Obama's Foreign Policy: What Matters and What Doesn't for America's Future

• Introduction
• Remarks
• Questions and Answers

JOANNE MYERS: Good morning. I'm Joanne Myers, Director of Public Affairs Program, and on behalf of the Carnegie Council, I'd like to welcome our members, guests, and C-SPAN Book TV. It's great to see so many of you here this morning, and I thank you all for joining us.

It is my pleasure to welcome George Friedman to the Carnegie Council once again. As it is almost one year to the day that Mr. Friedman first addressed us on his best-selling book The Next 100 Years: A Forecast for the 21st Century, his appearance here this morning is living proof that history does repeat itself. This time taking us from where he left off—same time last year—he will go a bit further to discuss Obama's foreign policy and tell us what matters and what doesn't for America's future.

In the new preface to The Next 100 Years, Mr. Friedman writes that "when this book was first published, everyone thought we were living in unprecedented times, not only because of the financial crisis, but because of the election of Barack Obama, a president that many predicted would change the political game."

Only one year ago, Obama was featured as Time magazine's Person of the Year, and his Campaign of Hope was still on the minds of many Americans. Now, amidst setbacks ofn health care, the still-limping economy, and what some view as foreign policy failures, writers and pundits alike are taking swings at Obama's first year. Some argue that the problems are inherited from the last president, who left challenges across the board. Others say that he has spent nearly a year getting it wrong.

In reality, we are learning that politically nothing really unusual has transpired, and major changes, at least at this stage, appear unlikely. Still, President Obama's decisions, just as those of presidents before him, will leave an imprint on the national and geopolitical landscape for years to come.

In times present, as in times past, history tells us there are things that matter and things that don't.

Just what these things are may not be what you expect.

Starting with the premise that conventional political analysis suffers from a profound failure of imagination and common sense will be wrong, our speaker is quite adept at cutting through the daily chatter to pinpoint what events are important today, and then uses that information to make analytically rigorous predictions of what he sees as the likeliest developments for the future.

George Friedman is an internationally recognized expert and forecaster of security and global intelligence issues. He is the chief officer and founder of Strategic Forecasting, Inc., which is also known as STRATFOR by some and by others as the shadow CIA.

His reputation for producing thoughtful and genuinely engrossing analysis of international events daily are read by foreign government agencies and Fortune 500 companies. The articles run the gamut, from national security facing Obama's nascent administration, to information warfare and cyber-security, to the hierarchy of the Mexican drug cartels, and possible outcomes of the latest Pakistani-Indian tensions. As a reader, I can tell you that there is always something to be learned in perusing these reports.

The urge to predict the future goes very far back, to the oracle at the Temple of Delphi and to the names of Nostradamus and his gnomic quatrains. Today, surrounded by turbulent warnings, such as renewed threats of terrorism to mounting debt, you may be wondering whether you need to hear any more about what the future holds, and even asking yourself why should you pay attention to George Friedman. Well, if history is any guide—and it clearly is—the answer will soon be patently clear.

Please join me in giving a very warm welcome to a very special guest, George Friedman.

Thank you for joining us.

GEORGE FRIEDMAN: First, thank you for having me back and putting up with me again.

A year ago I came here and I tried to forecast the next 100 years. A chump's game, but one I can't lose—I won't be here when I'm wrong. But the reason that I did that, I explained then, was I was really not interested in policy, I was not interested in personalities. I was interested in constraints; I was interested not in power but in the limits of power.

It's extraordinary that I come to speak to you today when we are being delivered a clinic on the limits of power. Barack Obama is now president, and he is an extraordinary man. But every president is an extraordinary man. Out of 300 million people, the handful that crawl to that top have more in common with each other than they do with me. I could never be president. Besides the fact that I'm offensive, I could never be president because I don't want it, need it, wouldn't do it.

But these are men who would do it. In order to understand the presidency, you really have to understand the continuity between them—the continuity that may not be one of policy, but is deeply one of personality and a deep understanding not just of power but of its limits.

The American presidency is an extraordinarily weak institution in domestic affairs. Presidents may say they created jobs or be charged with losing jobs, but the fact is that the president is one institution sandwiched between the Supreme Court, which decided to reinvent American elections, and between a Congress divided by a House elected every two years (hence, constantly running for office) and a Senate elected every six years (almost indifferent to the prospect of running for office), with rules so complex and arcane that it takes at least three terms to begin to master them.

