The Hindu Business Line : Change and challenge

Mr Obama has to wean Americans from their spendthrift ways, protect jobs, provide relief from mortgage woes and improve public healthcare and education.

It would be fair to say that the economic agenda dominated the voters’ choice in the US Presidential election that saw Mr Barack Obama emerge winner in a manner that few have in recent memory. Clearly, the average American is confronted with a serious economic situation that threatens to undermine the ‘American way’ and Mr Obama has been able to persuade a significant number of Americans cutting across race and other socially divisive issues into believi ng that he represents the best chance for bringing about change. In contrast, his Republican Party opponent, Mr John McCain, suffered, in electoral terms at least, for representing the same party as the incumbent President, Mr George Bush. While the latter’s misguided military adventures might have helped Mr Obama, it is by no means certain that his economic policies had any particular effect on the turn of events in the financial sector. Indeed, the credit exuberance that triggered the present economic turmoil predates Mr Bush’s two terms in office. The housing boom with all its sub-prime lending aberrations goes back in time to the Clinton Administration, which abolished the separation of investment and commercial banking businesses. The average American household’s penchant for living consistently beyond means is not a peculiar Bush legacy either.

The President-elect will assume office at a time when the US economy has entered a phase of recession that threatens to drag the rest of the world with it. The challenge is made worse by the fact that it is beset by structural rigidities. How, for instance, will the US reduce its oil dependency without fundamentally altering the American lifestyle of expansive suburban living with long commutes to the workplace in fuel-guzzling SUVs? What are the policy options to improve the competitiveness of the manufacturing sector relative to China without altering domestic wage levels? From a macroeconomic framework the task before Mr Obama is this: He has to wean Americans from their spendthrift ways, protect jobs, provide relief against immediate mortgage woes and improve the quality of public provision of education and healthcare. Mr Obama has to manage all this even as he seeks to balance the federal budget; keep taxes at the present level and not do anything radical on the outsourcing front that could hurt corporate profits.

For the Indian policy establishment looking for signals from the new administration, the days immediately ahead will hold considerable significance. The composition, with particular reference to ideological leanings, of the US national security team has implications for the tilt that the new administration will have in such matters as the nuclear deal, Indo-Pakistan relations, and so on. Mr Obama has been elected on a campaign of ‘change’. That need not be confined to matters economic.

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