Research, Analysis, Views - Just another Globalthoughtz | Right to Information weblog

Barack Obama, the 44th President of USA, perhaps the most powerful person in the World, has stabilized the stock market and boosted investor’s confidence during the worst recessionary period in 30 years. But Obama has not been able to uplift the US and Global Economy from that point.

Let us have a closer look about Obama’s work for Economy and its influence.

Obama’s Economic Challenges : Recession to Recovery

The Obama administration inherited an economy in freefall, which was contracting at an annualized rate of roughly 5 per cent in the fourth quarter of 2008. The Economic scenario has shown some positive signs through 2009; but it may take whole of 2010 before we see good sign of growth.

The financial sector is still seriously impaired, the flow of credit to the economy is tight, consumers are pulling back, business is retrenching sharply and the lifeline from strong exports has snapped with gathering weakness abroad. (Source: Financial Times )

Obama said he would streamline regulatory agencies, especially the agencies that oversee banks borrowing from the government, establish a financial market advisory group, improve transparency for financial disclosure, and crack down on trading activities that could manipulate markets. He has promised to prohibit government aides from working on issues related to a former employer for two years and prevent them from lobbying after they leave. He would also put online meetings between governmental agencies and lobbyists. (Source: Greenbay Press Gazette, Obama strikes back on economic reform, September 23, 2008)

OBAMA’S ECONOMIC PLATFORM

Obama’s platform centers around eight issues:

• Tax Relief
• Technology, Innovation and Creating Jobs
• Protect Labor
• Promote Free Trade
• Address Predatory Credit Card Practices
• Reform Bankruptcy Laws
• Protect Homeownership and Crack Down on Mortgage Fraud
• Work/Family Balance

His proposals for health care reform are not officially part of his economic platform, but are included here due to their impact on the economy.

Tax Relief

• Expand the Earned Income Tax Credit and Child Tax Credit for low-income workers.
• Provide national health insurance, reduce self-employment tax.

Technology, Innovation and Creating Jobs

• Implement a cap-and-trade program to reduce carbon emissions by 80% below 1990 levels by 2050.
• Invest $150 billion over ten years to deploy clean technologies.
• Reduce oil consumption by 10 million barrels of oil by 2030 by doubling fuel economy standards within 18 years.
• Make all new buildings carbon neutral, or produce zero emissions, by 2030. Improve new building efficiency by 50% and existing building efficiency by 25% in ten years.
• Eliminate special interest business deductions, such as for the oil and gas industry.
• Double federal funding for basic research.
• Raise minimum wage and index it to inflation.

Address Predatory Credit Card Practices and Reform Bankruptcy Laws

• Establish a credit card rating system to educate consumers on risk.
• Create a Credit Card Bill of Rights to protect consumers from unfair practices, such as interest charges on fees and unilateral changes.
• Reform bankruptcy laws for families facing a medical crisis.
• Cap payday loans at 35%.
• Encourage banks to make micro loans.
• Ban executive bonuses for bankrupt companies.
• Require disclosure of all pension investments.

Protect Homeownership and Crack Down on Mortgage Fraud

• Provide 10% tax credit for the 10 million mortgage-holders who do not itemize.
• Create a fund to help homeowners in foreclosure to either refinance or sell their home.

Work / Family Balance

• Double funding for after-school programs.
• Expand the Family Medical Leave Act.
• Provide low-income families with a refundable tax credit to help with their child-care expenses.
• Encourage flexible work schedules.

Protect Labor and Promote Free Trade

• More strongly enforce and provide better labor protection for trade agreements.
• End tax breaks for companies that outsource jobs overseas.

(Source: BarackObama.com, Issues and the Economy)

Health Care Reform:

• Offer health care coverage similar to that used by Congress. Require that all children have health care coverage. Create a National Health Coverage exchange to monitor and provide information. Spend $10 billion in health care to provide an all-electronic system.

(Source: BarackObama.com, Issues and Healthcare)

TACKLING ECONOMIC CRISIS

Obama’s plan to fight crisis with three economic measures (as prescribed by Obama in Q1 2009)-

• An economic stimulus package,
• A plan to address the mortgage crisis, and
• Long-term economic platform.

I. Economic Stimulus Plan

Obama would enact a windfall profits tax on oil companies to give families a $1,000 rebate. He would give $25 billion to states for health, education, housing, and heating assistance. Obama would fund $25 billion in public works projects. He would provide $500 in tax credits per person and $1,000 per family, and eliminate income tax for seniors making less than $50,000 per year. Obama would eliminate capital gains taxes for small business investors, and extend write-offs for small business equipment purchases. (Source: BarackObama.com, Economic Stimulus Plan)

• Energy rebates of $1,000 per family funded by a tax on oil companies. Increased home heating cost aid.
• Extended unemployment insurance and a temporary tax suspension on those benefits.
• Penalty-free withdrawals of 15% from retirement accounts up to $10,000. Suspension of rules requiring retirees to begin withdrawing from those accounts six months after they reach the age of 70. – The first will encourage consumer spending, but should be removed to support retirement savings.
• A 90-day foreclosure moratorium. Encourage mortgage restructuring of Treasury and HUD mortgages, and through reform of bankruptcy code.
• Permanent tax cut of $500 individuals and $1,000 for families. Eliminate taxes for seniors making up to $50,000. A 10% tax credit for mortgage interest to those who don’t itemize. Tax cuts would be retroactive to 2007, and rebates would be mailed.
• A $3,000 tax credit for each new hire.
• Loan guarantees of $50 billion to automakers for fuel efficient cars.
• Eliminate capital gains tax for small business investors. Extend the $250,000 small business capital investment write-offs.
• $25 billion for public works construction and $25 billion in additional state aid.

