Kevin O’Rourke links to an interesting paper by Jeff Frankel which discusses different ways recessions are measured. The standard European measurement says that when an economy falls two quarters in a row it is officially in recession (we know all about that given our official double-dip). This measurement has the advantage of being statistically clear and simple. This, though, can lead to false readings. For instance, over two years the economy declines in half of the eight quarters – leaving it much lower. If, though, none of those quarters were consecutive, then according to the European measurement, there was no recession even though output has fallen. This may be an extreme case but it shows how quirky this measurement can be.
The US has a different way of measuring recessions. According to Frankel:
‘In the United States, the arbiter of when recessions begin and end is the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER). The NBER Committee does not use that rule of thumb (Europe’s two consecutive quarters of decline), nor any other quantifiable rule . . . When it makes its judgments it looks beyond the most recently reported GDP numbers to include also employment and a variety other indicators, in part because output measures are subject to errors and revisions. The Committee sees nothing special in the criterion of two consecutive quarters.’
The problem with this approach is that there is no single definitive measurement so disputes easily arise.
I’d like to introduce another way to measure a recession. It is based on the sinking-ship metaphor. A ship starts sinking. It eventually stops and starts to rise again. While it’s rising back to the surface we can say that it is in recovery mode. However, it will remain below water until it gets back to the surface.
Similarly with an economy: an economy goes into decline, eventually stops falling and starts rising. However, it remains metaphorically below water until it returns to the point at which it had started sinking. If an economy is below its pre-recession levels it remains ‘recessed’.
Take, for instance, the US Great Depression in the 1930s. The economy tanked big time in 1929. However, by 1935 the economy had experienced nearly three years of rising GDP, employment, consumer spending and investment. However, no one then (or now) would have said that the Great Depression was over by 1935 – it was still well below its 1929 level.
In 2007, the economy was generating a little over €43,000 for every woman, man and child. As seen, according to the IMF projections, even by 2018 the economy will not have returned to the 2007 level. It won’t happen until 2019. In other words, the economy will remain under-water for 11 years – in other words, ‘recessed’.
Of course, this is GDP – which is flattered by multi-national accounting practices (profit-tourism, etc.). What does it look like when we measure GNP per capita? Here we use the Government’s own assumptions in their end-of-the-decade scenario.
When looking at this domestic measurement (with all its faults) we find that the economy will be underwater for 14 years. 14 years. We won’t find ourselves above pre-recession levels until 2022. And if that’s not depressing enough, the ESRI’s John Fitzgerald estimates that even our GNP figures are over-stated given the presence of re-domiciled multi-nationals. The real GNP figures are substantially lower which suggests that a return to the surface could take even longer based on projected trends.
Staying with the metaphor, when the ship returns to the surface what kind of shape will it be in? Even though the economy has returned to the surface, many people will still be underwater. The Government’s end-of-the-decade scenario projects double-digit unemployment by 2019. Average real wages may not return to pre-recession levels until 2020 and even later. How many will still be living in deprivation, how many in poverty, how many will have emigrated? The ship may be back on the surface, hundreds of thousands won’t be.
To give another idea of what we’re facing into, let’s use the Government’s assumptions to track the ‘jobs recession’.
We won’t return to pre-crisis levels of employment until 2024. That’s 16 years under-water.
So when we start growing again – GDP, domestic demand, employment – just remember: we will have to grow for a long-time just to get back to where everything started collapsing. In other words, the ship may start rising soon but we will be underwater for a very long time.
Hopefully, you can hold your breath.
By Michael Taft,
We’re going to need a bigger acronym.
In the beginning, it was just the “Greek debt crisis“. Then markets realized Portugal, Ireland, Italy, and Spain were in bad shape too, and the PIIGS (or GIIPS) were born. But now Cyprus and Slovenia have run into trouble as well, giving us the … SIC(K) PIGS? At this rate, we’re going to have to buy a vowel soon, assuming Estonia doesn’t end up needing a bailout.
The euro crisis is entering its fourth year, and, sorry world, this won’t be its last. Now, its long periods of boredom have gotten a bit longer, and its moments of sheer financial terror a bit less terrifying ever since the European Central Bank (ECB) promised to do “whatever it takes” to save the common currency. But, as Cyprus and Slovenia show, the battle for the euro isn’t over yet. Not even close.
