Barack Obama may have come across as an unflappable Superman during the Presidential Election, but his empty ‘Yes We can’ mantra is coming back to bite him in precisely the same way as ‘no more boom and bust’ now haunts Gordon Brown.
Obama is also beginning to sound as if he might be almost as delusional as the British Prime Minister, continuing with the rhetoric as if this was all the US required. He may see himself as a black FDR, but the truth is that, during his first twelve months in office, Franklin Roosevelt behaved like the benign dictator America needed at that time.
FDR was blessed with an absence of self-important jerks on Wall Street (the US in 1933 was far more scared than the country is today) but his action-plan involved everything from closing the markets and unveiling massive federal programmes to draconian reforms in the investment sector. He also, lest we forget, did a nifty double-shuffle on the price of gold in order to ensure a stable Dollar.
Obama by comparison has blown with the wind…helping bankers one minute, castigating them the next, spoiling for a fight after that – and then playing down the importance of big bonuses. For President Obama – like Blair and Brown – is a creature of opinion polls. His and their actions were and are driven by popularity – not necessity. This triumph of the ego over the Nation will do for the West before this is all over.
Consider the size of mess we’re looking at here. A $1.56 trillion deficit for the current fiscal year is to be followed by a further $1.27 trillion in 2011. And if that looks like a downward trend, all things are relative: the longer term fiscal gap looks terrifying. Only last week The Economist called it ‘a road-map to fiscal catastrophe’. Averaging between 3 and 4% of GDP, the projections don’t seem to do anything after 2020 but rise. Clearly somebody in the Fed was away from school sick when they did compound interest and falling credit ratings.
If anything, Obama’s budget reduction ideas are even more unreal than Brown’s – so sooner or later push must come to shove. Either taxes will have to be hiked in a major way, or the welfare system slashed.
If all this sounds awfully familiar to us over here, think on this: the President is stuck with tax promises from which he cannot wriggle free. Middle-income America (what we’d call C1C2s) will not, he has repeatedly vowed, pay a cent more – and he has anyway extended the Bush tax cuts to a broader franchise.
Darling if Brown wins (or Osborne given a Cameroon victory) will have something of a carte-blanche mandate to get heavy and slash everything. We Brits are (however much we may pretend otherwise) accepting of the idea that we have it coming. Americans don’t see things in that way: for them, all tax is glorified theft.
But it’s the welfare bill that must be giving Obama sleepless nights. Contrary to popular belief, the US spends an enormous amount on this: Medicare, Medicaid and Social Security are over half the total budget. Touch any of this, say his advisors, and you’ll see the ghettos go up in flames. (In private, the GOP thinks the same).
The third corner of Barack Obama’s triangular prison is of course Defence. My own view is that the US will be out of Afghanistan by 2013 – because they will have to be. The War evokes indifference now, and will be deeply unpopular by then – and also it is eating cash. But in the next two fiscals, a black man with a Muslim background has no choice but to (literally) soldier on. And over that time, America is going to start on the road to an almighty fiscal mountain…without any climbing gear.
While the US banking system is more clear of toxicity than Britain (and is less dependent on financial services income) what we forget in Europe sometimes is the ever-presence of expectation in the States. Most of us over forty can remember when we had little to look forward to beyond a slow slide into economic oblivion. Thatcher banished that feeling for a while; now it is returning.
Althought Americans are down in the dumps now, the USA has never thought like that for long. For them, the adjustment to a world in the wealth is heading east will be infinitely more traumatic.
So far (I have to observe) Obama doesn’t feel like the sort of President who could manage such a shift. And in the South, clean-cut Republicans are starting to make an impression.