The Obama presidency and the economy

Newly elected President of the United States of America, Barack Obama, will be officially sworn in on January 20, 2009. As I listened to the concession speech of John McCain and the victory speech of Barack Obama a few hours after the election, I got the sense that the impact of his victory will start even before he moves to the White House.

The major thing that negatively affected the campaign of McCain was the deterioration of the U.S. economy after the Wall Street meltdown that contaminated the world economy. This economic debacle is not wholly the fault of the Republicans, as the Senate and Congress were dominated by the Democrats, who went along with the policies on mortgage loans that led to the financial crisis. The electorate however put the blame squarely on the Bush Administration, maybe correctly, on the theory of command responsibility. So, Obama’s platform of “Change” was easily embraced by the American public, leading to his landslide victory.

There are not really many differences in the economic platforms of Obama and McCain. They were both for reforming the regulations of the financial markets, they were both for eliminating wasteful fiscal spending, they were both for lessening dependence on foreign capital, and they were both for reducing dependence on foreign oil supplies. They differed in the approach to achieve the above objectives, and on their taxation proposals. Obama wants to reduce the taxes of the lower and middle classes, while increasing the taxes on the upper class. McCain was for lowering the taxes across the board, which is a classic Republican position.

The power of the President of the United States of America while it seems to be awesome as head of the most powerful country in the world, is in reality restricted by the separation of powers by the three branches of government in the American democracy. Any major policy change has to be concurred by the Senate and Congress and not challenged in the Courts as unconstitutional. The significance of the landslide Obama win is that he also carried the congressional and senatorial elections, so that the Democrats have a majority in both houses, and hopefully Obama can expect their cooperation in his major policy initiatives.

Beyond the numerical superiority of the Democrats in the government, what will make it easier for the Obama presidency to push its agenda is the prevailing trust, confidence, and optimism of the American people in the Obama Presidency. The breadth and depth of the Obama constituency, from the youth to the retirees, from the left to the right of center, from the different minorities to the superstars, and his popularity in the rest of the world, makes for a powerful alliance. This will be favorable for the U.S. economy and for the world economy.

The U.S. economy contracted in the 3rd quarter and most likely also in the 4th quarter of 2008, so technically it is already in a recession. The United Kingdom and the European Economic Community will likely be in a recession by the first quarter of 2009, and probably some eastern European countries. The Asian and the Latin American countries may not go into a recession, but a general slowdown in their growth rates by 1 percent to 2 percent is unavoidable. This will mean a worldwide output reduction, more unemployment, and higher poverty incidence and the consequent social problems.

The main task of the Obama Presidency in the coming months is to lessen and shorten the time of the contraction of the U.S. economy. A contraction of the U.S. economy in the lower single digit that will last no more than four calendar quarters or up to the middle of 2009 will minimize the damage to the U.S. and world economy, and may be considered a soft landing. The worse alternative will not be acceptable to the Americans and the world, so the Obama Presidency, who has so inspired America and the World, has to grab this singular opportunity of leading it out of the economic recession.  

Economics is a social science, so sentiments and human behavior influence causes and effects. Consumer demand, investment decisions, and government expenditures which are the components of the economy or Gross National Product, are affected by the perceptions of the people. The campaign and the victory of Barack Obama is so inspiring to the Americans and to the world that this could just be the ingredient to lessen and shorten the economic recession in the U.S. and in the world.