Here’s the Cliff Notes version of the euro crisis. The euro zone doesn’t have the fiscal or banking unions it needs to make monetary union work, and it’s not close to changing that. In the meantime, the euro’s continuing flaws continue to suck countries into crisis. And their politics get radicalized. Most recently, Cyprus was forced to accept a bailout and bail-in, because its too-big-to-save banks made some horrendously bad bets on Greek bonds. Slovenia looks like it could next on the euro-bailout tour, because, as Dylan Matthews of the Washington Post points out, its too-big-to-save-ish banks made some horrendously bad bets on its own companies. Now, banks make bad bets all the time, but those bad bets can bankrupt you as a country if you don’t have your own central bank. Like euro countries.
Of course, this “diabolic loop” between weak banks and weak sovereigns isn’t the only problem in euroland. The common currency has plenty of other flaws. Here’s why the euro, as it’s currently constructed, is a doomsday device for mass bankruptcy. (How’s that for solidarity?).
1. Too Tight Money
The euro zone isn’t what economists call an “optimal currency area”. In other words, it was a bad idea. Its different members are different enough that they should have different monetary policies. But they don’t. They have the ECB setting a single policy for all 17 of them. That’s a particular problem for southern Europe now, because their wages are uncompetitively high relative to northern European ones, and the ECB isn’t helping them out.
There are two ways to fix this intra-euro competitiveness gap. Either northern European wages rise faster than normal while southern wages stay flat, or northern European wages grow normally while southern European wages fall. It’s the difference between a bit more inflation or not — in other words, between looser ECB policy or the status quo. Now, it might not sound like it really matters which option they choose, but it very much does. Falling wages make it harder to pay back debts that don’t fall, setting off a vicious circle into economic oblivion. The ECB apparently prefers pushing more and more countries into oblivion with too tight money than risk anything resembling more inflation.
2. Too Tight Budgets
Austerity has been a complete disaster. It’s actually increased debt burdens across southern Europe, because it’s reduced growth more than it’s reduced borrowing costs. And now northern Europe is getting in on the act. France (which is really somewhere in between “southern” and “northern”) just missed its deficit target, and is set to slash more; the Netherlands has put through contentious tax hikes and spending cuts, even as its economy has shrunk; and even Germany is contemplating new budget-saving measures. In other words, the euro has become an austerity suicide pact.
3. Too Little Trade
Excluding Germany, just over half of all euro trade is with each other. But with bad policy pushing southern Europe into depression and northern Europe towards recession, euro zone countries can’t afford to buy as much stuff from each other. That adds a degree of difficulty to recovery for southern European countries that need to export their way out of trouble. As you can see in the chart below from Eurostat, intra-euro zone trade has stagnated the past few years after rebounding from its post-crash depths. The euro zone’s weak links are dragging the rest down — but only because the rest refuse to pull the weak ones up.
4. Too Much Financial Interconnection
Other country’s problems can quickly become your own if your banks own their bonds. Especially if your banks are bigger than your economy. That’s the lesson Cyprus learned the very hard way after its banks loaded up on Greek debt in 2010, only to get wiped out a year later. The Financial Times has a great infographic (that you should play around with) on which country’s banks are exposed to which other country’s debt across the euro zone. As you can see below, any kind of Italian restructuring would be tremendously bad for French banks.
The euro is the gold standard minus the shiny rocks. Both force countries to give up their ability to fight recessions in return for fixed exchange rates and open capital flows. But giving up the ability to fight recessions just makes it easier for recessions to turn into depressions. And that puts all of the pressure on wages to adjust down when a shock hits — the most painful and destructive way of doing things.
But the gold standard had an even bigger design flaw than creating depressions. That was perpetuating depressions. Under the rules of the game, countries short on gold were supposed to raise interest rates, which would push down wages, and push up exports. More exports would mean more gold, and then lower interest rates. But there was an asymmetry. Countries needed gold to create money, but countries didn’t need to create money if they had gold. During the Great Depression, the U.S. and France sucked up most of the world’s gold, but didn’t turn it into money out of fear of nonexistent inflation. Countries that needed gold needed to push down wages even more to make their exports competitive — not that there were any booming markets for them to export to, due to the self-inflicted economics wounds of the U.S. and France. Instead, the depression just fed on itself.