He does not control the economy in any vague sense of the term. He shares that with the Fed, which is quite independent and quite different, and a vast civil society, a private sector that overwhelms his decision making.

All of which was intended by the Founders. The Founders did not want a strong president. They wanted a president who could get things done only when there was, if not an overwhelming consensus, then certainly a general consensus. And we have to remember that Barack Obama won his presidency with over 47 percent of the people voting against him. There was this idea that there was a gigantic groundswell in the republic for Barack Obama, that he had swept everybody away.

But in fact his victory was about one point greater than Bush's was in 2004. He won, and he won handily, but he did not win overwhelmingly. And yet, he was so skillful a politician, and his supporters so avid, that they made a close election appear like an overwhelming one.

He now pays the price for this. The expectations were not merely that he would change things, but somehow that he had been endowed with powers that no other president had. He wasn't, and what he's experiencing now is about what you would expect. He will recover. Tales of his death are truly premature.

The one place that the president does have institutional power is in foreign policy. Part of it comes from the Constitution and the powers given to the commander in chief, and part of it comes from tradition, where tradition and law have kind of combined to make him the foreign policy czar, if you will. As weak as the president is domestically, that's how strong he is internationally. And so we would expect that, unlike his domestic politics, mired in the complexities of the institutions that our Founders left us, his foreign policy would be bold, decisive, and so on.

What is most striking one year in is that his foreign policy is to a very great extent indistinguishable from his predecessor's. This is not surprising, because in fact the hand that a president plays is always the hand of his predecessors.

People say, "Well, he's having these problems because of George Bush." Well, George Bush had his problems because 9/11 happened, and 9/11 happened because Bill Clinton followed a policy toward al-Qaeda, and Bill Clinton followed his policy toward al-Qaeda because George Bush Sr. followed his policies toward Iraq, and so on in the infinite braid that our Founders wanted to see.

But it is possible now, after a year, to begin to see something which has nothing to do with Barack Obama. It is to see the constraints on a president operating in a world. It is to see the limits of personality, to see the limits of choice, and, above all, to see the limits of policy. I could never make this speech in Washington, whose main product is public policy, endlessly. But in fact, what we are experiencing here are the limits of policy and the external forces that shape the president.

According to Cecil B. DeMille, the Pharaoh used to say, "So let it be written, so let it be done."

And every president is waiting for that moment. He can write all he wishes. Whether it will be done the way he wishes is another matter.

Let's take a moment to consider how Obama ran his campaign on foreign policy and let's spend a little time thinking about what his basic arguments were, because he ran his campaign less against John McCain than against George W. Bush—not a bad strategy. He had three criticisms of Bush.

• The first was that the Iraq war was unnecessary, that it was a mistake, and that it created problems that the United States didn't need to have.
• The second argument he made was that the right war that the United States should be fighting was in Afghanistan. This is where al-Qaeda originated, this is where the threat appeared, and the time spent in Iraq was taking away from Afghanistan.
• And then he made a third argument, which I think was at the heart of his presidency, which is that Bush would not have made the mistakes he made had he embedded himself in the traditional American alliance system. Had he, instead of charting his own course, engaged our traditional allies, had he not been unilateral but multilateral, he would have had more international support, he would have been more effective even if he had chosen to go into Iraq, and, above all, he would have been guided away from the errors he made.

When he spoke about our traditional allies, Obama meant the Europeans, and when he meant the Europeans, he really meant the Germans and the French. And even back in his campaign, Obama chose to campaign in Berlin. That was really an extraordinary thing that he did. But he was trying to transit something to the American public, which is that Bush had led the United States into isolation internationally, and he, Barack Obama, wanted to end that isolation, to restructure the relationship between the United States and the rest of the world, by which he meant frequently the French and the Germans. But that's the heartland of Europe, so that's not necessarily a bad thing to want.

Barack Obama became enormously popular in Europe, to the point where even the Norwegians had heard of him and gave him the Nobel Prize. And his Nobel Prize, the way it was cited, was extraordinary, because it wasn't about peace; it's that he changed the image of the United States, and by changing the image of the United States, it changed the way the world worked, which was a concession by the Norwegians of the enormous power of the United States, since the new Italian prime minister was probably not going to have that effect on the world. But it also indicated a great hope in Europe at the arrival of the new American president.

