, they do sort of two sets of analysis: One analysis is, people say, well the person wasn’t conservative enough. If there was a real conservative in the race, the nation would have flocked to us. We haven’t heard that so much, thank goodness, for Republicans. What we have heard is people saying, Republicans have to go after Hispanics, they have to go after black voters, they have to go after young voters, and we’ve got to get our economic message out. And I think it’s not just Hispanics. I think it’s black voters as well. It is unhealthy when, even though he is a black American, a candidate gets over 90 percent of the black vote. That is not a good thing for America. So Republicans need to get after the black vote as well.

MR. KEMPE: How do they – how do they do that and are you convinced that’s the lesson, or do you think that there’s going to be a civil war within the Republican Party over what the real lesson of this election outcome is?

MR. HADLEY: There often is – in both Republican or Democratic parties, when you lose one, there’s a bit of a civil war. But it’s very interesting. As was suggested earlier, within 48 hours you had Sean Hannity, you had the leader of sort of the no tax pledge movement talking about – he was going to get conservatives together to talk about what could be a conservative position on immigration reform.

So I’m encouraged that there seems to be a healthy debate within the Republican Party about the need to reach out and to respond to these changing demographics. I think it’s not just good for Republicans; I think it’s good for the country, so that we have a vigorous debate between the two parties, each speaking to and seeking votes from all of America. That’s really what – that’s what we want.

MR. CUNNINGHAM: Yeah. Fred – and there’s another angle here, which is, I think we’re also seeing the Republicans trying to understand how they can make their economic message relate to more voters. I think one of the most damaging things that happened to Governor Romney during the election was the release of that tape in which he was quoted as saying that 47 percent of Americans, who didn’t pay income taxes, were dependent on the government. He – wouldn’t take responsibility for their lives and therefore were never going to vote for somebody like Mitt Romney and, quote, “I don’t care about them.” That was incredibly damaging, to have him throw aside 47 percent of the electorate.

And I think that a Republican message that says, we’re going to protect tax rates for the very rich at the expense of everything else and we’re going to – any budget deal we’re going to strike can never touch tax rates for the very rich – that sends a message to ordinary voters that says, now wait a minute. Are you – whose interests are you looking out for? Are you looking out for my interests or just the interests of the very rich?

And we’re seeing, I think, a debate right now just in the last week on that question. Governor Romney two days ago, in a conversation with some donors – he was thanking his donors – he said Barack Obama won this election because he gave gifts to the African-American community, the Hispanic voters and to young people. And again, this is sort of an echo of that 47 percent comment. He said free contraceptives, free health care, subsidized college tuition – he said this is how Obama gave gifts to the voters.

And immediately other voices in the Republican Party, including Bobby Jindal, who’s the governor of Louisiana and somebody who clearly thinks he might be president someday, rejected that. He said, we have to stop – as Republicans, we have to stop dividing the country into those who give and those who take. We have to have an economic message that says to those young people, there’s a role for government in helping you get ahead. We don’t deny that. But here’s why our vision of government is going to be better for your economic prosperity than the other side’s vision.

And that’s going to be a profound difference, I think, also if the Republicans can craft a message that is more inclusive and less focused on protecting tax rates for the rich, at least in the public eye. That could be a message that really resonates.

MR. KEMPE: And a very important point in that Bobby Jindal’s probably also looking to 2016 and so showing which way he thinks the Republican Party could go.


MR. TANNER: Broadly speaking, I think the Republicans are facing what the Democrats did back in the ’70s and ’80s when the interest groups in the Democratic Party were not content to just ride on the bus; they insisted on driving it. And the Democratic candidate had to go out of the mainstream, to the left, to get the nomination that meant – then made the ticket not as acceptable as one would – might hope, if one’s a Democrat, in the general election.

Republicans – the person who changed that, in my view, is President Clinton. He had the Sister Souljah moment, where he said, we’re not going down that road again. He had – he literally disinterred NAFTA and brought it up and put it on the desk against the wishes of labor, which was a very big part of the Democratic coalition, and signed NAFTA. What the message was, was we’re glad to have you on board, but you’re not going to drive the bus.

What the Republicans are facing now, whether it be the tea party or the social folks and so on, until somebody can emerge and say, we’re glad to have you on board but you’re not going to drive the bus – I mean, you take Grover Norquist, who’s the pledge guy – he’s convinced me that the only pledge I’ll ever sign is a pledge never to vote for anybody who signs a pledge, because what you basically say is, I’m so rigid in my ideology, I’ll never change my mind, no matter what the circumstances are, on this issue. That’s crazy.

But he has unusual sway and wants to drive the bus in the Republican conference, particularly in the House of Representatives, where everybody is facing the voters every 24 months .

