On Economics, I Expect Liberals To Be Disappointed

Robert Peston lists some of President Obama's more liberal proposals on BBC, but wonders whether they will be put into practice given the current fiscal situation:

"The point is that he is inheriting an economic estate that has been pillaged by his predecessor.

US public sector debt is well over $10,000bn, equivalent to around 80% of US economic output (roughly double the share of GDP taken by our government's debt - though most economists would say that the Treasury significantly understates the British national debt).

And the rising burden of bailing out America's battered banks and financial institutions means that US government debt is on a strong rising trend.

That worries foreign investors who are supposed to buy all this debt in the form of US Treasuries.

If these investors see no realistic prospect of Obama cutting public borrowing on any meaningful time horizon, that would put further downward pressure on the dollar against the currencies of China, Japan and the eurozone (though probably not against sterling, since the UK is perceived to have too many structural weaknesses in common with the US).

Which perhaps would be no bad thing for US exporters. But it would be a problem if it led to a painful rise in the cost for Obama's administration of servicing all that debt.

The US government, US banks, US consumers and US business all remains precariously dependent on borrowing from Asia and the Middle East.

The urgent need for the US to become more financially self-sufficient, for its economy and the global economy to be better balanced, may conflict with Obama's determination to spend in order to make his country (in his view) a fairer society."

I agree with his basic point, but not about making our country a fairer society. There are many things we can still do in this tough environment to help out on that score. However, I too doubt that many of these proposals will be enacted.

Then there's this from Casey Mulligan:

"Economic theory suggests that political party might not affect policy, but instead merely reflect public policy preferences of the citizens. With some exceptions (see below), political parties compete with each other. Obama was one of the most liberal U.S. Senators because he faced little contest in Illinois, but became quite middle-of-the-road when it came to the Presidential race. Politicians are politicians first and (at best) ideologues second. A public opinion shift may give one party or another a small advantage and thus create a correlation between public policy and party-in-power, but this does not mean that political party itself has a significant impact on policy. Indeed, it would be inefficient if it did."

I think that there's some truth here. In other words, I expect to like President Obama more than many liberals.

"The Federal government currently spends about $9000 per capita per year. Even if I applied the estimates from the states (which I think are too big because national elections are more competitive), that means a victory for Obama (McCain) AND the Congressmen of his party will increase (decrease) federal spending by $90 per capita per year. Regardless of whether you like or dislike public spending, $90 is not worth much worry...

P.S. How much would did (would have) an Obama victory cost? The $90 upper bound pertains to both executive and legislative victories by Democrats. Obviously, Obama is only part of that. Furthermore, some of the $90 would be a pure transfer. On the other had, deadweight costs may be created both from the taxation and the spending of the $90. I would say less than $50."

I agree with the basic point, but I'm not sure what our spending and taxes will be in the future.

Anyway, I predict that President Obama will, once again, please me more than many liberals on economics. On other issues, we're in general agreement, and might take the same hits.