view from the US
Just when the world’s largest economy could do with a
little predictability, the one thing the approaching new year guarantees for the US is continued political uncertainty. PhilippaMaister reports fromAtlanta
The November mid-term elections in the US – fought largely on the issues of the economy and unemployment – yielded astonishing gains for the most conservative wing of the Republican Party. However, the party’s suc- cess sets up a potential scenario of paralysis in the US Congress, if it is unwilling to find common ground with the Democrats who still control the White House and Senate, at a time when a stumbling economic recovery is scrabbling for a foothold. Some may consider that a poor return for the US$4bn
(€2.9bn) spent during the campaign by candidates, polit- ical parties and outside donors – many anonymous – on both sides. The US Chamber of Commerce, which poured US$33m into the campaign, threw its full weight behind the Republican Party’s platform of less regulation and lower taxes, with ads targeting vulnerable Democrats throughout the country. Mitch McConnell, the leader of the Republican party
in the Senate, has said his top priority is to deny President Barack Obama a second term. In the House, Republicans swept aside the former Democratic majority and plan to execute their own conservative agenda.With moderates in both parties booted out by a polarised elec- torate, opportunities for compromise may be few.
Urgency required Yet the economic problems the country faces are urgent. They include high unemployment, mounting poverty, plummeting real estate values, a high volume of foreclo- sures, failing banks and businesses and a federal budget deficit of US$1.3trn or 9.2pc of GDP – three times the target set by the EU for member states. But politicians are not the only ones in fighting form.
Rival economists have joined in to offer dueling explana- tions of the reasons the economy is in trouble, and duel- ing prescriptions for fixing it. Some say more stimulus is needed, others demand aggressive fiscal belt-tightening. Keynesian economists, such as Nobel Prize winner
Paul Krugman, argue the government has to have a role in job creation through targeted investment. The Federal Reserve also adopted an activist approach
when it decided in November to buy US$600bn of long- term treasury bonds to inject more money into the
economy and promote growth, angering some of the coun- try’s trading partners and provoking skepticism at home. “The simple truth is that the private sector does not
employ available resources,” billionaire financier George Soros wrote in the Financial Times. “Corporations are operating profitably. But instead of investing, they are building up liquidity … Investment and employment require fiscal stimulus.” In contrast, conservative economists favour the Milton Friedman free market approach. They insist job creation is the task of the private sector, not the government, and is best achieved through tax breaks for business and looser regulation.
Dodd-Frank One of the planks Republicans ran on was to repeal – or at least emasculate, as much as possible – the Dodd- Frank financial reform act, which they claim will create a web of new regulations that will strangle business growth. Passed in July, the law aims to prevent the actions that led to the global financial crisis from repeating themselves. Its scope also covers foreign finan- cial services companies with US operations, including fund managers, bank holding companies, investment advisers and others. Dodd-Frank creates a consumer protection watchdog
agency to safeguard small investors, ends bailouts of com- panies deemed too big to fail, strengthens corporate gov- ernance standards and gives shareholders a say on pay for top executives, tightens rules for credit rating agencies and generally toughens enforcement of existing rules. The Securities and Exchange Commission (SEC) and
the Federal Deposit Insurance Corporation have much of the responsibility for drawing up the regulations to implement and enforce the Act. The SEC has already issued proposed rules for a programme that will pay whistleblowers 10 to 30pc of fines over US$1m imposed on companies they inform against. Similar programmes in the past have been fruitful. “Years without accountability forWall Street and big
banks brought us the worst financial crisis since the Great Depression, the loss of eight million jobs, failed businesses, a drop in housing prices, and wiped out
Winter 2010 Irish Director 51
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