The euro suffers from a similar asymmetry. Debtor-euro countries are to cut wages and deficits, but creditor-euro countries aren’t forced to increase wages and deficits. Perversely, the opposite. In other words, northern Europe isn’t doing enough to offset the demand destruction in southern Europe. And it’s sinking them all. Even worse, this slow-motion collapse is turning loans that would have otherwise been good into losses — losses that force bailouts and faster collapses. But, to be clear, this isn’t only a problem for the periphery. As the U.S. and France found out in the 1930s, it’s generally not a good idea to force your customers into bankruptcy. That just creates depression without end — until the gold (or euro) standard ends. It’s no coincidence that the countries that ditched the gold standard first recovered from the Great Depression first.
History doesn’t need to repeat, or even rhyme. Europe doesn’t have to keep crucifying itself on a cross of euros, the gold standard of the 21st-century. The euro’s northern bloc could decide to let the ECB do more. Or it could decide to start spending more. Or not. Eurocrats seem content to do just enough to keep everything from falling apart, and nothing more. It’s one part inflationphobia, and another part strategy. Indeed, it’s how they try to keep the pressure on the southern bloc to push through unpopular labor market reforms. But doing enough today eventually won’t be enough tomorrow if the southern bloc doesn’t have any hope of recovering within the euro. The politics will turn against the common currency long before that.
By that point, Europe won’t need an acronym anymore.
The Following scenario can also be applied on a world wide basis
The arguments that the American Government caused this crisis through overspending on entitlements — serving the so-called losers of society — this is the standard line of the Far Right — doesn’t show up in this chart.
Government debt vis-a-vis Gross Domestic Product is not astronomical, according to this chart. It was not high in 1929 either, the last time the global economy had a heart attack and died. Public Debt is, in fact, at the time of this chart at least, lower than in 1945, when the public financed American involvement in World War II.
The Far Right illusion is that if government just ‘gets out of the way’ of private enterprise, the world will fix itself. But this chart gives a different picture of reality.
This chart says it is PRIVATE DEBT that is at astronomical levels vis-a-vis GDP. Private Debt in America was at 240% of GDP in 1929, before the global economy crashed then; and Private Debt in America was at 300% of GDP in 2009 — and is still at 260% of GDP now, higher still than in 1929.
Of course, there was a real estate bubble and subsequent banking crisis in the 1920’s. In fact, the asset bubble that began in 1921 caused the massive growth in private debt that destroyed the global economy then also. The web site below examines the housing bubble of 1921-1926.
The famous stock market bubble of 1925-1929 has been closely analyzed. Less well known, and far less well documented, is the nationwide real estate bubble that began around 1921 and deflated around 1926. In the midst of our current subprime mortgage collapse, economists and historians interested in the role of real estate markets in past financial crises are reexamining the relationship of the first asset-price bubble of the 1920s with the later stock market bubble and the Great Depression that followed. Limited data on 1920s home prices and foreclosures means that many questions remain unanswered.22 Historical trade publications like the weekly New York Real Estate Record and Builder’s Guide, of which Baker Library holds a sixty-year run, allow researchers to fill in the blanks. The implications of early findings may challenge conventional wisdom about the factors that caused and prolonged the Great Depression.
What this all suggests is that Big Business is refusing to take the blame for the Global Collapse it helped to create through the same mechanism it used in the 1920s pursuing recklessly their own economic empires — asset price inflation fueled by lower and lower interest rates – and has attempted to shift the blame on to the governments of the world (Big Government being the boogeyman of the Far Right).
The debt that must be destroyed before the global economy can reach a state of organic growth again is, primarily, private debt — private enterprise debt and private consumer debt. In fact, the very force that the Far Right says will save us from our current disaster is what caused and is still causing the current disaster.
Of course, Big Business has now found a convenient method for unloading toxic debt: by selling it at face value or even at future inflated value to the governments of the world. The governments are willing to buy worthless private debt in the hope of keeping themselves in power, of keeping their societies from unraveling into civil war and revolution. Why would Big Business ever concern itself with risk if there will always be a buyer of last resort willing to absorb the crimes and failures of the Free Market in pursuing the demon of Unlimited Wealth?
Then, of course, this forced ingestion of toxic (criminal?) debt by the governments in question — in hopes of avoiding civil war — has been followed by the political gambit of Big Business and the political supporters of Big Business screaming and shaking of fists at the government for taking on too much debt. Well, the ‘too much debt’ the public was taking on was the disaster debt of unregulated Big Business which made careless business decisions without care to risk or even to crime in many cases (organized crime almost certainly, organized crimes in white shirts on Wall Street).
