The U.S. Economy and Election Politics – Tug o’ War 2012

“It has been said that democracy is the worst form of government except all the others that have been tried.”

Sir Winston Churchill British politician (1874 – 1965)

The U.S. political system and democracy in general is increasingly known for its inefficiencies. This fact was never more explicit than at the peak of what has been deemed “The Great Recession”. In 2008, at a time when the economy required swift and bold action to reverse and undo the damage of a deepening world recession, our political system did what it knew how to do best, buy more time. Both major parties came together to pass a series of half-witted compromises equivalent to treating a flesh wound with a Band-Aid.

Attempting to avoid an imminent head on collision with our worst economic fears, our government narrowly escaped a catastrophe by slightly veering to the figurative left. Both sides argued that going their own direction would safely veer us away from another great depression. However, through the power of checks and balances, neither party was able to swiftly veer on their own course. What we were left with was a series of stimulus packages and tax cuts of a scope and size tailored to neither party. This reality along with the consistent and relentless battles that both parties have waged on each other over the past three years have left the economy teetering at the edge of recession ever since.

 That brings us to 2012, and to an election that is arguably as important as any in modern history. The budget deficit has exceeded $1 trillion for the past four consecutive years since the Great Recession1. With both major parties overseeing an abysmal record of fiscal restraint in the past decade, finger pointing is of course in full swing as the election nears.

Modest stimulus packages and targeted tax cuts were in fact part of the prescriptions recommended by leading economists. Therefore, the deficit spending of money in a recession itself is to be considered somewhat of a moot argument. The main issue at hand this election should be, however, the means by which we should grow our economy and what the government’s role will play to that end.

Mitt Romney and the Republicans on one hand argue that major cuts and reforms to services and entitlement spending should be made, in addition to a major decrease in corporate taxes that they argue would give businesses more money in their pockets to hire more workers. To them, more people working means more people paying taxes, in turn growing the country out of the recession. Romney claims that the extensive tax cuts he is proposing would be paid in full by limiting deductions and exemptions for higher income earners. This claim has not been supported with details of which provisions would be cut so the jury is still out on the feasibility of his proposal.

Democrats, on the other hand, maintain that the money spent in the last few years was vital to reconcile the decrease in consumer spending and demand, and that a balanced approach is required to reign in deficits while simultaneously investing in the country’s future. They argue that while taxes should be cut for middle income Americans, equal access to opportunities and services for middle and lower income Americans such as training and education will create a new breeding ground for innovation and efficiency, thereby allowing them to compete for higher skilled jobs. President Obama claims that these investments will be paid for by asking Americans that make over $250,000 per year to pay more in taxes and also in part by reallocating the money that is saved from ending the wars in Iraq and Afghanistan. Much larger cuts in spending will need to be conceded by the president if he is to live up to his promises of substantially cutting the deficit.

While the Democrats made it all the way to the election leaving the main driver of our deficit, entitlement spending, virtually unscathed from budget cuts; and Republicans getting their way with a trillion dollar tax cut for top income earners, the can has once again been kicked further down the road. However, the image of a snowball rolling further down a mountain would probably be a more appropriate analogy. With congress’ approval rating at 13 per cent, the lowest ever recorded this late in an election year, and the majority of U.S. citizens having little to no faith in their elected leaders, it’s no wonder voter turnout has yet to top a whopping 37 per cent of the eligible population.

Although the Obama administration has made steady economic progress during its first term, it will be for the voter to decide whether or not Romney can do a better job in this political climate. Each side will surely blame the other just like any sibling would to the their counterpart. But like any parents perched over their two accusative children would say, “It takes two to tango”.