The new American president went to Europe, and he went to Europe in the midst of the financial crisis, and the Europeans came here in the midst of the crisis. The cacophony was overwhelming.

What the Germans wanted and what the Americans wanted were miles apart. What the French wanted, to the extent it could be deciphered, was neither what the Germans wanted nor what the Americans wanted. And nobody can even discuss the PIGS, which is the Portuguese, the Irish, the Greeks, and the Spaniards, whom everybody is discussing now. That's a phrase they actually use, the PIGS.

In his first discussion with the Europeans, he discovered there is no Europe there. There are Germans, there are Irish, there are Poles, and if you put a Pole and a German together in a room you get 300 years of bitter history, but certainly not a coherent foreign policy.

It was not that Obama didn't know this, but he understood Europe as binding itself together in a way that it really wasn't binding itself together, because Europe is today a very inward place and, I would say, a very parochial one.

It is engaged in a tremendous experiment: to bind Spain and Poland into some sort of federation that goes beyond mere self-interest, that goes beyond mere problems of the moment. I'm pessimistic about this, but I have the right to be. If the American republic endured, anything can endure.

But certainly this is a time in history where Europe's energies and efforts are inward. They would not admit that they were inward, for they regard themselves as the great internationalist entity; but then there are people who regard foreign trade as being between Belgium and Holland.

The inwardness of Europe is an intractable fact. They have no appetite for adventures outside of their sphere, partly because of the terrible history of World War II, partly because this terrific institution, the European Union, which is in part designed to constrain Germany, and partly because the Germans are bursting out of the bounds of their constraints. They have problems, and they don't begin in Kabul.

When the president went to Europe looking for support, not for Iraq but for Afghanistan, he found that the Europeans gave him the same answer they gave George Bush: "No. We will give you some support. It will be limited support. We will not restructure our national and international polity for this effort."

Europe and Obama misunderstood each other. Obama said, "I am far more likable in Europe; therefore, the Europeans will do things for me they wouldn't do for Bush." The Europeans said, "We like you much more than Bush because you're not going to ask us to do things that we don't want to do."

Until he became president, it was a grand love affair. As he became president, the love affair is still there—he probably has higher ratings in Europe than in the United States—but the ability to craft a coalition that will actively involve itself in the war that Obama selected, Afghanistan, isn't going to happen. No matter how popular Obama is in Europe, no matter how committed he is to multilateralism, the German national interest, for example, does not extend itself to a massive national commitment to the future of Afghanistan. The Europeans don't read 9/11 as the Americans do, they don't read al-Qaeda as the Americans read it, they don't have the same interests.

Therefore, all of the policies that Obama crafted, all of these ideas that he put forward, were both genuinely enthusiastically greeted, and the American image changed, but the answer was still "Nein" or "Non" or whatever.

The Germans are struggling now. "Well, we can't give you 1,500 troops, but possibly we will give you 500, and then perhaps not. Check with us in a month."

We should not be shocked by this. The national interest of all countries supersedes subjective pleasures and likes and dislikes, and this is the case there.

We saw something very similar in Russia. We all remember the reset button. When Hillary Clinton went to Moscow, she carried with her a little box that was supposed to say "reset." It didn't say quite that; it said something else. It was kind of cute. The idea was that "All of that nastiness that went on between the Bush Administration, let's reset it."

The Russians were utterly appalled. "You want to reset to what? To the Orange Revolution? To 1998? What are we resetting to? We haven't liked the past 20 years. Yes, we had better relations with the Americans in 1996, but we also couldn't pay our transit workers. We don't want to reset. We want to move forward."

And unlike the Europeans, who at least pretend to be polite, Frau Merkel notwithstanding, the Russians didn't even try. The Russian position, as stated by Putin, was that the fall of the Soviet Union was the greatest geopolitical catastrophe ever experienced, because it was the collapse of the Russian empire. Russia had once been poor but a great power. Now it was no longer a great power and even poorer. The sum total of the benefits were nonexistent.

