Barack Obama – A Choice out of Fear and Hope

In early summer, I thought that if the Americans were afraid, they would choose Senator McCain, and if they were confident, they’d choose Obama. Now Obama has won the presidential elections, and the reasons for his victory are probably much more mixed – a combination of both fears and hopes.

We’ll never know how things might have been if the financial crisis had struck shortly after the presidential elections. But it’s probably fair to say that Senator McCain’s chances to win the presidency would have been much greater if it hadn’t happened in September.

President Ronald Reagan probably didn’t win two terms in office because most Americans (or even just a majority of those who casted their vote at all) were in love with America’s or the global financial system. But as long as it seemed to work, there weren’t too many people who’d fundamentally question Reaganomics either. Even in 2004, social injustices suffered by millions of Americans wouldn’t weigh as heavily as the fear of getting hit by a hijacked airplane. This time, the possibility of foreclosures, job loss (and loss of health insurance along with it), and probably the chance that America could lose its global standing looked far more real than four years ago.

So it looks to me like if most or many of the elders and middle-aged who have chosen Senator Obama last night did so out of fear, rather than out of hope.

But last night, when Obama got ahead in the first battleground states, dreams and realities started to merge for a while. It had been a long way coming, and the way a relative outsider had his way against the “Clinton machine” a few months ago had been spectacular already. And last night, many Obama’s supporters reaped their success, after many months of active support. Just as they had made his nomination possible, they went to the polls yesterday and put their final seal to an orderly and proud revolution. It’s hard to see any other president-elect in history who could tell his supporters with as much reason as Obama did that last night: I will never forget who this victory truly belongs to — it belongs to you.

Now begins the delicate phase where a revolution ends and where government gets started. Will Obama govern from the middle?

Maybe this depends on from the middle is now. It isn’t where it was before the financial crash. What would amount to a “radical approach”? If health insurance for every American is radical, it should be radical government. There is a Democratic majority that probably allows for that (if the Obama administration handles things right), and the least most of Obama’s active supporters – those who spent as citizens, not as corporations or lobbyists – will expect nothing less than health insurance for everyone who wants to have it.

Then there is the question if reforms in health care or education should be financed by re-shifting the budget, or by fiscal policies, or by more deficit spending.

In the short run, it may be a mixture of all these measures. And here, factors outside America come into play, too. Will countries like China or Japan back more American deficit spending if they consider it a good investment? *)  Would quality education and a more competitive American economy be in the interests of investors from the Far East and elsewhere in the world? Would the right political projects make America increase America’s creditworthiness? That could be the case, if all that matters is a medium-term return on investment. In China’s case however, strategic considerations may still make China’s stakeholders say No, even if a Yes would make economic sense – because China’s political leadership will have the last say there, and a reinvigorated American society may not be in its interest. After all, in their books, this should become the Chinese Century.

Then there are the tools of reshifting the budget, and fiscal policies. Heated negotiations within NATO  (and a quick end to exaggerated European expectations to America’s new leadership) will be inevitable, if the new administration wants to save on military spending, and its allies to do their part. Europe’s own military spending, absolutely and proportionally, is much smaller than America’s so far. And for obama’s fiscal policies, there are already gridlines of orientation for what to expect.

Governing from the middle may be a good roadmap for America. It will just depend on where the middle is. It isn’t where it was when Bill Clinton took office in 1993. That’s pretty sure.

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*) I chose a definition of the term investment which is probably unscientifically broad (my apologies to Hermit). What I want to say when using it is that there are foreign stakes in the American choices, too, and that they are both about global business and global politics.

9 Responses to “Barack Obama – A Choice out of Fear and Hope”

  1. There are some inherit dangers in Obama’s proposed economic agenda:

    Injecting money into the economy through public projects (for education, health care or environmental protection) will be a good way of creating jobs. But how is the US government going to pay for them?

    Shifting tax burden to the wealthy, rolling back deregulation and renegotiating free trade agreements are all good for the long term health of the US economy. But right now it is just not the right moment for them. If handled improperly, all of these measures will have the potential of discouraging investment and further inhibiting growth.

    Basically, Obama needs to come up with a plan to stimulate economic growth, while at the same time he has to watch his spending so that America will not end up bankrupt. It is an impossible balancing act.

