Leading article: A burden of economic responsibility

Share
Related Topics

Barack Obama has a lament about his administration's Republican opponents in Congress: "If I said the sky was blue, they'd say no. If I said fish live in the sea, they'd say no". President Obama's complaint is understandable. And he would not be the first occupant of the White House to find himself stymied by the boys and girls on The Hill.

He is right, too. The Republicans are indeed determined to stop Mr Obama offering tax breaks to business and the middle classes. And he is equally sure he will not give way and extend the Bush-era tax cuts for the very rich which are due to expire at the end of this year (which the Republicans continue to champion despite the decisive rejection of Mr Bush's brand of free-market liberalism at the polls in 2008).

So who will win this struggle? Oddly, in Keynesian terms, the arguments are balanced. That is because the $200bn (£129bn) in credits that the White House wants to grant businesses are "fully paid for", and may thus offer no net new stimulus to the US economy. They would help the US rebuild and raise its growth rate in the longer term, as new plant and machinery boosts productivity. But they would provide no immediate boost to demand. By contrast, the Republicans' extension of tax cuts for the rich are not similarly funded and could, in theory, provide a stimulus. Then again, the rich tend to save their tax cuts rather than spend them, so the boost to demand would be much more mooted than if, say, $100 bills were dished out to the recipients of food stamps.

The problem with both proposals is that they risk coming too late to do much good. Few businesses are willing to invest and few individuals willing to spend any tax rebates without that magic ingredient of confidence. Of course a large cheque from the government can always improve sentiment, but, once it has evaporated, business and consumer confidence is extremely difficult to create afresh.

The uncertainty created by the midterm elections is not helping, and deadlock between the White House and Congress after November would probably destroy any residual faith in the future that may still lie in the heart of even the sunniest American.

The good news is that the signals from America are, at worst, mixed. The bad news is obviously that it is increasingly plausible that the US could fall into the kind of deflationary cycle seen in the 1930s or in 1990s Japan. She would drag the world down with her. All of which leaves an awesome burden of responsibility with the Federal Reserve. Ben Bernanke, the chairman of the board of governors of the Fed, has already made some modest moves in the direction of further "quantitative easing", or QE. At the recent summit of the world's central bankers at Jackson Hole, Wyoming, Mr Bernanke made it clear that he stood ready to launch "QE2".

But he was also plain that the Fed cannot carry the US economy on its own: "A return to strong and stable economic growth will require appropriate and effective responses from economic policy-makers across a wide spectrum. Central bankers alone cannot solve the world's economic problems". Not quite an abdication of responsibility, but a plea for the politicians to get their act together.

Things may yet come right. It is possible that the Republicans will put aside their total opposition to anything proposed by the White House or the Democrats, though on current form that is unlikely. President Obama may be so chastened by the election results that he will offer some hefty concessions to his opponents. Public opinion and pressure from the Fed and the rest of the G20 might sober up the US political classes. A fresh financial crisis would also focus minds. But do not bet the economy on it.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Project Implementation Executive

£18000 - £23000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Chiropractic Assistant

£16500 per annum: Recruitment Genius: A Chiropractic Assistant is needed in a ...

Recruitment Genius: Digital Account Executive - Midlands

£18000 - £26000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Web Developer

£28000 - £30000 per annum: Recruitment Genius: This company provides coaching ...

Day In a Page

Read Next
With an eye for strategy: Stephen Fry’s General Melchett and Rowan Atkinson’s Edmund Blackadder  

What Cameron really needs is to turn this into a khaki election

Matthew Norman
An Italian policeman stands guard as migrants eat while waiting at the port of Lampedusa to board a ferry bound for Porto Empedocle in Sicily. Authorities on the Italian island of Lampedusa struggled to cope with a huge influx of newly-arrived migrants as aid organisations warned the Libya crisis means thousands more could be on their way  

Migrant boat disaster: EU must commit funds to stop many more dying

Alistair Dawber
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own