From the Russian point of view, reconstructing something like the former Soviet Union, with different institutions and different ideology, was essential because Putin's economic policy was not to be an industrial power any longer, but to focus on the export of primary commodities—not just natural gas and oil, but grain, wood, gold, diamonds, what have you. In order to do that, in order to have a control of the exports, the Russians needed to have very close relations with places like Kazakhstan or Azerbaijan. In order to have a grain policy, the Russians needed to have a close relationship with Ukraine. And these economies fit together through 200 years of misery and toil and everything else.

The United States' declaration that these independent countries do not have a primary relationship with Moscow but are free to have bilateral relations with anyone, and the West is free to expand NATO into the Ukraine and Georgia, struck the Russians as a direct attack on their national security. It would be as if Texas were suddenly to be part of the Warsaw Pact. There would be agitation in Arkansas.

But if you look at a map, you will understand that the idea of Ukraine being part of NATO would be terrifying to the Russians. To which the Americans answered, "Hey, what, are you guys paranoid? What's the big deal? NATO's not a military alliance; it's just a club." To which the Russians said, "Great. Let us in." To which the Americans said, "No." But that was because Bush was a boor.

Obama made a gesture. He took the ballistic missile defense system out of Poland and put it on ships. The Poles said, "Oh, my God, you're France and you're betraying us once more."

The Russians said, "Cute. Now what?"

Obama expected some sort of enormous response to what was in effect a militarily minor move.

From the Russian point of view, Obama was continuing Bush's policies to the letter, which was having managed to destroy the former Soviet Union, the United States now intended to extend the encirclement by surrounding the Russian Federation not only in the Baltics but in the Ukraine.

To understand the Russian position, during the Cold War NATO was 1,000 miles from St. Petersburg. Today it is 90 miles from St. Petersburg. And what the Russians are told is, "It doesn't matter; we're just a club of nice people." And the Russians say, "Then why don't you change your charter and get rid of your military committee?" And the Americans say, "We don't need to change it. We already have the Germans and the French and they don't have any military. So it doesn't matter." That really is things that have been said.

The Russians don't get it. The Russians don't trust it. It is not in the Russian national interest to permit this policy to continue.

And the United States has given the Russians a window of opportunity. That window of opportunity is the deployment of American forces in Iraq and now in Afghanistan meant that when the Russians went to war in Georgia it was difficult for the United States to scrape together a brigade to deploy.

The American forces are stretched thin.

The invasion of Georgia was meant to deliver a single lesson to the former Soviet Union: "This is what an American alliance gives you. This"—as we used to say, showing my age—"and 35 cents will get you in the subway."

The Russians saw the Ukrainian situation as deadly to them. Not accidentally, we've just held an election in the Ukraine, and both candidates are pro-Russian. One of them, Madame Tymoshenko, wasn't pro-Russian and discovered later, "Yes I am." It is clear that the game is over.

Could the United States have played it differently? Could it have given the Russians what they wanted? Certainly, by totally destabilizing the American position in Eastern Europe, driving the Balts completely up the wall, and probably the Scandinavians next to them; destabilizing the Caucasus, making the Turks go slightly nuts; and so on.

This was possible, to reset the button. Reset it to 1995 and you've got the Russians going crazy. Reset it to 1985 and you suddenly discover that Bush's policy wasn't simply the fact that he was an unpleasant man—he may well have been—but it was constrained by reality.

Could the Russians have said, "Well, we don't really mind if Ukraine is part of NATO"? Only if you don't have Russian history, where in 1932 Germany is weak, prostrate, and helpless and in 1938 it's at their throats. The Russians are aware how quickly benign military forces turn malignant. They play the worst case.

In both Europe and in Russia we see the limits of policy and the limits of intent and, above all, the limits of goodwill. For all the goodwill in the world—and I give it all to Obama; it was a matter of goodwill on his part—in the end, when the things have to be done to genuinely forge a relationship with the European Union, he could not help himself but to ask for things that the Europeans could not give under any circumstances. When it came time to reset relations with Russia, he could not make the concessions that the Russians had to have, and the Russians could not make the concessions that the Americans needed to move forward.

When we look at the Arab-Israeli conflict and the very telling point that he made last week, which is, "This is more complicated than I thought it was going to be"—he really should ask Rahm Emanuel about these things—you see again the intractability of American relations overseas. You see that it is not a problem of a stupid man without good manners in a world that is waiting for a nice American president. You see that the disagreements are profound, they are real, they are intractable. To the extent that they are manageable, they are manageable only painfully.

