After a hard-fought election campaign, costing well in excess of US$2 billion, it seems to many observers that not much has changed in US politics: US President Barack Obama is still in office, the Republicans still control the House of Representatives, and the Democrats still have a majority in the Senate. With the US facing a “fiscal cliff,” automatic tax increases and spending cuts at the start of next year that will likely drive the economy into recession unless bipartisan agreement on an alternative fiscal path is reached, could there be anything worse than continued political gridlock?
In fact, the election had several salutary effects — beyond showing that unbridled corporate spending could not buy an election, and that demographic changes in the US might doom Republican extremism. The Republicans’ explicit campaign of disenfranchisement in some states — like Pennsylvania, where they tried to make it more difficult for African-Americans and Latinos to register to vote — backfired: Those whose rights were threatened were motivated to turn out and exercise them. In Massachusetts, Elizabeth Warren, a Harvard law professor and tireless warrior for reforms to protect ordinary citizens from banks’ abusive practices, won a seat in the Senate.
Some of former Republican presidential candidate Mitt Romney’s advisers seemed taken aback by Obama’s victory: Was the election not supposed to be about economics? They were confident that US citizens 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 US citizens’ 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 my book The Price of Inequality, much of the rise in US 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 US economic policy for the next four years, the main cause for post-election celebration is that measures have been avoided that would have pushed it closer to recession, increased inequality, imposed further hardship on the elderly, and impeded access to healthcare for millions of the population.
Beyond that, here is what Americans should hope for: a strong “jobs” bill — based on investments in education, healthcare, 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 the foreclosure crisis occurring in the US.
A comprehensive program to increase economic opportunity and reduce inequality is also needed — its goal being to remove, within the next decade, US 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, and that enable the rich to use the Cayman Islands to avoid paying their fair share.
The US, and the world, would also benefit from a US energy policy that reduces reliance on imports by increasing domestic production, while also cutting consumption, and recognizes the risks posed by global warming. Moreover, US 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 US 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 the US 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, the US will muddle through: here another little program for struggling students and homeowners, there the end of former US president George W. Bush’s tax cuts for millionaires, yet with no wholesale tax reform, serious cutbacks in defense spending, or significant progress on global warming.
With the euro crisis likely to continue unabated, the continuing malaise of the US does not bode well for global growth. Even worse, in the absence of strong US 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.
Joseph Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University.
Copyright: Project Syndicate