Saturday, 14 April 2012

Obama vs Romney

The withdrawal of Santorum from the race for the US presidential nominee of the Republic Party has left Mitt Romney as clear favourite for the Republican candidacy to challenge President Obama's hopes for a second four year term at the White House when elections are held next November.

Romney was a reluctant choice.  The election of President Obama in 2008 pushed the Republic Party to the far conservative right demanding less government, more market rule and lower taxes.   This switch was canonised by the takeover of the House of Representatives in the mid-term elections of 2010 when the voters, disappointed that Obama had not yet delivered on his promises, gave the Tea Party far right section of the Republican Party an influential control of the lower legislative branch.

For the conservative wing Romney was too liberal.   But in the end they must have realised that without a moderate candidate to appeal for the centrist independent votes, Obama would have had an easy win against an extreme candidate.  Ultimately the whole Republican Party is uniting behind Romney's challenge as their best chance to make Obama a one-term President.

Obama has delivered on some important issues during his first term.   The capture and killing of Osama bin Laden is the most obvious.   His handling of American involvement in deposing Libya's dictator is a stark success in comparison to the gaffes of his predecessor in Iraq.  The US disengagement from Iraq and quite soon also from Afghanistan are strong credits for Obama.

Even on the economy Obama can relate a good story.  He inherited a very bad hand from Bush.   When  in January 2009 Obama took the vote of Office, unemployment was increasing at some 700,000 per month and the unemployment rate of 7.8% was clearly on a steep upward trajectory. The US car industry was facing bankruptcy.    The financial crisis was roaring on and the capital markets were dropping like a stone.  Consumer and business confidence had disappeared.

Now the economy is growing again at about 2.5% p.a. which though below the average long term trend of 4% is a breadth of fresh air when unemployment has fallen from a peak of 9.4% to 8.2% presently.  Employment is increasing at some 200,000 per month which is just about enough to see the unemployment rate fall below 8% by November elections.  The US car industry has been successfully nursed back to health and saved by Obama strong initiatives from the brink of collapse.

Obama faces however two major platforms of criticisms.    Firstly that his interventionist economic policies in voting stimulus to revive the economy is too socialist, goes against the American doctrine of free market and has delivered huge fiscal deficits and debts accumulating at a speed that is clearly unsustainable and could challenge the world's acceptance of the role of the US Dollar as the principal reserve currency.   In particular this criticism is pointed against Obama's signature piece of legislation through the introduction of wider health care services - generally referred to, disparagingly, by the Republicans -  as Obamacare.

Secondly that the recovery is too slow compared to other recessions and that unemployment is bound to stay high and deficits will explode unless serious initiatives are taken.

Obama can easily dispose of the claims that under his watch recovery has been too slow compared to past recessions.  The 2008 collapse was no normal recession.  We have not seen anything like it in the post-war history and any comparison to previous recessions is unfair unless one goes back to the 1930's depression.   The 2008 financial crisis was not a normal cyclical recession.   It was a collapse of the financial sector which dragged the rest of the economy into a deep and sudden recession.    Such recessions do not follow the normal recovery pattern.   Recovery from such financial crisis demands deleveraging from deep over-borrowed situations by the private sector and this process takes time.  Unless aided by the public sector by taking on its account debts through stimuli as the private sector work down their debts, the recession could turn into a depression.

Whilst it is always difficult to prove the counter-factual Obama should compare his recovery to the 1930's depression and shows how his 'stimuli', his deficits and his interventionist policy saved the US from a depression that in the 1930's lasted a whole decade and brought onto the population untold hardship and social scars.

Regarding the need to have a medium to long term plan on how to work down the deficit once the economy is restored to normal health the difference between Obama and Romney, between the political philosophies of the left and the right, is whether this should be done simply by expenditure cuts as the right believe or whether the approach should be a balanced one involving also an element of revenue increase through higher tax incidence.

This could be seen as a fight between the 99% vs the 1% and should deliver an easy electoral win as whilst the 99% individually have little or no wealth, especially compared to the 1%, individually they have one vote just like the 1%.   So democratically the 99% is 99 times more powerful than the 1%.

But it does not work that simply especially when many among the 99% have an inbuilt aspiration to become part of the 1%.

Obama is making tax fairness as his flag carrier policy for the need to balance the budget in the medium term.   His argument that those earning more than one million dollars per annum should never pay tax at less than 30% is sensible and should inspire the 99% to support him.    The Republicans argue that the rich 1% already pay a tax rate higher than the 99%, that Obama's policies are stimulating class hatred and that more taxes on the rich will scare away investment and employment.

This class hatred argument whenever tax fairness is sought is an old game.   Whilst it is true that on overall basis the rich pay higher taxes and higher tax rates than the poor, it is unfair and socially offensive that at the margin the extra dollar earned through the fruit of labour is taxed at a higher rate than the extra dollar earned through the fruit of capital.   In America the marginal personal tax rate for normal income is 30% but the marginal tax rate for dividend income and Capital Gains is 15%.

The Republicans remain dead set against tax increases, in deference to their loyalty to the 1%, and will only accept tax revenue increases through normal economic growth and streamlining of the tax code to eliminate the intricacies of the tax breaks so complicated that even the IRS have difficulty to understand so that no corporation ever effectively pays anything near the 35% corporate tax rate.

The Republicans want to achieve fiscal sanity by rolling back government expenditure, including the entitlements programs like Medicaid, Medicare and Obamacare which for them are European socialism and alien to the US free market psyche.

Obama needs to be at his best to gain re-election as the 99% do not necessarily vote for their own present interest and are often influenced by the 1% they aspire to become part of as realisation of the American Dream which is now being pedalled successfully by the so many reality TV programs which detach so many viewers from the reality of their daily lives.

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