By MICHAEL BOSKIN
THIS month’s mid-term elections were a sharp rebuke to the vast expansion of government spending, deficits, and debt in the United States.
Elected in the midst of the financial crisis in the fall of 2008, president Barack Obama and the Democratic Party leadership of congress seemed surprised when the public rejected their stimulus, health-care reform, and energy policies by large margins.
Of course, some of the huge increase in expenditure and debt has been the result of the recession, and of the defence and other spending legacies of former president George W. Bush.
Instead of finding security and salvation from recession in a new era of dependence on government, most voters were, however, repelled by such policies’ apparent failure to do much to improve the economy.
Thus, the election results should not be viewed primarily as an endorsement of the Republicans, but as a rebuke to the Democrats’ agenda, which voters believed was out of touch with their concerns, interests, and values.
The Republicans took control of the house of representatives, netting more than 60 seats – the most in over 70 years – and six senate seats.
They gained in every part of the country, but especially in the industrial heartland from Pennsylvania to Wisconsin.
They also won many governorships and took over many state legislatures; both will play a vital role in redrawing congressional and legislative districts in the reapportionment next year following tthjis year’s census.
With divided government, many expect partisan gridlock on major legislation.
However, there is reason to be hopeful: the American economy, labour market, and stock market have historically fared a bit better in years of divided government.
Moreover, the changed congressional landscape will be better for trade-related legislation.
The Republicans’ protectionist wing is smaller than the Democrats’, which may eventually help free-trade agreements between the US and countries such as South Korea and Colombia, as well as a revival of the moribund Doha round of global trade-liberalisation talks.
Likewise, economic (but not other) tensions between China and the US should be a little easier to manage.
“Global rebalancing” requires surplus countries such as China to boost consumption, while deficit countries such as the US save more (which requires sharply lower budget deficits and increased private saving).
It will get a more sympathetic hearing from the new congress than from Obama, who was soundly rebuked at the second G-20 summit for demanding more deficit-financed spending.
The new congress will not support Obama’s additional stimulus plans, such as a national infrastructure bank.
Republicans will want to reform federal infrastructure spending – which is already substantial – rather than add to it.
They are committed to rolling back spending to 2008 levels.
But Obama’s veto power is a big obstacle to reversing his policies.
While Republicans will be able to make some inroads on reducing spending and preventing tax hikes, making good on their vow to “repeal and replace” Obama’s signature health-care reform would require a republican to be elected as president in 2012. – Project Syndicate
*Michael Boskin, currently professor of economics at Stanford University and a senior fellow at the Hoover Institution, was chairman of US president George H. W. Bush’s Council of Economic Advisers (1989-1993).