Friendly Observer
By Arthur Keefe
American elections
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| Historic photo. Screenshot of the historic photo of re-elected US President Barack Obama and First Lady Michelle with 3.5 M shares/likes. This picture was shot in August in Iowa. Photo: http://www.ndtv.com |
Now the dust has settled on the American elections, we can take a look at the challenges facing the President and the Government. Many Filipinos supported the Republican, and when I ask why, they often refer to opposition to Obama's health care reform and to the management of the economy.
Much of their information on health care comes from their relatives, many of whom work in that sector. Hostility is not surprising. The USA health care system consumes one in every seven dollars (15 percent) of the total GDP (create wealth) every year. It sends more as a fraction of its income than any other country in the world. The European average is below 10 percent. It has some of the best health care in the world, but at very high cost. Despite this, 40 M Americans have no access through insurance and the infant death rate compare with developing countries in Africa! On top of this, medical debt is the single biggest cause of personal bankruptcy in the US.
The beneficiaries of this high cost system are substantially those involved in the industry. Doctors, nurses, administrators, insurance companies, banks, etc. It is not surprising that these vested interests have spent huge sums lobbying against the Obama reforms which go some small way to reducing costs and extending coverage. Those working in the system see a threat to their privilege and even those at the bottom end feel threatened as the lobbyists cry doom and gloom.
Romney had promised to repeal the Obama reforms, but he miscalculated. There are far more people who know they will benefit from the changes. They are the poor, the workless, and the long-term sick and disabled. They voted overwhelmingly for Obama and for his reforms, far outweighing those working the system.
This is not the end of the story. The reforms passed so far are modest and leave the health care system largely in private hands. In order to drive down costs-absolutely essential with an ageing population-further regulation and changes will be needed. Whether Obama will have the stomach for another bruising encounter on this issue I doubt, as with a Republican ran House of Representatives, he will be resisted at every turn.
The other key issue was management of the economy and in some respects, the worst is yet to come! Looked at objectively, as does the Economist Magazine or the Wall Street Journal, America has weathered the financial crisis better than most. Unemployment at 7.9 percent is lower than most of Europe, which in Spain and Greece now tops 25 percent and 50 percent for those under 25 years old. Economic growth is almost two percent this year, which is almost the same as the long term trend figure. In Europe, the UK has nil growth, while the South European States are seeing serious contractions (negative growth). The home repossession rate has begun to fall and the much criticized (by Romney among others) bail out of the motor industry has worked and the loans made to them have been repaid in full.
Most European countries would love to have America's record!
However, this has all been achieved at the price of huge debt, as the government has used borrowed money to finance much of the stimulus. A national debt figure of 104 percent of the annual GDP is huge and will take years to pay off. Fortunately, very low interest rates keep the cost of borrowing low.
The next major political crisis for the USA comes in January 2013, if not solved before then, as Congress have capped the borrowing ceiling and are insisting on tax cuts for the rich and cuts to public spending, mostly for the poor, as the huge military budget is not part of their proposal. Apart from the social consequences of such a package, most economists argue that this will send the US economy into sharp recession, perhaps as much as 1.5 percent, with big increases in unemployment. Whilst the approach could at fair reduce government debt, the impact of such a sharp contraction is the economy will paradoxically make it much harder to finance the debt, as tax revenues will fall and the cost of social benefits will rise. Of course, the Republicans do not accept that, but few economists support their position.
In the end, the President has the popular mandate of a fresh election and the Republicans are likely to pull back from the brink as they did earlier this year. However, some brinkmanship in again likely. Obama is very unlikely to cushion the rich and hit the poor-so more debt is the likely outcome.
On foreign policy, the debates showed how there is little difference between the two parties. Romney would have been more hawkish on Iran and Israel, but much of this is probably rhetoric rather than policy.
The big issue which will extend beyond Obama's term, is how the USA manages its repositioning from the Middle East to the Pacific. China's ambition to become a maritime power will threaten the US and tensions will need to be handled. Fortunately, the economic symbiosis means that neither side can afford to really antagonize the other. The Cold War with the USSR offers no parallel, as the Soviet and Western economies were largely unconnected.
Some ask why do I write about other countries in this column. Often it is to learn from them and to lift our horizons. In the case of the USA, it is because like it or not, the US remains the world's dominant economic and political power and as the old adage says, if America sneezes, the rest of us catch a cold.
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