?I will listen to you, especially when we disagree.? When Barack Obama uttered these words on an unseasonably warm November 4, the 70,000-strong crowd in Grant Park erupted in applause. Outside, the streets of downtown Chicago were packed with hundreds of thousands more. People screamed, cried, and fainted. This was the night they had been waiting for.
It is impossible to conclusively gauge a president?s performance since there is no scope for a counterfactual experiment. Now we will never know how John McCain would have fared as a president. Yet, there is reason to believe that the Americans have made a very good choice.
Apart from the symbolism of his race and the nebulous optimism of his message of change, Obama?s victory will have a number of tangible impacts. First, and perhaps most significantly, his judicial nominees will maintain the current balance of the Supreme Court. Second, his healthcare plan is less likely to disadvantage the elderly and infirm than McCain?s plan would. Third, he will broadly follow the Democratic Party?s approach to the economy.
While there is still debate on the root cause of the current financial crisis, it is understood to be a combination of predatory lending, mispricing of risk, and coordinated panic. A president simply does not (and should not) have the expertise to single-handedly deal with a problem this complex. So, to predict how Obama will address the first major challenge of his presidency, we must turn to his temperament and his Democratic party?s politics.
On both, he is strong. Not only has Obama established his temperamental advantage in the face of Republican onslaught, the Democrats have traditionally been the party of greater regulation. As prominent economists from Paul Krugman to Joseph Stiglitz have argued, regulation in this case is not meant to stifle business. Rather, it is a way to force large banks to internalise the economy-wide costs of the risks they take on.
It is now well known that Obama has promised to raise income tax rates for individuals earning more than $250,000 per year, while maintaining (or lowering) the rates for the rest of the population. The tax cuts and effective increase in welfare benefits for the poorest are likely to spur spending, which makes sense in a recession. But there is also the question of how the tax hikes will affect the incentives of the rich and whether this will have an adverse trickle-down effect. The fact that the Republicans have focused more on the moral aspects of Obama?s tax plan than on this question suggests that they have failed to gather much evidence in their favour.
The moral arguments against taxes have been misguided and disingenuous. First, Republicans seem to forget that taxes are not simply redistributive. Taxes also fund public goods that benefit the entire population. The military is an obvious example, but there are many others. One can imagine, for example, that Joe the Plumber?s life would be considerably less pleasant in a world where toilets were not integrated into a public sanitation system.
Second, the idea that ?spreading the wealth around? is somehow stealing is to take the notion of property rights to an indefensible extreme. This suggests that labour is perfectly priced, and that those who benefit from taxes do not deserve to do so. This claim is somewhat implausible given the inequality of opportunity visible all across this country, not least on my daily subway ride to work across the South side of Chicago.
An Obama presidency does leave some things to be concerned about. There is a risk that he will be overly protectionist, which could have direct negative impacts on trading partners like India. Also, while his general respect for the outside world is reassuring, it is not clear that he has a viable plan to end the war in Iraq.
But now that the American people have spoken, we can only hope that the billion dollars spent on this election were worth it.
The author is a post-doctoral fellow and instructor in economics at the University of Chicago