MR. CUNNINGHAM: You know, actually maybe you could talk about the House. You had a really interesting insight about this yesterday, Congressman. You know, Obama wins a commanding victory; the Senate becomes even more Democratic, even though people had been predicting that it would go Republican this year, but the House stayed the same. The House stayed in Republican hands. Does that say that the voters were voting for stalemate of some kind?

MR. KEMPE: Well, let’s let – let’s actually do that shift and put this in the context of the fiscal cliff too, because it must be said, though Congressman Tanner is a Democrat, if I’m not mistaken, your state didn’t go exactly that way, where Romney got 60 percent of the Tennessee vote, Obama got 39 percent – so, you know, pretty solid.

So we’re still in a pretty divided country, for all this hoopla about Obama’s victory. So please – I think Nelson asked the right question.

MR. TANNER: The history of the House basically, as it’s comprised today, basically started 50 years ago in a case from my old congressional district called Baker versus Carr, where for the first time in modern political history in America, the courts said that the apportionment of seats based on population, particularly statehouse, state senate and the United States House of Representatives seats, was a justiciable issue. The courts had jurisdiction because it involved due process and equal protection. Interestingly enough, the state of Tennessee had not reapportioned the state legislature since 1901, and so the guy filed a suit. It got to the Supreme Court in 1962.

But what happened was they then gave the reapportionment power to the legislatures across the country. Well, I’m a Democrat, you’re a Republican, or I’m a Republican, you’re a Democrat – doesn’t matter. These guys said, this is – and gals – said, this is a good deal. I’ll give you all your people and you give me all mine; we’re both happy.

After the 2000 Census and the 2001 – I haven’t checked the figures after 2010 yet – there were only 91 seats out of 435 left in the House of Representatives that were even within the hypothetical margin of error of a 50-50 voting pattern. What had happened over time is we had, I think inadvertently, placed a parliamentary model on a representative system. And the system cannot handle it.

The Founding Fathers rejected the parliamentary model, where you had the government and the opposition. There doesn’t have to be any compromise; the government says, we’re going to do this, and up to five years, as one of my friend in the U.K. said, we live under tyranny of the majority.

Well, we have three branches of government in our country. Congress can do some things, not everything. The White House can do some things, not everything. The court has something to say about some of things, not everything. It not only fosters and urges, it forces compromise for our system in the United States to work.

Well, getting back to those people in the House – and it’s now infected the Senate, to some degree – they are being elected in the party primaries, not in the general election. What does that mean? It means that the political threat to them, if you’re a Republican, is from the right; the political threat, if you’re a Democrat, is from the left, in the party primaries. And so –

MR. KEMPE: Increasing the extremes in the Congress.

MR. TANNER: – increasing the extreme – and so what happens is when they are elected – earnest, hardworking, honest people – they come to Washington to go into the – what I call the sane, sensible center and actually work something out that people can live with is political danger zone for these folks who are being elected in the hard-core party primaries.

MR. KEMPE: So let’s take that to the fiscal cliff, Nelson – and then, Steve, maybe you can comment on this as well – in terms of how this political system allows one to function in the White House, since you – (inaudible) – from that standpoint. We’ve always been known in the world as being this dynamic, self-correcting, self-generating country. Are we in a position now, because of this political polarization, driven by the gerrymandering the congressman is talking about, which is reinforced by money, which is reinforced by media – where you have, you know, Republican media, you have Democrat media, but you don’t have as much in the middle as you used to, it seems to me, as a – as a – as a recovering journalist. The – are we in a situation where, A, we are not as self-correcting as we used to be, and B, we may go over the fiscal cliff because of that?

MR. CUNNINGHAM: You know, for the last three years I think that our political process has been working hard to avoid reality, because both sides were teeing themselves up for this election. And so you’ve had a great deal of posturing. I’m not going to point fingers here, but there’s been a great deal of posturing I think that both sides have had on these issues, and there has been very little serious accommodative effort to try to deal with the substantial deficit situation that we face.

Now there are a couple of background facts that I think are important, and then we’ll talk about where we are today.

First of all, we have continuing deficits of over a trillion dollars a year. This is huge. There’s absolutely doubt about that.

There’s also absolutely no doubt that the day Barack Obama walked into the Oval Office for the first time, those deficits were already in place because of the deficit politics of the prior years and because of the huge expansion – and because of the drop-off in revenue and the huge expansion of spending that was required, when he walked into the Oval Office, the deficit was already over a trillion dollars a year. And what we’ve seen since then is we’ve seen the deficits remain at over a trillion dollars a year every year.

Now historically, the federal government has spent about 20 percent of GDP. Over the last 30 or 40 years that’s been about the norm – 20 percent. For the last four years we’ve been spending 25 percent, but we’ve only been taking in 15 percent of GDP in revenues. Well, that’s a 10-point gap that is the cause of the deficit situation we have today.

So the question that’s facing the Congress is, how do we fix – and the president – is, how do we narrow that 10-point gap?