    I’m not a fan of Reagan style economic rationalism. But McCain’s proposed tax cut across the board and limiting of government spending are the way to go in this kind of economic climate. Obama’s initiatives are only good when the country has some money in reserve (hence countries like China and Australia can use public spending as a way of stimulating growth). Right now I am afraid it is just not the right thing to do.

    The neo-cons are not completely mad when they first claimed that the financial crisis will work in McCain’s favour. It’s a pity that McCain failed to sell his policy. So from what I can see, many voters choose Obama because they no longer trust the Republicans.

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  2. I think we’ll still get a lot of information about as to why it’s Obama and not McCain. But as for the feasibility of Obama’s plans, I think I can sort of make a case from my own resources.
    It was a policy of excessive deregulation on financial tools that led to the crash. De-industrialisation was another measure of Reaganomics. It was also part of Reaganomics that tax break for America’s upper tier should trickle down on the rest of the population and help push domestic demand. As we know, that kind of demand only worked because it was imported, and therefore affordable for people with small incomes. A trickle down it was not. And we have learned – long ago or in September – that this approach was no sustainable way to boost the economy.
    Wealthy people will spend, even if they see a moderate increase in their taxes. America’s lower tiers would have little to spend with Senator McCain’s ideas, and tax breaks on your health insurance (like suggested by Senator McCain) would only help those who can afford health insurance anyway.
    In my post above, I’m pointing out three possible tools the incoming administration could use to put some of its plans into practise (there will be compromises between plans and reality for sure):
    – re-shifting the budget, or
    – by fiscal policies (taxes), or
    – more deficit spending.
    The last point would depend not only on the Obama administration’s decisions, but also on how the rest of the world – America’s creditors – would view that approach.
    Those would be short- or medium-term measures rather than long-term remedy (given that the new president will need some success before the mid-term Congressional elections). The long-term remedy will be education and a modest degree of re-industrialisation on a technological level that warrants reasonable incomes. I don’t know the Dems educational plans in detail, but have heard it mentioned by Dems much more often than by Reps during the campaign – and a panel of economists polled by the Economist gave Obama’s educational plans much better marks than McCain’s.

    IC good prospects for the incoming administration and the Fed to find common ground for a “New Deal”. Bernanke is there to stay, and this banker (who is also an economist) has the nerves to mention such dirty things as shop floors!
    “Benefiting society as a whole, educated individuals are more likely to participate in civic affairs, volunteer their time to charities, and subscribe to personal values–such as tolerance and an appreciation of cultural differences–that are increasingly crucial for the healthy functioning of our diverse society. (…) The state of technology is affected both by the creativity and knowledge of scientists and engineers engaged in formal research and development as well as by the efforts of skilled workers on the shop floor who find more efficient ways to accomplish a given task.” (Bernanke)

    So if I may act as an optimistic little Mr Echo today, I believe there will be an economic and social revival program in two steps during the coming four years, minding both the need to satisfy urgent needs and intermediate requirements. America is in hospital, but far, far away from the morgue. There are still choices to be made.

    Reaganomics, as far as I can see, wasn’t rational at all. George Bush sr. correctly labelled it “voodoo economics”, although neither he nor Clinton dared to act according to their knowledge.

    It’s time now.

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  3. The national debt situation was the main reason why George Bush senior and Bill Clinton couldn’t act on their knowledge. Since then the piling up of national debt is at unprecedented rate. Obama’s election victory may have changed many thing. But he can’t make a slump caused by too much debt to disappear.

    The bad news for the USA is that I’m not the only Ms Nobody who is skeptical about how long this Obama feel good factor will last; many financial analysts outside of the USA are also painting a bleak picture when commenting about the US presidential election results. Bill Bonner’s article at the Daily Reckoning is a good example.

    http://www.dailyreckoning.com.au/give-us-obama-americas-voters-spoke-yesterday/2008/11/06/

    Here is another gloomy analysis by Dan Denning at the Daily Reckoning, also focusing on America’s debt situation:

    http://www.dailyreckoning.com.au/debt-default-us-government/2008/10/21/

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  4. Hehe. Know what? If I wanted to write something very gloomy, I would choose precisely this topic – because it is gloomy. But that doesn’t mean that there are no more options to use – though not as many as in 1980, when Bush sr brought his voodoo verdict, and not as much as in 1993, when the accumulated US deficit was already several times larger than in 1980. But no creditor back then would have doubted America’s creditworthiness. That’s probably why the reckless party went on with the Bush jr administration, even though the idea that you can increase tax revenues by tax cuts had long been falsified by experience. Actually, taxes were moderately increased during Clinton’s term – and we know that it didn’t do economic growth any harm. What Clinton didn’t care much about was rebuilding stock exchange supervision and to make sure that any debt could be traced back to the original debtors. Voodoo-economics refers to the tax and budget policies, not to private and commercial debts, and the way they are traded.