Comstock Partners issued a report this year in which they found almost exactly the same evidence I am presenting — that it is PRIVATE DEBT that is the villain, and the cause of our collapse. And Public Debt is now growing as it takes on the burden of absorbing the Private Toxic Debt accrued from 2001-2008, mainly caused by the Housing Bubble (again).
From the Comstock Report:
In fact, the eight years between 2000 and 2008 the debt grew from $26.5 trillion (265% of $10 tn GDP) to $54.5 trillion (or $28 trillion from 2000 to 2008).
The private sector debt that grew the most was the household debt, mostly because of the massive purchases of homes and goods imported largely from emerging economies. This sector of debt was historically about 50% of GDP and 65% of Disposable Personal Income, but by the mid 1980s it starting growing exponentially until it was in a full blown debt bubble. This sector debt rose from $6.5 trillion in 2000 to almost $15 trillion in 2008. This sector is presently de-leveraging and is down to about $13 trillion on its way to below $10 trillion (in our opinion) as the de-leveraging continues to take a toll on the U.S. (as well as the global economy, since the rest of the world needs U.S. consumption). This is very similar to what took place in Japan starting at the end of 1989 (except that the bubble in Japanese debt resided in the non-financial corporate sector).
Currently, most observers are much more focused on GOVERNMENT DEBT where the debt ceiling was $6 trillion in mid 2002 and just recently President Obama signed a bill lifting the debt ceiling by $2.1 trillion to $16.4 trillion. If you count the unfunded liabilities (or the promises we made to retirees) this debt could be higher than $100 trillion. We believe this debt will have to be addressed thru either inflation (printing our way out at the expense of the U.S. Dollar), or deflating our way out through de-leveraging or defaulting on the enormous debt (we believe the deflationary solution to be the highest probability, at least initially). It is very difficult to inflate out of our present situation since banks will only lend to the best credits and the best credits don’t want to take on more debt-this is called a “liquidity trap” and stifles the “velocity of money.”
The problem with all of the above solutions is that they will not be easy to resolve since the government sector debt will have to grow to replace the private debt declines, in order to curtail the collapse of the economy. This is exactly what happened in Japan as their government debt grew to 225% of their GDP as the private debt declined in the deflation. We expect the solution that will evolve in this country will start with deflation. We will show exactly how we view deflation by displaying the chart “Cycle of Deflation” (see attachment) which we have used in many prior reports.
I am not suggesting that government debt is not a problem. I’m reminding the reader where this crisis began: with the DEREGULATION of Big Business. The proper role of Big Business is to pursue profits; and the proper role for Big Government is to regulate (provide laws and police powers to enforce these laws) Big Business. Where there are no laws — DEREGULATION — there will be only criminals, at least until we all pass into the Spiritual Kingdom in which selfishness and greed are no longer human problems.
We are heading down a long slow path of debt deflation that will peak in the year 2019. Don’t listen to those who claim that only American Ingenuity and Free Unregulated Business can get America back on its feet again — because those are the very same people who just threw America on its back, while pursuing their own economic empires — the world be damned. There will be a time for the ideology of empire and ingenuity and entrepreneurialism again — but not until after 2019.
We are not saints yet. Until we are all saints we need laws and police to protect decent people from the sharks who believe the world should and must be a world of shark-eat-shark only.
I will save my suggestion that American Bank reform should use the American public power utilities as a model for what banking should become in the future — I will save this for a future article. Bankers should be technicians and functionaries who serve the public and provide guaranteed stability, not entrepreneurs, not gamblers, who can always count on public bail-outs if their gambles turn to dust. Let the capital gamblers and entrepreneurs work in non-financial industries, such as technology and weapons-production.
The Government Has It Bass-Ackwards: Failing To Prosecute Criminal Fraud by the Big Banks Is Killing – NOT Saving – the Economy
The Morale of this story is that the real criminals are getting away Scot free whilst the story concerns the USA it is in reality a worldwide phenomena
U.S. Attorney General Eric Holder said today:
I am concerned that the size of some of these institutions [banks] becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy
As we’ve repeatedly noted, this is wholly untrue.
If the big banks were important to the economy, would so many prominent economists, financial experts and bankers be calling for them to be broken up?
If the big banks generated prosperity for the economy, would they have to be virtually 100% subsidized to keep them afloat?