I think President Obama’s coming and saying, well, from his standpoint, this is fairly straightforward. We cut spending down to about 20 percent and we raise revenues up to about 20 percent, and we put the budget into balance.

I think the starting position for the Republicans is no, it really all needs to come on the spending side, because if you try to increase taxes, you’re going to harm the economy.

Now I happen to think that President Obama has the better side of this argument because we’ve seen this before. When Bill Clinton took office in the early ’90s, a president for whom I had the privilege to serve, he inherited substantial deficits and he put in place a deficit reduction package that cut spending, raised taxes and achieved the only balanced budgets we’ve had since the 1960s. And we had – in fact we went into surplus for several years in a row in the late Clinton years.

So I think that formula today is the one – sensible tax increases, substantial cuts in spending – that’s where President Obama starts.

Now the debate we’re having on the Republican side is, will they accept any tax increases, and if so, how? Congressman Tanner talked about the Norquist pledge, which almost every Republican has signed, saying they will never under any circumstances ever, ever, ever increase tax rates or limit deductions or tax expenditures.

I think that is now – that view is now changing on the Republican side. They are understanding – just in the last week we’ve seen signals they are understanding that they need to find new revenues somewhere; you can’t do it all just on the spending side. You can’t go from 25 percent of spending down to 15 percent. That’s too great. They’re going to have to find new revenues. And the question is, can we reform our tax system in a way that gets rid of deductions, gets rid of exemptions and permits them to carry out their pledge to lower rates but still get revenues moving up? That’s the essential debate that the president and the Congress are about to start.

MR. KEMPE: Steve.

MR. HADLEY: Well, I don’t want to get into a big Republican and Democrat thing, particularly since I’m outnumbered at least two-to-one and maybe even three-to-one up here.

MR. KEMPE: No, I’m your classic swing voter. (Laughter.)

MR. TANNER: And I’m a Blue Dog, so I’m – (laughs).

MR. HADLEY: You know, I think – I have a little different description than Nelson had, and I think it’s important to look at where we’ve been.

MR. KEMPE: By the way – this is important to note – I’m a swing voter, he’s a Blue Dog Democrat, so, you know – and he’s a Republican, some people may say “Blue Dog Republican,” I don’t know. (Laughs.) And then, you know, you can self-describe yourself, Nelson. But we have a good political mixture up here.

MR. HADLEY: Look, in 2008 we have a huge recession that almost is a depression. And for all the divisions in our government, actually the Bush administration and the incoming Obama administration worked very well together to keep a serious recession from becoming a depression. And Tim Geithner was guiding policy in the Bush administration, he becomes secretary of Treasury under the Clinton – under the Obama administration; Bernanke – Ben Bernanke, head of the Fed, is continuity. So, you know, I keep saying to folks the real message of our governmental system is there’s actually more – there is more continuity than you’d ever get from our politics.

So we have this terrible recession. What happens in a recession? Revenue, tax revenues go down. Tax revenues go down. Spending stays fixed. You get huge deficits. And then, I would say, President Obama made them much worse by some of the policies he adopted in terms of stimulus and his first budget. And then people started figuring out the entitlement programs, and we’ve got deficits as far as the eye can see.

2010, what happens? There’s a political revolution in the United States. The American people decide that Washington is not listening to them. They’re worried about the economy. They’re worried about those deficits, which Washington doesn’t seem to be worried about, and they throw a lot of people out. And the tea party is born.

Now, a lot of people like to flagellate the tea party. I will tell you this: I lived through the ‘60s in our country. It was a very dangerous time, and I think the country almost had a political nervous breakdown because dissent and unhappiness was reflected and pursued outside the political process, on the streets. I would much rather have that kind of discontent pursued within the political system even if it gives you a tea party movement. It’s difficult to manage.

I think Congressman Tanner had it right. Those guys thought they were not only in the front of the bus, they had their hands on the steering wheel, and it’s made a very tumultuous time. And I think 2012 is going to be a real corrective.

And one of the things I think came out of the election was a consensus that we really need to get our hands around the deficit and the debt, whether it’s Republicans or Democrats. The tea party movement actually was at the forefront of that, but now President Obama, I’m glad to see, has put that at the front of the agenda.

I think we can, I think we will and I think we must get a deal. And as those charts showed in the session before here, as the Australian foreign minister said to a gathering, America is just one budget deal away from a real return to influence and economic prosperity. And a lot of that is because of the energy figures that you saw, that we all saw this morning at breakfast.

So I’m optimistic that after four very turbulent years and a lot going on in the world and in our political system, we will now come together. And, you know, in a way, the Republicans have won the argument. We don’t want a massive tax increase. And President Obama has embraced that, and we now have this, you know, issue about, you know, whether the rates for the top 1 percent are going to go up or whether their tax burden is going to go up, not by increasing rates but by closing loopholes. I mean, we’re now into the second and third-order issues, and I think – and I certainly hope – they can be resolved.