You see in Iraq that the basic policy that was in place once Bush invaded remained in place once Obama took power, which is withdraw slowly, moving to the door carefully, hoping no one notices, before the civil war starts again. "Whoops! Almost made it."

In Afghanistan the strategy is, as was self-evident from the beginning, not to win the war, but to set the stage for negotiation with the Taliban. That would buy a decent interval before Karzai was shipped to Palm Springs.

But the problem is that the Taliban knows that the United States will leave. And even if the President hadn't said that—that's a red herring—they knew that he was leaving, that next door is a country of 180 million people that, shockingly, does not want to have a civil war to pull the American chestnuts out of the fire in Afghanistan. You know, our idea for Pakistan is: "Why don't you wage a full civil war and we'll like you for it?" And the Pakistanis said: "Let me think about this. No, of course not." If you are the Pakistanis, you're trying to hold your country together, not make the American exit from Afghanistan elegant.

Across the board what you see is the impersonal character of foreign policy.

In domestic policy the president is limited by the institutions that were created by the Founders. He doesn't control Congress—no one controls Congress—he certainly doesn't control the Supreme Court, he doesn't control the Fed, and he absolutely doesn't control the Fortune 500. America is far too complicated a place to be governed by a president. And the Founders didn't want him to be powerful; they wanted it very difficult to pass bills. And boy, they succeeded.

In foreign policy, where you expect the president to be extremely strong, you find him limited by something else: other nations with different interests who understand what those interests are and are not going to be swayed by good fellowship.

That overstates what he was trying to do. He was trying to turn the clock back to the time before the United States was a major power, to the time during World War II when it was regarded as a savior, not to the period after 1991 when the United States was the only global power in the world, where one dollar out of every four produced in the world was produced in the United States, where the United States was both the largest foreign investor and the largest target for foreign investment, the biggest borrower and the biggest lender. He was trying to push the clock back to a simpler time, when Britain and France and other countries were much stronger than the United States.

You cannot be the United States and be loved. Machiavelli asked the important question: Is it better to be loved or feared? He should have asked a second one: Do you have a choice?

What we see in the Obama presidency is a laboratory, not only of the limits of power, which has become a banal term, but on the constraints operating on decision makers and policymakers, and how profoundly little control we all have on the process of the international system, and how little it matters how we want the world to be.

There are many people who want to make a difference, and in small ways they can. But the idea that a new president will come in and reshape the world he inherited, that is difficult to do.

And as I said, this is not Obama's problem. And I suspect it is very fortunate that he lost the election in Massachusetts. Most presidents wait until the first by-election to realize they're screwed and then reinvent themselves, like Bill Clinton did and Ronald Reagan. He's lucky. He knows he's screwed now. This gives him more time to fix it up.

But now we come to the really important question that I'll leave you with. President Bush's policy on Iran was make terrible-sounding threats and do nothing—but the best policy we could have under the circumstances.

Because of Russia's relationship to the United States, the time in which sanctions can be meaningfully imposed has probably passed. The Chinese didn't even send a senior delegate to the last round of talks.

The president must now make a decision. He's off the map. Is he going to accept a nuclear Iran or is he going to take some sort of military action? It is truly coming down to that.

But again it's not that simple, because the question is: What will the Israelis accept? Confronted by the possibility of an Israeli attack that might fail, for which we will be blamed equally by everyone and privately praised—"Thank God you got rid of the bomb"—isn't it better that we do it ourselves?

But even there, where he finally faces a fresh and new choice, we are dealing with the question of: Does he really have a choice? Can the United States live with a nuclear Iran? Will the Israelis permit us to? And even here, where the issue is new in a way, it's not an issue that he controls.

Let me stop there and ask for questions.

QUESTION: What constraints on power through history and at the present time are imposed by the underlying economic and financial base of conditions?

GEORGE FRIEDMAN: Well, obviously, they're substantial. One of the questions is whether or not the recent financial crisis created a new reality or was simply a repetition in a very old game.

From my point of view, this the fourth time in the post-war world where the financial system failed and either a federal or international bailout took place. The first was the municipal bond crisis of the 1970s, the bailout of New York. The second was the Third World debt crisis, the creation of the Brady Bond. The third, of course, was the collapse of the entire savings and loan system. The fourth was the collapse of the investment houses, which was the noisiest for a very simple reason: when the savings and loans in Minnesota went downhill, the people on CNBC, or the equivalent, came from these investment banks, who figuratively smoked their pipes and said, "We must put this in context."

