With only a little over a month to go to US elections, and with the candidates avoiding difficult questions to focus on what wins votes, it´s a good time to ask what is at stake for the economy, and for the world, in the US elections.
Three key issues need to be faced by a new president in the relatively short term: debt reduction, health care and the environment. All three issues are urgent and could have a huge impact on the economy´s prospects.
1) In the area of deficit and debt reduction, the new president will face a debt that is the largest as a % of GDP that the United States has ever faced in peacetime. The debate rages over whether further deficit spending would be a «free lunch» for the economy or whether the debt will prove a severe drag on future growth, but some decision points are looming in the very short term.
If Congress fails to agree on a credible medium-term debt-reduction plan by the end of the year, automatic spending cuts and tax increases will be implemented in January, pushing the economy off what is being dubbed a «fiscal cliff». The Congressional Budget Office and many independent forecasters expect that if the economy goes over this cliff, it will drop back into recession and unemployment will climb back above 9%. So the pressure to do something about the deficit and debt is enormous. Moody´s has already warned that the prized triple-A rating for US bonds is at stake.
2) In the area of health care, the president-elect will find himself with an economy whose health care is the most expensive in the world, costing 15% of GDP between public and private spending, yet where many indicators such as infant mortality and life expectancy are not stellar, and 15.7% of the population is without health insurance.
President Obama´s health reform act, passed in 2010 with the objective of bringing all Americans under the umbrella of health insurance and moving toward greater cost control, has been repudiated by the Republicans, and Mitt Romney has even pledged to repeal it.
Even though the Supreme Court has upheld «Obamacare» as constitutional, radicals in the Republican party are determined to eliminate it due to its projected cost, but their alternative plan would remove security from the elderly who currently enjoy basically free health care. Whoever is elected will have to make decisions on the shape of future US health care, and how it will be funded in the context of deficit reduction.
3) And finally, a new candidate will face increasing pressure from the international community and from the American public –particularly the young– to do something on the environmental front. The US, one of the world´s largest emitters of carbon (now surpassed by China), has stayed away from international climate agreements. Can it continue to stand on the sidelines? A new president will probably be forced to take a stand, which may be the traditional Republican one of leaving the problem to the market, or could involve fulfilling Obama´s election promise from 2008 of joining the post-Kyoto efforts.
Whoever wins in November, the composition of the new Congress will be decisive. If Obama wins and is faced with a Congress controlled by radical Republicans, his next four years could be as unproductive as this term has been. If Mitt Romney were to win and the Republicans were to take Congress, a radical conservative agenda could be pushed through, changing the face of the US economy for decades. If Obama were to win and a moderate Congress were to be elected, the Democratic platform would make its way into law. The next few weeks are critical, for the United States and for the global economy.