The last duel for the conquest of the White House is on the economy. And it could not be otherwise in a financial crisis which is the first truly global and which has been tormenting the whole world for five years. "The percentage of people out of work - attacks the Republican candidate Mitt Romney - is higher today than when President Obama took office". "Our companies - retorts the Democratic president Barack Obama - hired more in October than in all the previous eight months". Where is America going, who will win the presidential elections on 6 November and what will be the effects for Italy and for Europe? FIRSTonline asked one of the best known Italian economists and a good connoisseur of the United States, Marcello Messori, professor of political economy who has been teaching at the Luiss University in Rome since this year.
FIRSTonline – Professor Messori, you studied both at MIT and at Stanford in California, you were a student of Stiglitz and you know America well: who will win Tuesday's elections?
MESSORI - I am neither a political scientist nor a pollster and, therefore, my prediction is nothing more than a hope: Obama will be confirmed because, despite the criticisms that have rained down on him, during his first presidency he managed to manage a very difficult especially for the economy; and he did so despite having to deal with a Congress that was often prejudicially opposed to him.
FIRSTonline – What impressed you most about the different economic policy proposals fielded by the two challengers?
MESSORI – I was struck by the electoral strategy of the challenger, Mitt Romney, who made proposals for contradictory to each other, without worrying that they were incompatible and - therefore - impossible to translate into practice. The financial and 'real' crisis has proved the inconsistency of the 'drip' theory, ie the thesis according to which reducing taxes on the rich also benefits economic growth, the income of the poorest and the equilibrium of the public budget. Yet Romney has announced that he will cut the heavy US public debt without introducing new taxes and without harming the interests of middle-low incomes. Proposals of this kind are a sign of the absence of solid content in the entire economic policy approach of the Republican candidate.
FIRSTonline – And what struck you about Obama economically?
MESSORI – Even more than what he said (or didn't say) during the electoral campaign, the opposing criticisms that we Europeans and Wall Street exponents have leveled at him for his presidential work in the financial field. Europe has criticized Obama because, in the post-crisis period, his financial regulatory initiatives have oscillated between a "light touch" and the introduction of a body of legislation so complex as to be practically impactless. Yet Wall Street and a large part of the business community, which in the fall of 2008 had not taken a preclusive attitude towards Obama's candidacy, have shown that they view these regulatory initiatives as an aggression towards their activities and have used heated tones against the re-election of the current President.
FIRSTonline – But how do you explain the fact that, despite being the apologists of the unregulated market and therefore being the main political leaders of the great crisis we are still experiencing, the Republicans are back in the running and until the end we have the hope of regaining White House? How do Americans think when they go to vote?
MESSORI – There is a more 'rational' and a more 'pessimistic' key to answering this question. In the first case, it can be assumed that the US electorate knows how to distinguish between the ideology of a presidential campaign and an effective capacity to govern. Even many Democrats recognize that, as governor of Massachusetts, Romney has not squashed himself on liberal positions à la Reagan or Bush Jr. but he preferred a pragmatic line; and this pragmatism of his can be seductive compared to Obama's excess of 'analyticity'. In the second case, it should instead be admitted that the voters have already forgotten the causes of the crisis, its seriousness, the consequent risks of explosion run by their economic system and the effective tools put in place by the current Administration. US citizens limit themselves to pointing out that the recovery of the economy, even if it is underway, is too fragile to ensure satisfactory levels of employment. Such an attitude of the electorate, which tends to punish those who govern, is harmful because it accentuates a vice already rooted in politics: the short-term perspective.
FIRSTonline – From an economic point of view, what will Tuesday's elections change for America, for Europe and for the rest of the world?
MESSORI – While proving to be more dynamic than the European Union, the US economy is in a very complex phase. The positive impact of organizational innovations, triggered by ICT especially in the service sector, was perhaps exhausted in the middle of the first decade of the XNUMXs. The attempt to support growth through household and public sector debt aggravated the system's imbalances even before the crisis. In the aftermath of the crisis, the USA will not be able to resume living beyond their means. Whether Obama wins or Romney wins, the central problem will not change: how to grow without a reservoir of technical innovations and in the presence of three very severe constraints. The problem is that the recipes of di Romney are not adequate to support or accompany US economic growth. And the latter is an essential component for the European and Japanese recovery and for the development of the rest of the world.
FIRSTonline – What are the three constraints that are destined to weigh on the American economy?
MESSORI – US policy makers will have to prevent households from falling back into debt before they have repaired their balance sheets, they will have to reduce public debt (at both the federal and state levels) before the situation becomes explosive, they will have to bring the deficit under control of their current accounts also to rebalance relations with China. Growing while respecting these three constraints will not be easy.
FIRSTonline – And as a first test will the new President face the fiscal cliff?
MESSORI - Exactly. Precisely in relation to the critical issues just mentioned, the new President will have to manage the problem of tax cliff, striking a balance between reduction of deficit audience and need to reproduce props of to still fragile economic growth. A possible way out will be to combine the continuation of an expansive monetary policy with the launch of a gradually restrictive fiscal policy.
FIRSTonline – Challenge even more difficult with Bernanke's imminent farewell to the Fed and his Quantitative Easing?
MESSORI – It will depend on who will be Bernanke's successor at the helm of the Fed after 2014; and, in this regard, the electoral result will be very important. If Obama wins, even after that date the Fed's policy will remain in the wake traced by Bernanke (with or without his further mandate). Should Romney win, however, monetary policy is likely to return to a more traditional rut regardless of the economic juncture; which would make it even more difficult to combine the three constraints on the US economy, discussed above, with sustaining growth. In any case, as Bernanke assured, US interest rates of should remain close to 0 until 2014.
FIRSTonline – For Italy, the stakes in the American elections appear very high. Obama has bet on Monti and Marchionne, while Romney fears that the US could go the way of Italy. What will change for us after the vote in America?
MESSORI – Indeed, in Obama's vision, the European recovery is fundamental for the success of US economic policy; conversely, foolishly isolationist suggestions are once again surfacing among the republicans. Therefore, beyond ideology, the European Union and Italy have good reasons to hope that Obama will be re-elected. This applies, in particular, to Italy. As is well known, to win his bet on the recovery of the car industry, Obama has mainly bet on Marchionne's Chrysler; at least in words, Romney is instead opposed to industrial policy interventions in favor of traditional sectors (but with high employment) such as the car sector, only to later accuse Marchionne of unacceptable delocalization objectives. Furthermore, Romney accuses Obama of pursuing the European model, characterized by inefficient statism and excessive social protection; and he raises the specter of a consequent Italian drift. Conversely, Obama acknowledges the progress made by the European Union and Italy but is critical of Germany's obsession with rigor. Therefore, he points to Monti as the European statesman capable of mediating between the unavoidable objectives of economic growth and compliance with the constraints of rigor.