The same in the Third World debt crisis. Now the people are the same people being interviewed, but they just lost their jobs and had their 401ks smashed.

Part of the extravagant excitement over this was the fact that we weren't benchmarking this financially. The S&L bailout was a $650 billion bailout, at a time when that was still real money. The Brady Bonds, the international bailout of Third World debt, as a percentage of GDP was enormous.

So the answer to your question is the financial situation has a great deal to do with it, but you must first figure out whether you've broken out of a cycle, a cyclical process, or whether you are truly in new territory. It is the tendency of the financial markets to constantly announce that what we are dealing with is unprecedented.

When I look at this fourth terrific crisis we had and I compare it to the consequences of 1982—when interest rates were at 22 percent on mortgages, inflation was over 10 percent, and unemployment was 11 and 12 percent—I'd say this is a pretty bad recession, second worst since World War II—maybe third, depending on how you look at the 1970s.

So I would say that we have had a fairly stable platform in the international system since World War II, and that system hasn't broken down. I realize this is not the conventional view. But when I take a look at the system, I don't have to pay a great deal of attention to it because we haven't had a breakout cycle. We've seen this before.

QUESTION: What can you say about the constraints and opportunities, if there are any, with respect to China, and how does that fit into the overall picture of financial recovery or failure to recover?

GEORGE FRIEDMAN: Well, China is one of those that argue it has broken down.

The United States and China are in a strange dance. The Chinese are utterly dependent on the United States, as well as on Europe, for the export of their goods. They cannot sell them domestically.

Some Chinese government statistics: 1.3 billion people in China; 600 million of those people live in households where the total household income is $80 a month or less; 440 million live in households where the income is between $80 a month and $160 a month. China is an extraordinarily poor nation.

The part of China where the household income is over $20,000 a year, which is a global benchmark for middle-class life, is 60 million. That's France; that's a large country. But in a country of 1.3 billion you have 60 million whose primary economic relationship is outside of China.

The greatest threat to China is the American savings rate. If the American savings rate moves to the level that some have thought it would move to, 5 percent, a substantial portion of that, because of the way it's distributed to the lower and middle classes, comes out of Walmart, and anything that comes out of Walmart comes out of China's hide.

In most countries that would mean, "Well, we'll close some factories." In a country where illegal immigration internally is of people making $80 a month, unemployment doesn't hit your 401(k); it raises the real question of starvation. Therefore, the Chinese are doing what the Chinese have to do now, a massive security crackdown in the entire country, taking control of all telecommunications, being very aggressive in arresting dissidents and breaking up any organizations, because the Chinese know something that others may not, which is they've got problems, and they're reacting rationally.

This Google business is a very interesting one, because the Chinese have the choice of saying, "Oh what the heck, have some porn sites." The Chinese aren't worried about the porn sites. They are worried about the kind of information getting in to destabilize the country.

So China, in my mind, is an outlier. How it manages this crisis, with the kind of demographic it has, is a mystery.

And then, the interplay between it and the rest of the world is another very serious question.

So one of the things about any financial crisis is the disproportionate effect it has on some countries.

The countries that were really hit in the last one were countries like Iceland, whose national worth was two herrings, and the major industrial exporting countries, particularly China, which was very badly hurt in this.

QUESTION: I'd like to ask you about the supposedly special relationship between the United States and the U.K. Before Obama announced his decision to send extra troops to Afghanistan, Gordon Brown even gave special cover by announcing he was going to increase the number of troops. It has been rumored that Obama has personalized this relationship in some way because of treatment of his grandfather in Kenya. Is there anything to this?

GEORGE FRIEDMAN: If it had been a different relationship than Bush had with Blair, I'd say that's an interesting story. But there's a continuity in British foreign policy. Historically they're worried about the continent and historically they want to keep their options open. British economic and military strategy is to keep one foot in Europe and one foot firmly in North America, and this has been a policy that has been followed since Churchill.

There is always a personal relationship between the American president and the British prime minister, and that's particularly fostered by the British prime minister. He does not want to be in the position that France is in relation to Germany. So there are good geopolitical reasons for this.

