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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.
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