November 5, 2010
American midterm elections have given Republicans 231 seats out of a total of 435 in Congress, whilst the Democrats retained limited control of the Senate. As most political analysts agree, this practically brings to an end the Obama administration’s reformist agenda. At stake is the comprehensive energy reform bill, which was intended to bring the US in line with the EU in terms of controlling carbon emissions and developing alternative energy sources. The “cap and trade” provision of the bill tabled in Congress by the Democrats had scared Big Oil and coal companies into making massive contributions to Republican candidates. Even more worrisome, congressmen like John Boehner and Spencer Bachus of Alabama hope to undo Obama’s healthcare reform and the banking regulation bill known as the “Volcker rule“.
John Boehner is the intellectual product of The Heritage Foundation and swears by Milton Friedman’s monetarism and by Friedrich von Hayek’s “Road to Serfdom“. I doubt that the congressman has read “Capitalism and Democracy” or Hayek’s book. And if he has, I doubt he understands the context in which the two books were written. Hayek developed his ideas in an Europe menaced by fascism and the Stalinist version of communism. Milton Friedman’s monetarist theories, on the other hand, are the result of a post-factum analysis of the causes of the Great Depression. His theories are those of an academic having studied a past event and they are as yet untested during a mega-crisis situation. The current competitive devaluation of the dollar undertaken by the Fed this week has been compared to a mega- Ponzi scheme and is sure to affect the global economy and the US alike. As the QE1 has not succeeded in reigniting growth by itself, there is no reason to believe that a second round of easing would fare any better. When this plays out, Friedman’s monetarist theories and free-floating currencies are going to be proven inadequate for restoring the confidence of the markets and global economic growth.
President Obama has already signalled his willingness to deal on extending the Bush era tax cuts to everyone, including the super-rich. Unfortunately, the US is, according to New York economist Nouriel Roubini, “a fiscal train wreck” waiting to happen. This being the case, any tax cuts should normally be ruled out at least for the next few years, as in Germany, which has an insignificant budget deficit. Taxing financial transactions and the rich is the only economically rational option open to a US administration presiding over the worst financial disaster in generations and the biggest budget deficit in American history. Losing control of the lower house should not push President Obama to alter his agenda and make counterproductive compromises, even as Big Oil and Big Banking think they’re back in the saddle. A Democrat administration should make no concessions to the political representatives of the very people that have brought America – and the world – to the brink. These people’s moral profile is so grotesque they have even shocked analysts by the desperation with which they advance their masters’ agenda at the expense of everyone else:
“It is truly astounding that less than a day after winning control of the people’s House of Representatives, Republican leaders are already hard at work doing the business of big Wall Street banks” (Tom McMahon, executive director of Americans United for Change, a progressive lobbying group, quoted by Reuters).
To be sure, American middle class is more patriotic than Big Finance or Big Oil and is able to put up with a few more years without tax cuts in order to keep the US afloat financially. It looks for Obama’s leadership in tackling America’s problems, but I’m not at all sure that the President wishes to provide it, or that he even wants to get re-elected in 2012. (sources: CNN, Reuters, Bloomberg, Le Monde, Deutsche Welle, NYT)Florian Pantazi