I don't know that he helped Obama—he may have; I suspect Obama could have helped himself if he wanted to—but I do know that there is great continuity going back for several generations in the special American relationship with the British and vice versa.

QUESTION: Michael Mandelbaum, the former advisor to Bill Clinton, has written The Case for Goliath, saying the United States has to assume a major role in foreign policy in the world, as to a large extent the world's government. And former Singapore Ambassador Mahbubani has written that the major mistake that was made by the first President Bush was, in the aftermath of the collapse of the Soviet Union, to position America as just another of the world's nations, and he said this was a horrible mistake. What do you see as the pros and cons of American functioning as in fact either the Goliath, the world superpower, the policeman of the world, and what everybody says about the limitations because there's such a resentment to it, but there are some advantages?

GEORGE FRIEDMAN: Advantages or not, it's what we are. We control 24 percent of the world's economy, all the world seas. We're a deindustrialized power, so American industrialism is only larger than China's and Japan's combined. We're an extraordinarily large country—a 1200-pound gorilla, and we're clumsy, and we don't have to be careful because they're smaller than we are.

The problem that we have is not whether we want to be Goliath or not. We are Goliath; how do we plan to behave?

You can't decide not to be as powerful as the United States is. That's not a president's option. You can't pretend that the United States is just another country and we'll get together with the Argentines, shoot the bull, and kind of decide what to do. You can pretend that if you want, but nobody takes you seriously.

Power consists of military and economic realities, and the realities are extraordinary.

I'll give you one example of just how big the United States is. The American economy is 3.3 times the size of the Chinese economy, $10 trillion bigger. The U.S. economy grows at 2.5 percent a year on average, back and forth. For the Chinese to keep even with 2.5 percent growth in the American economy they have to grow 8.25 percent—just not to fall behind. Anything below that and they fall behind.

It is structurally difficult to undermine American economic power. So the answer to that is not the question of should we be the world's leading power; it's as the world's leading power what do we plan to do about it? And because we're so powerful, we can be careless.

QUESTION: What do you think of Obama's plan of taxing financial institutions?

GEORGE FRIEDMAN: He's got to tax somebody. Better them than me.

You know, the answer is—I don't really know the econometrics. I don't believe anybody knows the econometrics because I don't think anybody really knows what he's taxing or how he's going to do it.

I think the reset button in the White House went on the other day and everybody's sitting down and thinking things over again. So my view on that is if it ever happens I'll think about it.

But count on one thing in an economic crisis: you're going to get bad policies. And count on the other thing: we'll survive it.

QUESTION: What do you think of McChrystal's position on the Taliban?

GEORGE FRIEDMAN: It's hopeful. It's hopeful in the sense that McChrystal understands that a military victory in Afghanistan with the forces we have available is not going to happen. He is trying to recreate the process that happened in Iraq, when after the American surge, which was kind of a trickle, this convinced the Sunnis to come out and negotiate publicly with the United States.

The problem is that the Sunnis were afraid of what would happen if the United States left; that is, if the United States left, the Shiites might turn on them and a bloodbath. They had a motive.

The Taliban doesn't have the same motive. The motivator there is not merely the presence of the United States, but the fear of the actor. So Taliban is the one that won the civil war in the 1990s fair and square. Their read of the situation is once the Americans get out of the way they'll win again.

There's a pretty good case to be made for that.

The Taliban may agree to negotiate, to create a decent interval, but the Taliban isn't even that disposed to give us a decent interval. They'd like to win the way they won in their minds against the Soviets, the mujahidin.

So I think McChrystal has executed the best conceivable policy.

Now, we also have to remember what McChrystal said. The policy we had was a no-hoper, couldn't win. The policy he proposed is not one which will certainly succeed; it's just a better policy than the previous one. I think that's quite correct.

As to what happens to Afghanistan, it is increasingly a decision to be made by the Taliban and, I suspect, by elements in Pakistan, than it has to do with our military operations on the ground.

QUESTION: I guess I'm back on Afghanistan. We seem to be stuck there. But if you take the long historical view and you were king for a day, what would be wrong? Wouldn't there be tremendous benefits for having 1.5 million People's Liberation Army troops put into Afghanistan? It would encourage the Russians to think more clearly, encourage the rogue states like Pakistan to think more clearly, and it would also have certainly an influence on Iran.