So I think, you know, all the noise you heard was not the American political system breaking; I think it was the American political system in its own inimitable way fixing itself. But I have to admit I’m a glass half-full person, not a glass half-empty person, and I may be too optimistic, but that’s how I feel.

MR. KEMPE: But that’s actually – that’s a real interesting point to bring up because 2010, which ain’t so long ago, was a real wave toward the Republicans and – toward the Republicans because there was a feeling that government was getting too big and overspent.

MR. TANNER: Let me put a slightly different take on what I think happened. In the year 2000, when President Clinton left office, revenue and expenditure both were around 19-1/2 percent of GDP. Basically, the country was breaking even. Both claimed – Speaker Gingrich, in his attempt to run for president, and President Clinton both claimed they had a surplus. In my view, it wasn’t an operating budget surplus, it was excess Social Security revenues at that time over Social Security expenditure; but nonetheless, we’re breaking even.

The second-worst thing that I think happened in 2001, 9/11, of course, being the worst, happened in February of 2001 when the Congressional Budget Office forecast over the next 10 years there’d be a $5 trillion surplus. I’m sitting there thinking, what are you talking about? I don’t know what the price of cotton is going to be in 10 days; who can tell what’s going to happen with the United States economy over 10 years? But it was treated as real money. People said, we’re filthy rich. There was a euphoria. As a matter of fact, President George W. Bush first secretary of the treasury O’Neill – Secretary of O’Neill came before the Ways and Means Committee and said he was, quote-unquote, “concerned” that we might pay off the national debt too quickly.

That was the mindset, if you can imagine today. And some of us said, wait a minute, this is a forecast, there’s no money here, we’re barely breaking even after 30 years; what are you talking about? Oh, no, this is money.

So in June of 2001, an economic plan was passed in the Congress over 10 years with taxes phasing in and out, and some, like the estate tax, going away completely in 2010 only to come back in 2011, and so forth. A very convoluted package of tax cuts stuffed into a number, basically, was how they did it.

Well, by 2004, the revenue stream coming to Washington was only 16.2 or (16.)3 percent. We’d gone to war in Afghanistan and Iraq. Expenditures were over 30 – 20 percent at that time. And what the people need to understand is we had created unintentionally a structural deficit, which is much different from a situational or a cyclical deficit, and we’ve been living with this structural deficit ever since.

Now, what is a structural deficit? It means you can’t cut your way out of it, you can’t tax your way out of it and you can’t grow your way out of it. Something has to change. That’s why it’s imperative that the American people understand, and I think they’re beginning to, that you’re going to have to do something on the entitlement side to slow that spending and bring it down, and you’re going to have to do something on the revenue side to get somewhere back close to 19-1/2 percent, which is about the 50-year average of revenue in the country.

Now, you have, going back to the House, people elected in the party primaries, as we talked about a while ago. Some on the Democratic side say you can’t touch entitlement spending; people have earned it; if you do, then they are at risk in the danger zone in the next primary election. You have Republicans say that if you ask Bill Gates and Warren Buffett and anybody else in their income bracket to pay a hundred dollars a year more in income tax, they’re going to throw their hands up and say, you’ve destroyed my incentive to go to work, I’m going to quit and go on welfare.

Now, that is a pretty big gap to fill. And so I’m hoping that, notwithstanding the division that gerrymandering has created, that Speaker Boehner in the House can get enough votes, coupled with the Democrats who will agree that there has to be something done to slow the growth of expenditures on the entitlement picture, so that we can get a deal. And I’m optimistic for this reason, sort of like Steve. I’m optimistic because I don’t think at this point in time either party can risk being viewed as the obstructionist to a deal that CBO says, if nothing’s done, this sequester goes in, will cause a recession. Half of the sequester money is in defense. And the spending cuts, coupled with all the tax cuts that were enacted in 2001 coming back, I don’t think either party can risk being viewed as the obstructionist. And there’s nothing like fear to create an atmosphere that people can work together and actually get a deal done.

MR KEMPE: One hopes so.

I do want to give the audience – we haven’t hit foreign policy that much yet. I want to ask Steve one question before we go to the audience. The two of you can jump in if you’d like, but I really want to get out there. This evening at dinner we’re going to have a sort of nonpartisan discussion of grand strategy of geopolitics, what the world looks like, with, you know, really one of the leaders of our times thinking about that, Dr. Brzezinski, and Steve Hadley, one of the great geostrategic thinkers as well in Washington. So there will be a great – great conversation tonight about it.

But I wonder if you could whet our appetites a little bit, Steve, and take a look at this election and give us a bit of a feeling. With resources down, with people a little bit, you know, looking inward, and Obama’s talked about nation-building at home, what does a second-term Obama foreign policy look like? What do you think is going to drive it?