Overall, this plan could cost $190 billion, which will add to the deficit. The tax rebates will encourage consumer spending when the checks are mailed, hopefully first quarter 2008. The mortgage measures will reduce foreclosures, and help the housing and banking industries recover. The stimuli for businesses will help revitalize the economy. All incentives should be removed once the danger is over to reduce the deficit and avoid inflation. (Source: Reuters, FACTBOX: Obama and McCain offer competing economic plans, October 30, 2008)

II. Plan to Address the Mortgage Crisis

Obama will streamline regulatory agencies, establish a financial market advisory group, improve transparency for financial disclosure, and crack down on trading activities that could manipulate markets. He would prohibit government aides from working on issues related to a former employer for two years and prevent them from lobbying after they leave.

These will help fix what broke the industry long-term, but won’t help the immediate crisis.

III. Long-Term Economic Platform

In addition to the proposals already stated, Obama plans to:

• Provide additional tax relief to the working poor.
• Reduce carbon emissions through cap and trade; invest $150 billion in clean technologies, and increase fuel economy standards, and new building efficiency. He would also eliminate oil and gas business deductions, and double federal funding for basic research.
• Protect labor and promote free trade by reviewing NAFTA and ending tax breaks for outsourcing.
• Address predatory credit card practices by creating a Credit Card Bill of Rights, reforming bankruptcy laws, and capping payday loans at 35%.
• Protect homeownership and crack down on mortgage fraud by providing a 10% tax credit for those who do not itemize and creating a fund to help homeowners in foreclosure.
• End the war in Iraq, and reduce defense spending.

Overall, the plan is visionary and will help address many important issues in the economy, including relieving income inequality and reliance on foreign oil.

Obama Foreign Policy to Fight Economic Crisis

Obama is seen as a master of negotiations. His growth within the Democratic Party shows his efficient PR and capability to win hearts. He has tried to do the same in the International Arena as well.

Here are key points in relation to Obama’s Economic Efforts:

1. Soft Power over Hard Power; Save money from Defense Budget

Unlike earlier President Bush, Obama is thoughtful and is mild in action. His soft words towards Islamic World is symbolic. Obama does not see US as a Military Power that can turn the nation’s economy with military might; he chooses to go soft. He cho0ses diplomacy over the use of force. Obama wants to have talks with Iran, which was unthinkable few years back.

These actions have economic causes. America is challenged seriously in Asia in terms of Economic and Military strength, and emergence of European Union has created another pole in the World.

The use of Soft Power is a step to make American safer by lowering the risk than building firewall. Friendlier International politics will help the government to lower military and homeland security expenses, which gives room to take up ambitious economic reforms and infrastructure development works.

2. Bow to Gain; Please the Creditors

Obama bowed before Saudi Royals, Japanese Emperor and the Chinese President. He wants these Asian countries to help US come out of recession. The bowing down does resemble the symbolic power of nations in the World, and Obama is clear in his mind to bring economic growth back at the cost of the symbolic pride.

The reason of his soft behavior on these countries comes from the Economic Reality. China and Japan are the two biggest creditors of the United States, and their support during the difficult times is necessary. This is as simple as pleasing the investors in a company at the period of crisis.

Asian Countries together have few Trillion Dollars in the US Treasury, and even a small percentage of outflow of this money will further weaken the already weak dollar. This can bring disastrous effect ultimatly leading to the dollar collapse as well. Obama understands this.

3. Partner to Puppets; Acceptance of Rise of Multi-Polar World

Obama is smart enough to judge the new reality of World. Bush could not do it. Bush’s steps to ignore the World’s view in Iraq not only made America weak, but also made it one of the Most Hated Country in the World. Obama is trying to get the lost love back.

Europe is a power parallel to United States, Japan is almost half. China is a rising power and will equal US by 2030. India will join the elite club of G2, US and China, to make it G3 by 2050. Europe can make it G4, if it comes united by that time. This is the new reality.

Fighting to keep the US might in the World can only make more enemies, and will call for more investment in defense infrastructure. Obama know that US cannot afford that.

The other challenge is to keep the supply lines as short as possible. Afghanistan and Iraq are too far from the States, and are closer to China and India. So to end the crisis, US need partners in Asia of the caliber of China or India, and smaller countries can not be of much help. This leaves limited options to the US President — either to partner with one or both; or to stay away from Asia and accept the Regional Leadership. US chooses to accept Asia with Chinese dominance, and have India as a challenger. This enables US to shorten the supply lines and save cost. Makes sense.

Obama’s Main Agenda : Savings

So far Obama’s main agenda has always been SAVINGS. He wants US Citizens to save, and he is working to save the government finances as well.

Analysis : Is Obama Successful? Will he Succeed?

So far, Obama is successful in retaining the faith in Dollar, and has been able to win creditors trust. He has also been able to make the citizens save a part of household earnings. This is inline with his Economic Plan. Thus I see Obama successful in implementing his plans.

Will he succeed in bringing country back to growth phase? This is hard to answer at this point of time. United States will have to pass through a long path of savings and investment before it comes back to growth phase. It might take 3 to 5 years from now. But certainly Obama’s efforts are noteworthy. He is the person to save America and the World. We will probably see a Multi-Polar World, and possible power shift without a new World War. Obama has made sure it happens by peaceful means.

Obama has given two gifts to the States :

1. Ensured America to remain as the Most Loved Superpower at least for a century more.

2. America will have happy citizens.