Friday, April 8, 2011

Re-post of US mid-term election comment

In yesterday's post on the politics of structural budget deficits I referred to a post I made after the US mid-term elections last year. A number (well, 2 actually) of you have asked where to find that commentary. It was posted in the old blog, so here it is again...

From November 2010:

Markets have taken some comfort out of the gains made by the Republicans in the United States mid-term elections - the theory being that this will curb some of the regulatory excesses of the current Democrat administration. That rationale from markets is somewhat short-sighted.

I have some sympathy for President Obama. He was elected on a platform of change. But here we are, two years later with unemployment at 9.6%, the recovery struggling to gain traction and 23% of households with mortgages in negative equity.

This is the legacy of the most challenging set of economic and financial circumstances since the Great Depression. This situation was not of Obama’s making. Perhaps his only mistake was creating too much euphoria for change at election time in 2008 and, in so-doing, over-promising.

With the Republicans having taken control of the House, I am pleased that they did not also take the Senate. Not because I necessarily favour the GOPs over the Democrats or vice-versa, but because now is the time for strong US leadership.

That’s because another thing changed as the GFC took hold in the US and other western democracies – the end of the experiment with unfettered deregulated capitalism that began in the late 1970s era of Ronald Reagan and Margaret Thatcher. That reinvention of capitalism itself grew out of dissatisfaction with economic progress, especially as inflation took hold in the 1970s, during the more fettered post-WWII, Keynesian, “New Deal” period.

Now, in 2010, the next model of capitalism is starting to be defined. This is happening at a time when western capitalist democratic governments are suffering the wrath of a vengeful public. And this also a time when the more authoritarian model of Chinese capitalism is in the ascendancy.

At the multi-lateral level, the leadership mantle has already been passed from the G7to the G20. Given the range of views around the meeting table, we will soon be going through a process of questioning and challenging what we have to come to accept as economic orthodoxy. Indeed this has already started in the guise of the G20 Mutual Assessment Process.

In my view, this is not the time for a lame-duck US President, regardless of party affiliation.

November 2010