MR. HADLEY: Well, our foreign policy – as you said, most people think foreign policy didn’t play in this last election. I don’t think foreign policy actually works very well in presidential elections. My own view is that the discussions of foreign policy in presidential elections are full of red herrings and straw men and are not very illuminating. And this one was no exception.

But I think it did three things, and we can talk about them tonight. One is, it reinforced this notion that the debt and the deficit and the failure of our growing economy is not just a domestic issue, it’s a national security issue and it’s a foreign policy issue because it is undermining our ability to provide leadership in the world, and it’s undermining the persuasiveness of the American model that free peoples and free markets produces not only a populace that is optimistic, but also economic prosperity. And we’re now showing a model that some people say is politically broken and is not providing economic growth, and that’s leading people to say maybe the Chinese have it right. And that’s a terrible thing for us.

Second, I think Mitt Romney tried to put the Middle East on the agenda as an area where things are not going well for the United States, and I think that will be one of the things that will dominate the foreign policy of the next four years. One, what to do about the Arab Awakening. We can talk about that tonight. Two, what to do about Syria, which is a terribly serious problem that risks basically having a Middle East meltdown into sectarian war that is going to destabilize Syria, Lebanon, Iraq, Turkey, Jordan; very serious. I think that’s on the agenda. And third, Iran. I think about a year from now – not to be too alarmist – about a year from now we’re going to be on Iran where we were in Iraq in 2002, where we’ve run out of all of our diplomatic, economic options, and people are tempted to do the military option because it seems to be the only one left.

Third area where I think there was some discussion and is going to be a focal point for the next Obama term, and that is Asia and China. And you know, China is a country that we actually need to be prosperous and have a healthy economy for reasons of our – the global dependence on the Chinese economy. At the same time while we want to encourage that, we want to discourage a China that is imposing its will on its neighbors, and we can talk about how to do that. And then thirdly, a recognition that any of the global challenges we face, whether it’s secure energy, whether it’s global warming, whether it is terrorism, proliferation – cannot be solved without China cooperating with us in an international context. And so I think the issue, the challenge of stability and economic growth in Asia and the management of China, again, something that did begin to come out in the campaign, is going to be a dominant issue over the next four years.

MR. KEMPE: And just to drill down on one of them, looking at Syria, which is – you know, you’ve been in the White House; you’ve been national security adviser; you understand, you know, what a president has to wake up to every morning. Is that – what’s – what is he waking up to right now that’s being briefed to him most urgently, and where do you think he’s going with it? Is it Syria?

MR. HADLEY: I hope it’s Syria. But you know, I think we have been – you know, it’s one thing to lead from behind; it’s another thing to sit on your hands. (Chuckles.) And I think we’ve been sitting on our hands in Syria as the situation has gone critical. I think countries in the region want to see more leadership. We have not shown it.

And I think actually, I’ve been very encouraged because I think there may be a change afoot. One, this effort to get a reconstituted Syrian opposition, this new organization that has been stood up in the last week, which the Arab League, France and the Turkish government have now recognized as the legitimate representative of the Syrian people – that’s a very good thing. That group is also trying to be cross-sectarian and have a cross-sectarian message for all of Syria. I think that’s very good.

And I think the French president is right. It’s time for us now to try and get arms to that group so that they can protect themselves and the population from this terrible assault that the Syrian government is waging against them, killed more than 30,000 people, hundreds of thousands now in neighboring countries, over 2 million internally displaced in Syria. It’s a humanitarian disaster. But it risks a sectarian war that will engulf the Middle East. And that’s very much not in our interest.

So I think this is not about U.S. boots on the ground; it’s not about U.S. intervention. But it is about helping the Syrian people throw off this tyrant. And time matters. The longer this goes, the more it risks stability in the region, and the more it opens the door for al-Qaida. The day after Assad goes is going to be very difficult to manage. There’s no question about that. But the longer it takes for him to go, the harder it’s going to be to manage the day after.

So I would hope the administration is seeing both the casualties, seeing what it’s doing to Lebanon and Iraq and seeing now finally other countries actually getting ahead of America and exercising some leadership, and I hope now that the election’s behind them, you’ll see a different policy coming out of Washington.

MR. KEMPE: Thank you, Steve.

I see a question here in the front row. Someone can bring a microphone up here. And I also see Dr. Brzezinski in the audience. If at some point you – I know we’re going to be hearing from you and Steve tonight as well. If you – at this – any point want to jump in on any of this, let us know; raise your hand. Thank you.


Q: Thank you very much, Mr. Kempe. I think this session is very timely after just elections has been completed.

MR. KEMPE: Oh, and sorry, could you identify yourself again, please?

Q: Oh, my name is Sham Bethisa (ph). I’m economic adviser to President Karzai in Afghanistan. To hear from distinguished insider Americans, I want to call it, it is a great honor and great pleasure. And thank you for organizing such a session.

