The race was
tough, but US President Barack Obama has won re-election. The question
now, for the United States and the world, is what will he do with a
fresh four-year term?
Illustration by Barrie Maguire
To
win re-election with a still-weak economy and unemployment close to 8%
was not easy. Many leaders – Nicolas Sarkozy, Gordon Brown, and José
Luis Rodríguez Zapatero come to mind – have been swept away by economic
discontent in recent years. Although the financial disaster erupted on
George W. Bush’s watch, after eight years of a Republican presidency,
Obama had to carry the burden of an anemic recovery.
Obama
won not only because of his extraordinary personal resilience, but also
because a sufficient number of middle-class voters, while unhappy with
the pace of economic progress, sensed that an Obama presidency would
help them more than the policies championed by his Republican
challenger, Mitt Romney, which were perceived as tilted to the affluent.
Moreover, America’s ongoing demographic transformation makes it harder
for candidates who are unable to reach out strongly to Latinos and other
minority communities – something that Romney singularly failed to do –
to carry the country.
Some
aspects of the campaign, particularly the amount of money spent and its
negative tone, struck many observers as objectionable. But the
competitiveness of American democracy – the fact that an alternative
always exists, and that those in power have to fight hard to stay there –
was on admirable display for the whole world to see.
Obama
will embark on his second term with the global economy at a crossroads.
In the US, the uneven and weak recovery has been sustained by
extraordinarily expansive monetary policies and ongoing large fiscal
deficits. While corporate coffers hold mountains of cash, private
investment stagnates. In Japan, solid economic performance remains
elusive, while prime ministers succeed each other at a breathtaking
pace.
Likewise,
Europe is on life support, thanks to European Central Bank President
Mario Draghi’s astute maneuvering and promises of unlimited intervention
in sovereign-debt markets. But unemployment is at its highest in
decades and growth has essentially stalled, even in Germany, while the
troubled southern economies are mired in deep recession. The situation
in Greece, moreover, has become socially unsustainable; Greece is small,
but a total collapse there could have very negative financial and
psychological effects elsewhere.
The
world’s emerging-market economies are in better shape; but, while their
underlying trend growth in potential output is much higher than that of
the advanced economies, there is no cyclical de-coupling. The world
economy is an interdependent whole: trouble in any important part of it
is transmitted globally. That is true beyond the purview of narrowly
macroeconomic problems as well: for example, the need to address climate
change can no longer be ignored.
The
US cannot determine the world economy’s future on its own, but the
course taken by America nonetheless has huge global importance, given
that it remains the largest economy and retains considerable influence
in venues such as the International Monetary Fund, the World Bank, and
the G-20. American ideas continue to affect the policy debate worldwide.
So,
what should Obama’s top economic-policy priorities be in his second
term? Despite the difficulties facing the global economy, there are huge
investible resources in the US, China, Germany, and elsewhere. While
there are climate and resource constraints, we are still at the
beginning of a technological revolution that holds tremendous potential
for higher productivity and greater prosperity, along with challenging
implications for labor and employment.
But
sustainable economic growth requires that those with investible
resources actually invest them. And that will not happen unless and
until a broad-based recovery of the middle- and lower-income groups in
advanced economies, including the US, delivers the prolonged rebound in
demand for which investors are waiting.
There
are plenty of profits to be made – actual taxes on capital are not too
high, and cheap finance is available to the corporate sector. But the
concentration of income at the top – more than 90% of the gains from US
economic growth in 2011, for example, went to the top 1% – is
constraining broad-based recovery and leaving macroeconomic policy
caught between the need for continued “stimulus” and the dangers of
growing public debt and asset bubbles inflated by record-low interest
rates
.
In
other words, a more balanced income distribution is not only a social
or ethical issue; it is crucial for macroeconomic and, indeed, long-term
corporate success. This is vital for many countries, above all the US
and China
.
Then
there is the pressing need – in the US and globally – for education and
appropriate skill formation. Without the skills required by new and
incipient technologies, too many workers will simply be unemployable. A
key benefit of prioritizing broad-based quality education is that it
also helps to solve the income-distribution problem.
Finally,
there is the need for effective international cooperation. China’s
current-account surplus has declined, but now northern Europe runs a
$500 billion surplus, while demand in southern Europe is collapsing and
the US is running a deficit that is close to $500 billion. The
longer-term challenge of climate change and extreme weather patterns
also requires global cooperation and a post-election shift toward much
stronger US engagement, which could unleash a multifaceted clean-energy
revolution, fueling large job-creating investments and a new cycle of
growth.
After
America’s long, hard-fought election campaign, it is time for
comprehensive policy reforms. One hopes that the US Congress will
recognize this as well, leading to support for measures that could help
hundreds of millions of people in the US and around the world.
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