Decision time in the United States


Article Highlights

  • A key electoral issue in 2012 is how the US should restore order to its public finances.

    Tweet This

  • The un-sustainability of the US public finances is a major threat to long-term US economic prosperity.

    Tweet This

  • Recent polls suggest that international trade policy will play an important role in #election2012.

    Tweet This

  • “When the US goes to the polls on Nov. 6 the rest of the world should be watching” –Desmond Lachman

    Tweet This

On Tuesday November 6, a highly divided U.S. electorate will go to the polls to choose a president and a new Congress. It is difficult to overstate the importance of this election for both the U.S. and the global economic outlook. Since two very different visions are being offered to the electorate as to how the United States should address the very difficult economic challenges with which the country is now confronted. And these different visions are being offered at a time of renewed economic weakness at home and of mounting electorate concern about the impact of globalization on U.S. job creation.

Among the most important of the electoral issues pertains to how the United States should restore order to its public finances. As if to highlight the gravity of the parlous state of the U.S. public finances, a recent IMF report estimates that the U.S. budget deficit remains stuck at around 8 percent of GDP while the U.S. general government debt level now exceeds 105 percent of GDP. The unsustainability of the U.S. public finances is widely recognized by the electorate as a major threat to long-term U.S. economic prosperity and it is a cause for considerable electoral anxiety.  It is also perhaps the defining electoral issue on which President Obama and Governor Mitt Romney, his Republican challenger, are the most divided.

"The unsustainability of the U.S. public finances is widely recognized by the electorate as a major threat to long-term U.S. economic prosperity and it is a cause for considerable electoral anxiety." -Desmond LachmanPresident Obama subscribes to the view that in restoring fiscal sustainability the greatest of care needs to be taken not to withdraw fiscal stimulus too quickly for fear of derailing a still very fragile U.S. economic recovery. He also believes that while reining in public spending must play a role in rebalancing the budget, an equally important role must be played by tax revenue enhancements and that care should also be taken to protect the country’s various entitlement programs. In particular, President Obama believes that the Bush tax cuts, which are due to expire at the end of this year, should only be extended for those earning less than US$250,000 a year, and that those in the upper-income brackets should be required to pay their "fair share" in taxes.

Governor Romney characterizes the president’s approach to fiscal policy as being excessively Keynesian in orientation and excessively hostile to business enterprise and innovation. He sees excessive public spending and high tax rates as major factors in the country’s present economic malaise. On those grounds, he believes that the Bush tax cuts should be universally extended and that corporate tax rates should be reduced to make the United States more competitive abroad. In Governor Romney’s view, a 5 percent across-the-board cut in non-defense discretionary spending should play the major role in reducing the budget deficit.

The fundamental differences in economic philosophy between President Obama and Governor Romney extend considerably beyond the issue of how best to address the U.S. public finances. President Obama repeatedly accuses Governor Romney of favoring the failed supply-side policies of previous Republican administrations that would favor the rich at the expense of the U.S. middle class. For his part, Governor Romney repeatedly berates the president for wanting to take the United States down Europe’s failed route of a bloated welfare state and a stifling regulatory environment.
"When the US goes to the polls on November 6 the rest of the world should be watching." -Desmond Lachman
These basic differences in economic philosophy are most apparent in the areas of health care reform, energy policy and regulatory reform. In the wake of the recent Supreme Court decision to uphold the Obama health care reform, Governor Romney is making the repeal of Obamacare a key plank of his electoral platform, which he argues would reduce costs to small and medium-sized businesses. Governor Romney is also using still high gasoline prices to berate the president on an energy policy that in his view has constituted a great impediment to the development of conventional energy sources. In particular, Governor Romney is campaigning for a less restrictive regulatory environment against offshore drilling and for the early construction of the Keystone oil pipeline. For his part, President Obama points to the remarkable development of shale gas and shale oil production under his administration, which he emphasizes generated many new jobs.

Judging by recent electoral polls, which suggest that the overwhelming majority of Americans is opposed to the outsourcing of U.S. jobs and believes that the United States has been too tolerant of Chinese export promotion, international trade policy must be expected to play an important part in the election. President Obama must be expected to try to portray Governor Romney as having been insensitive to the issue of U.S. job outsourcing during his tenure as head of a private equity firm. For his part, Governor Romney must be expected to try to portray the president as having been overly soft on the issue of China’s maintenance of an excessively undervalued currency. Governor Romney must also be expected to try to exploit the European crisis to his advantage by suggesting that President Obama is leading the country down the path of excessive welfare spending that in his view is at the heart of Europe’s present economic and financial difficulties.

When the U.S. goes to the polls on November 6 the rest of the world should be watching since the election’s outcome will have the most important of bearings on the economic direction in which the United States will be heading and on American policy towards globalization. And it will be doing so at a time when the global economy could not be in greater need of a more robust U.S. economic recovery and of U.S. leadership on keeping open the world’s trade system.

Also Visit
AEIdeas Blog The American Magazine
About the Author


  • Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund's (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and the multilateral lending agencies.
  • Phone: 202-862-5844
  • Assistant Info

    Name: Emma Bennett
    Phone: 202.862.5862

What's new on AEI

image Getting it right: US national security policy and al Qaeda since 2011
image Net neutrality rundown: What the NPRM means for you
image The Schuette decision
image Snatching failure from victory in Afghanistan
AEI on Facebook
Events Calendar
  • 21
  • 22
  • 23
  • 24
  • 25
Wednesday, April 23, 2014 | 12:00 p.m. – 1:30 p.m.
Graduation day: How dads’ involvement impacts higher education success

Join a diverse group of panelists — including sociologists, education experts, and students — for a discussion of how public policy and culture can help families lay a firmer foundation for their children’s educational success, and of how the effects of paternal involvement vary by socioeconomic background.

Thursday, April 24, 2014 | 12:00 p.m. – 1:30 p.m.
Getting it right: A better strategy to defeat al Qaeda

This event will coincide with the release of a new report by AEI’s Mary Habeck, which analyzes why current national security policy is failing to stop the advancement of al Qaeda and its affiliates and what the US can do to develop a successful strategy to defeat this enemy.

Event Registration is Closed
Friday, April 25, 2014 | 9:15 a.m. – 1:15 p.m.
Obamacare’s rocky start and uncertain future

During this event, experts with many different views on the ACA will offer their predictions for the future.   

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.