Leading article: A burden of economic responsibility

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: UI / UX Designer

£25000 - £35000 per annum: Recruitment Genius: This firm are focussed on assis...

Recruitment Genius: General Processor

£7 per hour: Recruitment Genius: A vacancy has arisen for a General Processor ...

Recruitment Genius: Outbound Sales Executive - B2B

£18000 - £22000 per annum: Recruitment Genius: A great opportunity has arisen ...

Recruitment Genius: Online Sales and Customer Services Associate

£14000 - £16000 per annum: Recruitment Genius: Full time and Part time positio...

Day In a Page

Read Next

i Editor's Letter: Our representatives must represent us

Oliver Duff Oliver Duff
MP David Lammy would become the capital’s first black mayor if he won the 2016 Mayoral election  

Crime, punishment and morals: we’re entering a maze with no clear exit

Simon Kelner
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

What is it like to live with Alzheimer's?

Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
The Internet of Things: Meet the British salesman who gave real-world items a virtual life

Setting in motion the Internet of Things

British salesman Kevin Ashton gave real-world items a virtual life
Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

Election 2015: A dead heat between Mr Bean and Dick Dastardly!

Lord Ashcroft reveals latest polling – and which character voters associate with each leader
Audiences queue up for 'true stories told live' as cult competition The Moth goes global

Cult competition The Moth goes global

The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

Pakistani women come out fighting

Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
Leonora Carrington transcended her stolid background to become an avant garde star

Surreal deal: Leonora Carrington

The artist transcended her stolid background to become an avant garde star
LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

Education: LGBT History Month

Pupils have been discussing topics from Sappho to same-sex marriage
11 best gel eyeliners

Go bold this season: 11 best gel eyeliners

Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

Cricket World Cup runs riot to make the event more hit than miss...

The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

Katarina Johnson-Thompson: Ready to jump at first major title

After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot