X

X

Bring on the Clowns

WHO’S GOT A BETTER ECONOMIC PLAN THAN BARACK OBAMA? MONICA WOODLEY ISN’T SURE SHE KNOWS

Is it just me, or is the US Republican presidential primary increasingly looking like a bad episode of the X-Factor? Just when you thought it couldn’t any more exciting/painful to watch, a new candidate is introduced with a back-story told in such a way to simultaneously set his or her apart from the others and pull on the nation’s heartstrings. But soon each candidate is reduced to a one-liner description that, for better or worse, encapsulates what the American people remember about them.

Challenging the front-runner status of Mitt Romney (a Mormon and former private equity boss, “but heck, look at those white teeth and full head of hair”), we have seen – among others too numerous to mention – Rick Perry, governor of Texas and apparently “the next George W. Bush”; former House of Representatives speaker Newt Gingrich (only in America could someone named after an amphibian do so well); representative Michelle Bachmann (“I’m not a witch”); Jon Huntsman, former governor of Utah and ambassador to China (beholden to President Obama, who appointed him ambassador); representative Ron Paul (eccentric libertarian) – and, last but not least, businessman Herman Cain, who is dubbed “the Godfather of Pizza”, having once run the eponymous chain for ten years.

And who could forget the excitement when Donald Trump, business mogul and star of the US version of the Apprentice, briefly flirted with throwing his hat in the ring? Or the crushing disappointment in the media when former Alaskan governor turned reality TV star Sarah Palin finally said that she would not be running?

Comic Line-Up, Serious Issues

If this absurd line-up of headline writer’s dreams wasn’t distracting us from the very serious problems the US faces, it would be highly entertaining. But this isn’t reality TV, it’s the competition to face Barack Obama in the 2012 presidential race in what is still – despite its problems and China’s rise – the most powerful country in the world. Anyone who wants to deny the power US politics still has only needs to remember this summer’s squabble over raising the country’s debt ceiling and the effect that dispute had on world markets before a grudging compromise was reached.

So what are the candidates’ plans to jumpstart the economy, create jobs and avoid a double-dip recession? Romney has proposed a 59-point economic plan – the most notable points being an endorsement of the tax cuts instituted by former president Bush, plus an exemption from tax of capital gains, dividends and interest for people earning less than $200,000 a year. (Perry and Cain have both espoused a flat tax system, but both have swiftly hedged their positions when it was pointed out to them that flat taxes are generally regressive and hit the poor the hardest.)

Beyond changes to tax policy, the consensus diagnosis seems to be that everything is the government’s fault – the candidates usefully forgetting that most of them are (or were) in government. But hey, if government is the problem, then surely less government is the answer? And sure enough, that seems to be the line.

At the Republicans’ debate on the economy in mid-October, the candidates vied to see who could come up with the most extreme solution – “I introduced the bill to repeal Dodd-Frank!” declared Bachmann (referring to the government’s programme to clean up the financial sector). “Repeal Dodd-Frank and capital gains tax!”, responded Mr Cain. Paul tried a double-headed approach with “Dodd-Frank is a disaster, but so is Sarbanes-Oxley, repeal that too!” While Gingrich had the simple but ultimate solution: “Jail Chris Dodd and Barney Frank!”

And In the Democrat Corner…

This is not to say that President Obama has all the answers. His recent proposals on job creation have received a cool reception, many seeing them as too little, too late. The Republicans are painting them as an expansion of the role of the state and are vigorously opposing them. The public doesn’t seem entirely convinced either – the president’s disapproval ratings are above 50% for the first time since he took office and the percentage of people who believe the economy is deteriorating has risen from 31% in late June to 43%.

Meanwhile the president’s stimulus plan, the American Jobs Act, was recently defeated in the Senate, when the Democratic leadership was unable to secure enough votes to avoid a filibuster by the Republicans. The president now plans to introduce the various elements of the Act individually, in the hope that at least some of his ideas will win approval.

The nine most terrifying words in the English language: “I’m from the government, and I’m here to help.”
Ronald Reagan, 1976

Adding to the president’s challenges is the 23rd November deadline for the joint House-Senate “super-committee” to agree on $1.5 trillion in spending cuts over 10 years. The comprehensive deficit-cutting plan was an integral part of the August agreement to raise the country’s debt ceiling. And it has teeth, and a formidable tail as well. If a plan is not agreed by the committee and passed by Congress by Christmas, automatic spending cuts of $1.2 trillion will kick in, with half of the cuts hitting defence spending. If, on the other hand, a plan is passed, then the debt ceiling will be increased enough for it to not be an issue again until after the 2012 election. So that’s all right then.

The Economy and Markets

Unemployment in the US stands at 9.1%, a figure that has seen little movement since the country came out of recession. On the positive side, US companies are still sitting on piles of cash and seem to have wrung all of the efficiency gains they can out of cutting costs, so they now must invest and hire to grow. But many are still waiting for signs in the economy that now is the time to expand.

Economic growth is being squeezed both by business uncertainty and by inflation – which hit a three-year high in September and which is squeezing consumer spending. Add in the effects of spending cuts from government and the knock-on effects of Europe’s mounting problems, and it is unsurprising that GDP growth forecasts have been reduced. The Economist Intelligence Unit recently cut its 2012 forecast from 2% to 1.3%. And that’s a slowdown from the predicted growth of 1.6% in 2011, rather than an acceleration as had once been expected.

After months of swinging violently in reaction to every bit of positive or negative news, the financial markets seem to have gone off into their own little world. Despite cuts in growth forecasts, late October saw the S&P 500 enjoying its longest winning streak since February – hitting 1,238.25, its highest point since early August. Compare that with the situation on October 3, when the market closed within 1% of a technical bear market (a 20% plunge from its April high). Either way, the 13% surge in three weeks seemed to be in denial of the still-grim fundamentals.

Election 2012 – A Year to Go

In the run-up to the 2012 presidential election, the economy will continue to be hostage to political brinkmanship. The Republicans seem determined to thwart President Obama’s stimulus plan – no president since Franklin D Roosevelt has been re-elected for a second term with unemployment this high, and that was in the 1930s.

At this point, getting Obama out of the White House seems more important than anything else. And, until the Republican Party settles on its presidential candidate and throws its weight behind his or her ideas, its own definitive plans to improve the economy cannot crystallise.

President Obama finally seems to be taking off the gloves. He has taken his plans for job creation to the public, touring swing states such as North Carolina and Virginia to tout his stimulus and highlight the obstructionist ways of the Republicans. The first test of this strategy’s success will be how the Senate receives Obama’s first package of aid to states – intended to keep teachers and emergency workers in their jobs, but financed by a 0.5% surcharge on all incomes over $1 million.

Just as Europe’s financial problems are being exacerbated by its dithering politicians, the US’s economy also seems captive to its bickering politicians. The country cannot afford to wait until the Republicans choose their man or woman next August and then decide at the last minute what they think the economy needs. If the blue corner are convinced that Obama’s job creation plans will fail, then they ought to let him put his money where his mouth is. There is a year left until the election – enough time, perhaps, to see what effect the stimulus might have – and then let the American people decide.

This Week’s Most Read

Latest IFA Magazine Podcast Episodes

Keep updated on the most important financial events 

Make sure you are an informed

wealth professional..

Adblock Blocker

We have detected that you are using

adblocking plugin in your browser. 

IFA Magazine