Today, the United States will choose between a moderate Republican, with a pro-business agenda, or Mitt Romney. Yes President Obama has saved the economy from a 1930s-like catastrophe with a smaller than necessary, but still very effective, fiscal package, and monetary easing has prevented a collapse of the banking and financial sector like the Great Depression one. Yet, his economic views and policies remain to the right of Richard Nixon. Obama agreed with Mr. Romney that government does not create jobs, and has accepted the anti-Keynesian rhetoric regarding the need of reducing the fiscal deficit, even though the recovery has been very slow.
If Obama wins (and I do believe that Nate Silver is right and his chances are greater than Romney’s) we should not simply expect a continuation of the current policies. Yes, Ben Bernanke will maintain interest rates close to zero in nominal terms and continue the gradual Quantitative Easing which, precluding a collapse of the euro and the flight to dollar denominated bonds, will lead to a more depreciated dollar. But the US cannot expect to grow through exports, particularly to developing countries like China (China bashing was one the silliest and most disingenuous issues raised during the campaign).
On the fiscal front, Republican obstructionism, which there is little reason to believe will suddenly vanish, along with inherent Democratic fiscal conservatism, will likely lead to paralysis. Here a caveat is needed. Hurricane Sandy has left a trail of devastation that will require the reconstruction of significant parts of the infrastructure of whole regions in the East Coast. Houses, schools, hospitals, and almost every imaginable public sector service must be rebuilt. That opens up the space for cooperation between local and State level governments and the Federal government and collaboration from local representatives (including Republican ones: we know that even Ryan does not refuse to receive the funds for his own district.) In that sense, there is a chance that the destructive effects of Hurricane Sandy might nonetheless help stimulate a Keynesian, government-investment-driven recovery. There is some evidence that despite the harsh economic impact of hurricanes (sometimes of the order of 200% of GDP, for small island states), infrastructure driven recoveries in the Caribbean have been quite fast.
But even if we get some cooperation on the fiscal front because of Sandy, note that Obama does believe that the social safety net, including Social Security, has long-term problems and needs to be overhauled. In that regard, he is not very different from the fiscal conservatives that have come to dominate the Democratic Party since Carter and Clinton (on the switch between the GOP and Dems on fiscal issues see this debate I organized a few years back). Like Romney (or at least one of Romney’s versions), Obama favors the Simpson-Bowles Commission plans to cut the deficits. Dean Baker has written extensively on the huge mistake that this would be, and the facts are on his side.
In other words, the likely re-election of Obama-Biden we will get more of the pro-business faction of the Dems, which, yes, extended health care, but basically went for the business-friendly plan with no public option, and depended on the conservative Heritage Foundation mandate to extend coverage. Keep in mind that, as much as Bush’s failed policies, it was the deregulation policies of the Clinton era (aka Rubinomics) that led to the crisis. And that is the good choice.
If we get the Romney-Ryan ticket, regardless of the jokes about the emptiness of their positions and the constant flip-flopping, expect more of the traditional Republican effort to role back the New Deal programs, including not just Social Security, but also Medicare, Medicaid and Obama’s extension of health programs. To put it in a nutshell, the options are a slow erosion of the New Deal policies or a pretty direct attack on the same policies. Progressives should certainly vote for the lesser evil, but should prepare to fight to preserve the rights won over the last century. The election will not be not the end of the fight, but just the beginning.
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