Economic Consequences of Barack Obama’s Re-election

Viewed through the prism of his reelection, Obama’s election in 2008 has aspects that are noticeable today, that were negligible only two days ago. November 6 commenced the second act of a drama that began writing itself four years ago. There are, of course, many other aspects related to the internal evolution of American society, but with respect to the economy the meaning of this second win by the African-American president is unquestionable.

In September 2008, the bankruptcy of Lehman Brothers presented the United States and the world with a dilemma that has yet to be resolved, hence the difficulty in leaving the crisis behind. From 1991 to 2007, the world economy recorded unprecedented growth rates; those were the relatively happy years of the New Economy and globalization. Today, it is agreed that such growth was brought about by several factors: 1) The generalization of international trade with the massive incorporation of emerging countries, led by China, which culminated in the inauguration of the World Trade Organization in 1999; 2) The liberation of markets in a broad sense, with particular emphasis on the deregulation of finance, which permitted the mobilization of savings on a global scale; 3) The development of a host of technologies for civil use with military precedent, progressively “declassified” after the end of the Cold War, with the emergence of the Internet; 4) A long period of absolute power held by the United States, which imposed some global political stability. The result was a rare combination of strong growth and low inflation (despite cheap money politics), in a picture of sustained prosperity. The impact of those factors declined gradually, including the lessening impact of new technologies after the bursting of the so-called “dot-com bubble” in 2000. The power of the United States was also weakened, challenged by China during the “Hainan Island Incident” in April 2001 and by the terrorist attacks on the Twin Towers and the Pentagon in September of the same year. On the other hand, international trade and market deregulation steadily advanced, until it reached the practically complete liberation of many products, markets and countries. The bankruptcy of Lehman Brothers (preceded by the recovery of Bear Stearns, Freddie Mac and Fannie Mae in previous months) fell like a bucket of cold water and posed problems whose lack of solution has resulted in great uncertainty.

A small but very influential minority—let me call it “Wall Street” —understood that the key to escaping the financial trap rested on continuing with deregulation, without hesitation, and on putting an end to expansive monetary policy, seen as a cause of the crisis after having led economic actors to borrow beyond their means to repay the debt. “Main Street”—the dominant opinion among ordinary citizens—understood that it was about putting an end to the ability of financial markets to change the life of ordinary people. At first, the balance leaned towards Main Street, with whose support politicians hoped to temper the dominance of the economy, which had been most evident in previous decades. It was this initial movement, ready to return control to politics, that gave Obama the presidency in those early months of the crisis. The International Monetary Fund itself recommended not bargaining over fiscal stimuli in order to sustain production and employment. However, the crisis revealed an unexpected weakness in the banking sector globally, a consequence of former indebtedness. The perception of this problem returned credibility to Wall Street, which had insisted on it from the start. A balance was reached in the fall of 2009, when the strength of Wall Street had once again surpassed that of Main Street, and the governments in both Europe and the United States opted to curb both fiscal and monetary stimuli and returned to the markets to finance deficits enlarged by previous stimuli and falling tax revenues. From there, enthusiasm for Obama began to cool.

For Wall Street, three years of slow recuperation of its long-standing influence had made this sector hope for a radical change in the tide of the 2012 election. Such was the role assigned to Mitt Romney. However, Romney was not only the champion of Wall Street, but the champion of the anti-abortion movement, of teaching creationism in schools, of putting an iron break on immigration and of unilateralism in international politics. From the beginning, there was no reason why the global liberal (what I have called Wall Street) should have aligned themselves with the “neocons” and reactionaries of all sorts. Moreover, I think that they could have found numerous reasons to do the opposite. I want to believe that the inclination of liberal Americans to maintain economic positions similar to those of European social democracies pushed Wall Street to look for friends from the opposite side. However, it is evident that Obama’s win means a complete defeat for the front formed by Wall Street and its companions. It is a defeat, moreover, in which Wall Street has the most to lose, given that its companions will have the opportunity to look for compensation in the political atmosphere of the EU, which is not the case for global liberals.

Now, Obama has four more years to govern, without the need to be reelected. It will not escape him, a man as smart as he is, that yesterday’s support cannot only be read in economic terms but must still take them into account. Those who want to give more protection to the weak, to overcome the crisis, have won. They are also those who do not wish to impose greater sacrifices to generate higher volumes of savings. Without a doubt, this is a difficult problem for Obama. However, it is much more difficult for Wall Street, which, carried away by doctrinal fundamentalism, has not wanted to look for solutions in compromise. Wall Street demonstrates a morality based exclusively on greed and self-destruction and, in all probability, its days are numbered.