If the big banks were helpful for an economic recovery, would they be prolonging our economic instability?
In fact, failing to prosecute criminal fraud has been destabilizing the economy since at least 2007 … and will cause huge crashes in the future.
After all, the main driver of economic growth is a strong rule of law.
Nobel prize winning economist Joseph Stiglitz says that we have to prosecute fraud or else the economy won’t recover:
The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that’s really the problem that’s going on.
I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That’s the point. There were victims all over the world.
Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.
Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals – and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future.
Indeed, professor of law and economics (and chief S&L prosecutor) William Black notes that we’ve known of this dynamic for “hundreds of years”. And see this, this, this and this.
(Review of the data on accounting fraud confirms that fraud goes up as criminal prosecutions go down.)
The Director of the Securities and Exchange Commission’s enforcement division told Congress:
Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public’s fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.
Paul Zak (Professor of Economics and Department Chair, as well as the founding Director of the Center for Neuroeconomics Studies at Claremont Graduate University, Professor of Neurology at Loma Linda University Medical Center, and a senior researcher at UCLA) and Stephen Knack (a Lead Economist in the World Bank’s Research Department and Public Sector Governance Department) wrote a paper called Trust and Growth, showing that enforcing the rule of law – i.e. prosecuting white collar fraud – is necessary for a healthy economy.
One of the leading business schools in America – the Wharton School of Business – published an essay by a psychologist on the causes and solutions to the economic crisis. Wharton points out that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable:
According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. “Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG.” The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. “Normal expectations of what is safe and dependable were abruptly shattered,” Sachs noted. “As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred.”
People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.
He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. “She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty. Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals.
“By no means a sophisticated economist, she knew … that some people had become fantastically wealthy by misusing other people’s money — hers included,” Sachs said. “In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished.”
Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. The public will need to “hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again.” In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again, he argued.
Note that Sachs urges “hold[ing] the perpetrators of the economic disaster responsible.” In other words, just “looking forward” and promising to do things differently isn’t enough.
Shiller said the danger of foreclosuregate — the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of foreclosures and related sales in doubt — is a replay of the 1930s, when Americans lost faith that institutions such as business and government were dealing fairly.
Indeed, it is beyond dispute that bank fraud was one of the main causes of the Great Depression.
Economist James K. Galbraith wrote in the introduction to his father, John Kenneth Galbraith’s, definitive study of the Great Depression, The Great Crash, 1929:
The main relevance of The Great Crash, 1929 to the great crisis of 2008 is surely here. In both cases, the government knew what it should do. Both times, it declined to do it. In the summer of 1929 a few stern words from on high, a rise in the discount rate, a tough investigation into the pyramid schemes of the day, and the house of cards on Wall Street would have tumbled before its fall destroyed the whole economy.
In 2004, the FBI warned publicly of “an epidemic of mortgage fraud.” But the government did nothing, and less than nothing, delivering instead low interest rates, deregulation and clear signals that laws would not be enforced. The signals were not subtle: on one occasion the director of the Office of Thrift Supervision came to a conference with copies of the Federal Register and a chainsaw. There followed every manner of scheme to fleece the unsuspecting ….
This was fraud, perpetrated in the first instance by the government on the population, and by the rich on the poor.
The government that permits this to happen is complicit in a vast crime.
Galbraith also says:
There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that’s a process which needs to get underway.
Galbraith recently said that “at the root of the crisis we find the largest financial swindle in world history”, where “counterfeit” mortgages were “laundered” by the banks.
As he has repeatedly noted, the economy will not recover until the perpetrators of the frauds which caused our current economic crisis are held accountable, so that trust can be restored. See this, this and this.
No wonder Galbraith has said economists should move into the background, and “criminologists to the forefront.”
The bottom line is that the government has it exactly backwards. By failing to prosecute criminal fraud, the government is destabilizing the economy … and ensuring future crashes.
Postscript: Unfortunately, the government made it official policy not to prosecute fraud, even though criminal fraud is the main business model adopted by the giant banks.
Indeed, the government has done everything it can to cover up fraud, and has been actively encouraging criminal fraud and attacking those trying to blow the whistle.
One of the less convincing critiques of the US presidential election campaign, which winds up on Tuesday, is that there has not been much to choose between the incumbent, President Obama, and his challenger, Mitt Romney.
