After an election campaign costing well in excess of $2 billion, it seems to many observers that not much has changed in American politics: Barack Obama is still president, the Republicans still control the House of Representatives, and the Democrats still have a majority in the Senate. And now America faces the “fiscal cliff.” What next?
Some of Mitt Romney’s advisers seemed taken aback by Obama’s victory: Wasn’t the election supposed to be about economics? They were confident that Americans would forget how the Republicans’ deregulatory zeal had brought the economy to the brink of ruin, and that voters had not noticed how their intransigence in Congress had prevented more effective policies from being pursued in the wake of the 2008 crisis. Voters, they assumed, would focus only on the current economic malaise.
The Republicans should not have been caught off-guard by Americans’ interest in issues like disenfranchisement and gender equality. While these issues strike at the core of a country’s values—of what we mean by democracy and limits on government intrusion into individuals’ lives—they are also economic issues. As I explain in The Price of Inequality, much of the rise in U.S. economic inequality is attributable to a government in which the rich have disproportionate influence—and use that influence to entrench themselves. Obviously, issues like reproductive rights and gay marriage have large economic consequences as well.
In terms of economic policy for the next four years, the main cause for post-election celebration is that the U.S. has avoided measures that would have pushed it closer to recession, increased inequality, imposed further hardship on the elderly, and impeded access to health care for millions of Americans.
Beyond that, here is what Americans should hope for: a strong “jobs” bill—based on investments in education, health care, technology, and infrastructure—that would stimulate the economy, restore growth, reduce unemployment, and generate tax revenues far in excess of its costs, thus improving the country’s fiscal position. They might also hope for a housing program that finally addresses America’s foreclosure crisis.
A comprehensive program to increase economic opportunity and reduce inequality is also needed — its goal being to remove, within the next decade, America’s distinction as the advanced country with the highest inequality and the least social mobility. This implies, among other things, a fair tax system that is more progressive and eliminates the distortions and loopholes that allow speculators to pay taxes at a lower effective rate than those who work for a living.
America—and the world—would also benefit from a U.S. energy policy that reduces reliance on imports not just by increasing domestic production but also by cutting consumption, and that recognizes the risks posed by global warming. Moreover, America’s science and technology policy must reflect an understanding that long-term increases in living standards depend upon productivity growth, which reflects technological progress that assumes a solid foundation of basic research.
Finally, the U.S. needs a financial system that serves all of society, rather than operating as if it were an end in itself. That means that the system’s focus must shift from speculative and proprietary trading to lending and job creation, which implies reforms of financial-sector regulation, and of anti-trust and corporate-governance laws, together with adequate enforcement to ensure that markets do not become rigged casinos.
Globalization has made all countries more interdependent, in turn requiring greater global cooperation. We might hope that America will show more leadership in reforming the global financial system by advocating for stronger international regulation, a global reserve system, and better ways to restructure sovereign debt; in addressing global warming; in democratizing the international economic institutions; and in providing assistance to poorer countries.
Americans should hope for all of this, though I am not sanguine that they will get much of it. More likely, America will muddle through—here another little program for struggling students and homeowners, there the end of the Bush tax cuts for millionaires, but no wholesale tax reform, serious cutbacks in defense spending, or significant progress on global warming.
With the euro crisis likely to continue unabated, America’s continuing malaise does not bode well for global growth. Even worse, in the absence of strong American leadership, longstanding global problems—from climate change to urgently needed reforms of the international monetary system—will continue to fester. Nonetheless, we should be grateful: It is better to be standing still than it is to be heading in the wrong direction.