GEORGE FRIEDMAN: If the Chinese were crazy enough to do that, yes. I mean these are all things that it could achieve, none of which the Chinese care much about.

The Chinese learned a lesson in Korea: power projection is scary. It looks good. But they lost about a million people. The Chinese have been enormously cautious. To push 1.5 million troops over the Hindu Kush, keep them supplied, keep them motivated, keep them from fleeing to Brooklyn—these things are all enormously difficult to achieve. And so I would say that in a moment of madness the Chinese chairman may agree to that. He will immediately be taken away and medicated.

QUESTION: I'm going to ask a very simple question. I think you've already indicated that foreign policy is essentially not made in foreign ministries, at least not all by itself. So my question is: what's going to happen in Davos?

GEORGE FRIEDMAN: There will be speeches. [Laughter]

What I'm looking for—last year Erdogan staged a hysterical outburst that the Israelis were quietly informed beforehand was going to happen. I thought that was in very good taste.

There's always something that comes out of Davos. I just heard that the Iranians are going to be sending a delegation to Davos. God knows what will happen.

Essentially what will come out of Davos is a bunch of people restating their positions, appearing enormously more reasonable than they really are. The New York Times will publish meaningful op-ed pieces about the possibilities that have opened up in Davos that everybody will go home and forget about.

QUESTION: I'd like to respond to the question at the end of your speech. It was can we live with a nuclear Iran. We lived with a nuclear Soviet Union, Britain, France, India, Pakistan, Israel. So I would say yes, of course, we can live with a nuclear Iran.

The most prominent effect of having nuclear weapons is that it tends to moderate policy, it tends to make people think very deeply because of the tremendous consequences of the use of nuclear weapons. I should think that the Iranians, just like the Chinese or the Soviets or any of the other nuclear powers, it would have that same effect on them. The consequences of using a military attack against Iran to try to deprive them of nuclear weapons it seems to me would only slow it down and would be catastrophic for the United States.

GEORGE FRIEDMAN: I tend to agree with you. But there's another dynamic at work that goes like this. I think the primary reason the Iranians want a nuclear weapon is regime survival; they want to guarantee their regime.

From Israel's point of view, the existence of an Iranian nuclear weapon could potentially represent an existential threat to Israel, just by the map. Will you bet your nation and your children on the intentions, the proper intentions, of Iran?

The United States was in a position to handle the balance of terror not only because it had counter-terror, but also because the United States is very large. A rogue launch by a crazy missile officer may take out Chicago, but the republic survives.

When the Israelis look at the problem, they ask two questions. Your and my view of the sobering effect of nuclear power may well be the case. What will I bet on that? Everything? Which is the more certain course for my children growing old, accepting that bet or taking preemptive action? So you have one player in the game, Israel, with a much narrower tolerance for risk than any other potential target has had in the past.

The unknown factor is not what Washington wants. I think Washington has made the decision that the risks and the costs of an attack on Iran are too high. And the reason it's too high is not because it's not militarily executable—I think it would be put back quite a bit more—but because the Iranian response will be threefold: unleashing Hezbollah, a pain; destabilizing Iraq (they're already saying, "Hi, here we are"); and mining the Straits of Hormuz. When they mine the Straits of Hormuz, we've done a very careful calculation of the cost of oil, and it comes out at lots.

When the United States takes a look at the counters that Iran has, it's a no-brainer: let it go. When Israel takes a look at the same equation, they come up with a much more complex and difficult answer.

In this particular case, Israel does not have the military capability of taking out Iranian nuclear weapons. Ask an Israeli; they're supermen. The reality is the Israeli air force can't conduct a multi-week campaign. They can, however, launch nuclear weapons.

The threat of Israel launching nuclear weapons will push the United States into an impossible position. They would rather carry out the attack themselves than have that happen. So the problem that American foreign policy has at this point—you and I share a very similar viewpoint on the Iranian weapon. The Israelis may not—I won't say "won't" because they're debating it. If the Israelis push the envelope in this, the United States will have to make decisions having nothing to do with the wisdom of an attack, but the consequence of an Israeli attack in the form it might take.

So once again, the national interest of one of the players as perceived by that player, which is not necessarily an irrational perception, creates dynamics that may go out of control very fast.

JOANNE MYERS: Well, once again I have to thank you for giving us a wonderful analysis and hope you'll come back next year.