I’d like to reflect on Congressman Tanner’s point, the demographic shifts and changes within the American society. Naturally, this is not only the Americans – is happening in America, but it is also happening basically at the global level in many, many countries too. But my question is could any of you all, panelists, consider this is a richness of America whereby this will contribute more to, I would say, globalization of American culture, American sort of, you know, society and so on?

Similarly, I also reflect on the shifting between Republicans and the Democratic Party’s – what is happening there. Will it be, for example, in a more positive way for Democrats, or how will Republicans will react in the coming years or coming elections to come?

And the third remark and reflection, which I’d love to hear from any of you, is America’s – whatever happens in America is very important in the global level because you are commanding a leadership role in the international society. As we say in Afghanistan, particularly in my hometown, Kandahar, when Wall Street sneezes, the prices of the onion goes up and down. So it has that much impact on it. Will all these domestic changes, demographic as well as Republicans and Democratic changes and so on – will that affect in any way the leadership role of America? This will be good to hear if there is any remarks on that. Thank you.

MR. CUNNINGHAM: You know, the – I think it’s always been the great strength of America that we take so much of what the world has to offer and we make it our own. And for the – it’s been the – it’s been the strength of the country, going back to colonial times, that we’ve taken those who were fleeing other regimes, who were fleeing other countries, whether they’re religious dissidents or they’re – or they’re looking for better economic opportunity. That is our great strength.

We’ve undergone – in the last 15 or 20 years we’ve undergone an even more dramatic demographic change than we had in the 50 years previously, and we’re still digesting that. I agree completely with your point that when we are through digesting this, we will be, I think, even stronger, even more flexible, even more innovative, even more entrepreneurial than we have been in the past. And I – for that reason, I’m very bullish on America, along with those fabulous charts that we saw in the first session talking about domestic energy production.

MR. KEMPE: Either one of you wants to jump in on this? Yeah.

MR. HADLEY: I’d just say, on the impact, one, globalization of America, America has been global from the get-go. I mean, that’s the whole point. It’s always had this diversity. And one of the things that this election, I think, reminds us is that we need to continue to be open to that. And I think that’s what’s so important about immigration reform, to institutionalize that and to reaffirm our commitment to that element of who we are as Americans.

Secondly, you asked, will this changing character of the country affect foreign policy? And I think that’s a very interesting question, and I don’t have an answer to that. And maybe Dr. Brzezinski can talk about that a little bit – we can talk about tonight. I tend to think, actually, not, or actually, in a good way. That is to say that as long as we basically have citizens from all over the globe who become – and become Americans and become part of our society, I think it will reinforce our sensitivity to what’s happening in the rest of the world and our obligations in the rest of the world.

Secondly, does – is it leading to a reluctance for American (sic) to play a leading role – I think in the short term, yes, not that, but the economic problems we’ve gone through is sort of burdening in America, and in some sense, Americans, I think, have sort of lost a little confidence in our own system and our own ability to maintain that system and lead. But I think that’s a temporary phenomenon. I think Americans still accept the proposition that our future is linked to the future of the globe and that we need to be active in trying to shape the future for good of America as well as for the good of the rest of the world.

So I don’t see – you know, I’m worried about another wave of American isolationism, but I don’t see it at this point. And I think the increasing diversity in America is actually going to make us – I hope, make us more committed and aware of what’s going on in the world rather than less. But again, I’m the glass half-full guy. (Laughter.) So I have that bias.

MR. KEMPE: I see a question here, and then one here. And identify yourself and to whom you’d like to pose a question.

Q: Yes, a question for Mr. Hadley, but if the other panelists would like to jump in, they’re welcome. My name’s Barsha Ninanj (ph). I’m a journalist for the English language Hurriyet Daily News. Since the Middle East would be – would remain a key element in the U.S. foreign policy, especially due to the Syrian crisis, in this respect, how do you see the future relationship in the U.S.-Turkey-Israel triangle?

MR. HADLEY: Well, the United States has, of course, a very strong relationship with Israel. I think that will continue. I think one of the real accomplishments of the Obama administration has been the personal relationship that the president and Prime Minister Erdogan have forged and the cooperation between the United States and Turkey in dealing with a whole host of problems not just in the Middle East but also beyond.

You know, I’ve followed Turkey now for 20, 25 years. This is a very new – a very different Turkey. What it has accomplished in the last 10 years economically and in terms of democratization of its politics and society is a remarkable – Turkey is a major player in the region and globally, and we need a different kind of relationship between the United States and Turkey, of real partnership of equals. I think that is emerging. I give the Obama administration some real credit. I think we started it in the Bush administration, but I think they have really taken it to a new level. And I think that’s exactly what is required because Turkey has a very important role to play in resolving a lot of the issues that we face going forward.

MR. KEMPE: Yes, Congressman.