    The incoming administration has a number of options. It can develop public investment projects and discuss them with America’s creditors. It can reshift the budget (from defense spending to subsidies, there is leeway for cuts on spending). It can increase taxes for the upper tier incomes to finance such projects – my gut feeling tells me that they will address health insurance first though and shelve much or most of the national infrastructure projects they originally planned, too).

    “Nor is it possible to save a man from too much debt by giving him more credit.” (Bill Bonner)
    I got that quote from this link right to today’s main page of dailyreckoning – the two sub-pages above aren’t accessible at the moment, but I guess this here is the story you referred to.
    This line about credit (which sounds very logical indeed) is wrong for two reasons. For one, you can actually help a swooping national economy by lending more to its government, if you think it invests in the right projects. Secondly, Mr Bonner is using Japan as an example. But you can read from his article itself that he is discussing the unwillingness of indebted companies, banks and individuals to lend more money, as they were busy with paying down their existing debts. But that’s exactly why the state has to take the role of a debtor in such situations.

    While I can’t forecast if an Obama administration will produce projects deemed creditworthy, I think that further credit may be part of the initial phase. Actually, foreign credit has already been provided for TARP – a bipartisan emergency project that America’s creditors arguably even asked for themselves, because they are stakeholders in America’s performance after all.
    And if the new administration fails to convince them about the need for more spending? Then I still see the two other tools which I mentioned above, and it will be a mix of two, rather than three. (Besides, there are probably some that haven’t caught my eyes.)

    One thing for sure: tax cuts across the board have hurt the budget in the past, and would amount to more debts, too. Therefore, Senator McCain’s suggestion wouldn’t have made Mr Bonner any happier than Obama’s. Also, in the current recession, across-the-board tax cuts won’t encourage people with low incomes to spend at all. If there is any money left for consumption beyond everyday needs, it will be saved – out of fear of unemployment, falling ill, etc. What is needed is money that gets spent. There is no guarantee that the new government will find the right mix. But they will have to make choices, and give it a try, right?

    Mr Bonner has a right to his opinion. But his opinion is nothing either Obama or McCain could base their policies on. It’s the job of politics to make the most promising choices, and to advertise them. And even if they should completely fail (which I don’t really expect), another administration will have to come in and try. Don’t you think so?

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  5. Mr Bonner has a right to his opinion. And his opinion will be taken seriously by institutional investors. In fact his opinion echoes the concern of many superannuation funds; most of them are looking at a less risky less volatile investment environment to put their money. This is becoming an increasingly sensitive topic since the collapse of Wall Street. For many of these investors, the rapidly accumulating national debt in the USA is like another time-bomb that will explode at the most inconvenient time. If Obama can’t convince them that he has a long term strategy in place to tackle this problem, many of these funds will go elsewhere.

    Across the board tax cuts are not just used to encourage low income group to spend. Most importantly they are used to reduce the cost of investment and to create jobs. This works well for many countries. The fact that it didn’t work for the USA indicates that there are many inherit problems with the US economy. The enormous interest payment that accompanies the huge national debt offsets most of the benefit that Americans can get from tax cut initiatives. It’s a chronic problem that desperately requires fixing. And the world is now looking to Obama for an answer.

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  6. Just stumbled across a whole archive points that speak for Obama as president. Patten apparently has spent some of this year as a campaigner of sorts, and I think there’s reason to believe that he won’t suffer an existential crisis now.
    As for Mr Bonner’s right to his opinion: yes, he has a right to it, and every investor has a right to his or her own decisions – a gloomy situation asks for qualified choices.
    I don’t think that the interest payments that the government will have to shoulder will make tax reductions for lower incomes useless. Public debt is one thing. Individuals will only use tax reductions for paying down debts if they have debts. Not every American has built a house or is tied down by incurred credit card debts. Many of them simply have a money problem – not a debt problem.

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