The reality is very different. Instead, a stark choice exists. One can only judge a candidate on his past record and on what he has pledged to do in the future. Romney has said and done a lot of things, many contradictory, some deliberately so. It has been very hard to know during the campaign which Romney is real: the man who backed the precursor of Obamacare when he was governor or the candidate who suggested to donors that almost half of Americans were welfare beneficiaries beyond his political reach? Is he the centrist Republican of the first presidential debate or the man who insisted during the primaries he was “severely conservative”?
Doubts about Romney have accrued not only from his ever shifting politics but also from a wider sense of flakiness. His economic policies have a touch of the fantastic. Romney would enact large tax cuts, reducing revenue, while increasing defence spending sharply, but also arguing he would eat into the deficit by spending cuts alone.
On foreign policy too, Romney represents a return to the disastrous years of George W Bush – threatening confrontation with China by saying he would list it as a currency manipulator, while making bellicose noises about conflict with Iran.
On the other side of the balance sheet, what is there to say about Obama? Few would disagree that America’s first black president, who was once able to inspire with his oratory, has lost some of his lustre. The messages of hope and change ran aground in the midst of the worst economic crisis since the Great Depression, exacerbated both by the parlous state of the economy he inherited from his predecessor and by the two huge costly wars he was obliged to fight.
If he has not transformed America in the way that many might have hoped, he has at least mitigated some of the pain while moving to bring to an end one of the US’s greatest iniquities, its shocking inequality in affordable healthcare provision. Through the car manufacturers’ bailout, his insistence on stress testing of banks and through carefully targeted stimuli, he ensured that the US now appears to be emerging from financial crisis with modest growth and a rise in employment figures even as those European governments that pursued a strategy of austerity are at very best bumping along the bottom. Obama steered a course between the left of his own party, who were advocating for populist but risky measures, and Republican obstructionism.
On foreign policy, the Obama doctrine has been a mixed bag. He strictly limited US involvement in the most significant military adventure launched under his watch, in Libya, and has resisted Israeli pressure for military strikes against Iran. On the Arab Spring, he has preferred by and large to keep a watching brief and avoided an overt entanglement in Syria. After the war in Iraq, launched on a false pretence, and the mishandling of Afghanistan by Bush, this caution should be seen as positive.
But while Obama may have brought an end to some of the human rights abuses of the Bush era, he has failed either to close Guantánamo Bay, as he promised, or moved to end the immunity of Bush-era officials implicated in abuses.
On climate change too, Obama has been disappointing, not least on the campaign trail. In 2008, speaking at the Clinton Global Initiative, he insisted: “No single issue sits at the crossroads of as many currents as energy. This is a security threat, an economic albatross and a moral challenge of our time.”
Whoever is elected will face a new presidential term marked by considerable challenges. While the US is recovering from recession it remains weak and would be vulnerable to a number of factors, including a war in the Gulf over Iran disrupting oil supplies, China falling into recession itself or a further worsening of the eurozone crisis.
He will also have to engage quickly with the “fiscal cliff”, due at the year’s end, when temporary payroll tax cuts are due to come to an end, which promises a tough choice between sharp tax increases for ordinary Americans that would threaten the recovery (but cut the deficit) or an extension of the tax cuts and a consequent increase in the deficit, an issue fraught with political strife.
On the wider stage, the war in Syria is sucking in its neighbours, producing growing instability and, for all Obama’s alleged commitment to negotiated solutions, he appears unable to engage Assad’s main backer, Russia. The proposed draw down of the majority of US troops in Afghanistan by 2014 and the continuing tensions in Pakistan threaten another crisis.
Despite all of these caveats, the candidate best equipped for the challenging period ahead is Barack Obama. While his campaign has hardly been inspiring, he remains a thoughtful figure who has taken his responsibilities with a seriousness absent from the Bush years. He has brought a new dignity to the White House and while there remain many who are still opposed to him simply for the colour of his skin, for many others he has achieved the remarkable by making it seem unremarkable that the president of the United States is a black man.
His response to hurricane Sandy, praised by both the independent mayor of New York, Michael Bloomberg, and the Republican New Jersey governor, Chris Christie, was a belated reminder that there is a wider middle ground in US politics than the recent period of partisan disputes has often led us to believe.
In the coming months, it will not be solely the new president’s responsibility to confront the challenges facing the US and the world but all of those involved in the US political process. Any chance for healing and consensus after the elections should be grasped by all sides. This election offers an opportunity for a fresh start for US politics itself. It should not be squander