MR. TANNER: You know, going forward – back to the fiscal cliff – will be a real, I think, test of our resolve and also what kind of country we have. This fiscal cliff, as I said earlier, didn’t arise yesterday. It sort of reminds me of the old story about the turtle mugged a snail, and the police went out and – to investigate and asked the snail what happened, and the snail said, I can’t remember; it all happened so quickly. (Laughter.) This has been coming on, but now the American people are engaged.

And as Secretary Gates said before a CSIS audience not too long ago, in which I attended, he said the national insolvency at home will lead to strategic insolvency abroad. And so with those table stakes and the fact that – for all the reasons we’ve discussed before, I agree with Steve and with – I think we’ll rise to the occasion even though, as Winston Churchill so famously said, we’ll try everything else first.

MR. CUNNINGHAM: You know, Fred, one point on the fiscal cliff: The people in this room, people just like you in this room in the United States are going to play an important role in helping fix the fiscal cliff because the business community is lining up strongly to push both sides toward a deal. I would argue for the last three years many in the business community decided to make a bet against the president. They were funding those who were trying to bring down the president. They decided they would rather have a change of team. They thought that would be better for business, better for the economy.

They’ve now realized that didn’t work. They’re going to have this president for the next four years, and so they cannot allow these problems to fester. You need corporate tax reform. You need to move ahead on trade agreements. You need to deal with the fiscal cliff. You need to deal with the long-term issues. And so we’ve seen the business community, for the first time, take a very vocal role pushing both sides together. You had 80 CEOs before the election with the fix-the-debt movement, write a letter to the – to the leaders in Washington saying, we’ve got to raise revenues; we’ve got to cut spending; you guys need to get – you guys need to get this sorted out. And I think that business community pressure could play a big role in helping the Congress and the president solve these issues – have the resolve to solve these issues.

MR. HADLEY: One of the real issues, I think, for the next four years is what has President Obama learned from his first four years. And I’m not sure I know the answer to that. He does seem to know that he’s got to focus on this deficit, and that’s a good thing.

I hope the second thing he learned was, there is a reason there was a breach between business and Obama administration, and the Obama administration was as anti-business as any administration in recent memory in my view. And really, business was – they were not interested in having business be a part of that administration. I hope that one of the things that President Obama has learned is that is not a good policy for his administration or for the country because one of the dividends of a deal on the fiscal cliff is that hopefully, a lot of money that companies have on their balance sheets will now go in and start, you know, hiring Americans and jump-starting our economic growth.

Q: Melanie Kenderdine with MIT. And I was going to ask a question, two questions, one about the fiscal cliff, which is a complete fabrication because they wouldn’t raise the debt ceiling. It is a fabricated issue. That’s just an editorial comment. But this is a question of Mr. Cunningham. Seems like there has been a little confusion on the deficit and the debt and that the Obama stimulus did increase the deficit but it contributed very, very little to the debt and that the debt is the real problem. And I was just wondering, Mr. Cunningham, if you might articulate what are the pieces of the debt that we actually have as opposed to the interest, minor interest that was added from the stimulus package.

MR. CUNNINGHAM: Well, I – let me make the point that I made – that I made before and amplify on it, which is that when President Obama walked in the door, the annual deficit for that fiscal year was already tagged to be, I think, $1.3 trillion. The president has been accused of having a, quote, explosion of spending. Actually, if you look at it, he has had the lowest increase in spending year on year of any president in decades.

The problem he faces is that he inherited this – what John Tanner described as a structural deficit that was so huge and in the midst of a financial crisis, he was unable – frankly, it would have been bad policy in the midst of a – the early phases of a financial crisis to try to shrink that deficit dramatically because that would have been – that would have a strongly contractionary and would have hindered – would have hindered our economic recovery.

Now, though, we’re in a position where the economy is strengthening and, in a second term, the president is able to take steps to shrink that deficit without cratering the economic recovery. And so that’s why it’s the – it’s a propitious time now for the president to sit down with Boehner again and address this issue.

Q: (Inaudible) – hello. My name is Natalie. I am with China Central Television International. We’ve obviously just had new elections in the U.S. We’ve just seen a new president in China as well. How do you think relations between those two countries are going to evolve over the next four years? And especially, to bring Turkey in to the mix, and to bring Syria into the mix – obviously, China and Turkey have rather opposing views of the Syrian situation – how do you think the U.S. could contribute to that as well?

MR. HADLEY: Well, I – on Turkey – on China – Turkey, Syria, China – China is – has not been playing a constructive role on Syria, nor has Russia. They have been blocking efforts to try to resolve the issue and basically giving cover to Assad. And my own view is that in the short run, we need to basically not work through the U.N. but work through countries like Turkey and others in the region that want to try to solve this thing and send a clear message to Assad and those around him that China and Russia can’t protect them anymore. I think, actually, only once it’s clear that we’re going to go forward without China and Russia will China and Russia, under that pressure, have a more responsible role.

