In the medium term the economic challenges include reducing high unemployment and reining in towering government debt. In this context, clearer concepts on social welfare, improvements in infrastructure and a sustainable concept marrying economy and ecology are also needed.
The election campaign underscored in particular the different approaches on the health policy front and on how best to sort out public finances. The differences in the economic policy approaches are already plain to see in the first policy field – to some extent also representative for other areas. In order to control Medicare spending, the government health program for pensioners, Obama focuses on stricter regulation. By contrast, Romney favors a solution involving partial privatization.
When it comes to reducing budget deficits, Obama’s fairly balanced concept was pitted against challenger Romney’s ambitious but partly opaque plan envsiaging a reduction in the deficit solely via spending cuts coupled at the same time with a revenue-neutral tax reform with lower rates. At least on the basis of the outlined proposals, it was debatable whether this would not lead to a redistribution of the tax burden at the expense of middle and low earners.
Obama’s victory is not bad news for the markets even if Romney was the business world’s favorite. Priority should be placed on consolidation in order to maintain confidence in the US dollar, but also to eliminate the recurrent political row over the debt ceiling. In times of widespread mistrust of market forces, Obama’s mediating political style looks sensible.
(Economic) policy will continue to operate under constraints. Following the election the constellation of “divided government” remains in place, with the Republicans continuing to control the House of Representatives. The president’s success will be measured in terms of whether he is able to win Congress over to his line. This will soon become evident in what are likely to be thorny negotiations on avoiding the fiscal cliff.
One factor suggesting that the pace of consolidation will be lower compared with the statutory status quo is that both Republicans as well as Democrats are keen to uphold the Bush-era tax cuts (2001,2003), if to a varying extent. The main bone of contention is the Democrats’ desire to allow tax cuts for higher earners to expire. There are also likely to be reservations about lawnmower-method spending cuts. The automatic spending cuts envisaged in the 2011 Budget Control Act fall approximately fifty-fifty on defense and non-defense spending. The Republicans are likely to be keen to avoid deep cuts in the defense budget.
In the election campaign, however, the parties promised above all more jobs. An abrupt change of course in fiscal policy would be likely to render this impossible. Even with economic growth of 2%, any further decline in the unemployment rate is likely to be moderate. The pragmatic approach of US policy suggests that consolidation measures will only be introduced to the extent that they do not harbor the risk of an economic slump. In relation to GDP, next year’s consolidation measures could be in the region of 1%-1.5%. In 2013 the US economy is nonetheless likely to grow by around 2%.