After an amazing landslide victory, Barack Obama is heading to the White House. He faces one of the most challenging presidencies in history, not least because of his role in supporting the faltering economy. The Financial Times puts it well in an article entitled Dear US President-Elect:
Here are the two central economic roles you must play. First, to make sure the half dozen or so Treasury-led initiatives to revive the financial system are well managed. Unpopular though banks now are, they remain central to the economy.
Making credit available again (even if borrowing remains weak) is a priority. What you must resist, however, is extending the state lifeline to every two-bit sector that comes begging. Your second crucial role is to guarantee that any further fiscal packages are focused on boosting future productivity rather than building bridges to nowhere.
Unfortunately, Mr President, you can only influence house prices, corporate earnings, interest rates and jobs at the margin (unless your administration loses its head). But as these issues are politically charged, you will surely be pressed to do something. Resist. If you have to “act”, make your initiatives popular but harmless. Get the crucial things right and the cycle will ride to your rescue in the end.
The Treasury initiatives are already being managed by current and ex-Wall Street execs, meaning that managing them well–in the best interest of the macroeconomy–will definitely be a challenge. Boosting productivity has a lot to do with boosting exports, made easier by a weak US dollar. Lower tariffs and strong free trade agreements help; Obama being a union man and for farm subsidies means that getting this accomplished will be tricky at best.
He has to be nimble enough to maneuver the economy away from every pitfall it has fallen into during the past year. The campaign garnered votes by sticking to its message. In fixing the economy, the opposite tack may be best: Don’t promise much and work on many fronts at once in a moderate way.
He’s in a powerful position, but not an enviable one.