Secondly, I think it’s too soon to say about this new leadership in China. You know, the issue is going to be, can we cooperate with China on economic issues? And to the extent China wants to be a prosperous country, respected in the world and at peace with its neighbors, we ought to encourage that. To the extent China wants to impose its will on its neighbors and have them compromise their interests in favor of China’s, we’ve got to send a message that that’s not on.

That’s why we do need to be present in the region and why I think, while it was misnamed and there are a lot of problems with how it was framed, the pivot to Asia is right. But as Dr. Brzezinski and I were talking about last night, the coin of the realm in Asia is economics and trade. And so the real rebalancing we need in Asia, to be present in Asia for the United States, is economically and in terms of trade. And Asia is knitting itself together with a whole series of free trade agreements, and we’re largely on the outside. And that’s not a good thing for us; it’s not a good thing for Asia.

So I hope that the new leadership in China understands that the United States has an important role to play in stabilizing Asia and actually facilitating a peaceful rise, as they say, of China if China is willing to be – play a responsible part – role in the international system and respect the interest of its neighbors in a responsible way.

MR. KEMPE: We’ve run out of time. We’re down to the last couple of minutes. I’m going to ask a final question of these three gentlemen, and I would ask them to keep the answer really short – say, a sentence and a name.

The one thing about America, for those of who you who don’t have the misfortune of watching American television and cable television every day, is we don’t discuss a lot what our role in the world should be, but we do discuss a lot who is going to run in 2016 already.

So I was told by a Clinton insider that part of the reason that Bill Clinton worked so hard for Barack Obama is he knew whoever won was going to inherit a great economy and therefore get re-elected. So that would be a re-election of Romney, but since President Obama can’t be re-elected, it would mean the election of Hillary Clinton. And Nelson Cunningham, true or false? And then the quick answer for each of you is, who’s going to be the Democratic candidate in 2016; who’s going to be the Republican? And I’d ask each of you to answer that, if you could.

MR. CUNNINGHAM: Well, Fred, it certainly sounds like Bill Clinton’s thinking. It certainly sounds like the way he would approach things. I think he would view it as a tremendous vindication and legacy for himself to have Hillary run.

I have no idea whether she will. Anybody who’s seen her recently – and she’ll be the first to tell you this – she is exhausted. She is completely worn out. After 2 ½ years of running hard for president and then four years of being secretary of state, she is exhausted. But she’s going to take the next year to sit back and reflect, and I think after that year of reflection, knowing the Clintons, it would not shock me if she put her – threw her hat in the ring, and it would not shock me if she were the nominee.

MR. KEMPE: And any prediction on the Republican candidate?

MR. CUNNINGHAM: My own choice would be Jon Huntsman. I think he would be a terrific – I think he’d be a terrific representative for that set of values.

MR. KEMPE: Two Mormon candidates in a row. (Audio break) – see – (audio break ) – Congressman – (inaudible) –

MR. HADLEY: I have no idea. (Laughter.)

MR. TANNER: I don’t either, and that’s not my main concern right now. (Chuckles.)

I don’t want this – us to leave without, from my background, as former president of NATO Parliamentary, simply mentioning NATO because part of our foreign policy, whatever it is and wherever we have to go and whatever we have to do, I think will be in consultation with our allies in NATO because it is, after all, in my view, the only truly international organization with any ability at all to bring order out of chaos and to back it up with a military capability. The United Nations is a good place to go and talk and blow off steam, but it cannot do what only NATO, in my view, can do. So – as a footnote, Mr. Kempe, thank you.

MR. KEMPE: Thank you. This is a great round – the only thing I would say, Steve, is you saw a lot of the next generation of Republican leaders, very impressive group, staying on the sidelines this election, and you’re already seeing them come off of the – and so I think you’re going to see a real interesting ferment in the Republican Party that –

MR. HADLEY: You know, one thing – and it goes to the Hillary Clinton point – President Bush used to say, when it – when John McCain was running last time, rarely does the country go back to an older generation once it’s moved to a younger generation. So I think the action is going to be, both among Republicans and Democrats, that group of leaders in their 40s and 50s, not a group of leaders in their 60s. And I think we’re going to see a generational change here, and that’s a good thing.

MR. KEMPE: And I’ll just close with this. One hears – I travel abroad a lot – one hears and feels once in a while a lot of hand-wringing around the United States; we’ve been traveling with the National Intelligence Council around the world, but we still see a great hunger for American leadership, a very different sort, a more collaborative, more convening power of American leadership, but what we saw this morning in the energy presentation, what we’ve heard here, there’s – there is a regeneration and dynamism in this society, and – which I think that we’ve heard reflected today, reflected this morning.

I really thank these three gentlemen. It’s a very unusual kind of conversation for us to have at this summit, but I think it was a very timely and useful one. Thank you very much.


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