Obama to chart new economic path

An Indian customer reads newspapers displaying front page headlines and photographs of US president-elect Barack Obama in Amritsar yesterday. World leaders hailed Barack Obama's triumph in the US presidential election as the dawn of a new era and called for the global superpower to change the way it does business. Photo: AFP

With the US economy mired in its worst crisis in decades, president-elect Barack Obama is likely to chart a new direction away from the unbridled capitalism of recent years but faces a challenge in restoring confidence, analysts say.
Obama is likely to be engaged on the economy even before his January inauguration, possibly working on a new stimulus plan in the lame-duck Congress and with some role in the November 15 global economic summit being hosted by outgoing President George W. Bush, say analysts.
"President-elect Obama needs to fully engage in economic policymaking beginning now," said Mark Zandi, chief economist at Moody's Economy.com.
"For this kind of unprecedented transition, he will need the cooperation of both the Bush administration and the lame-duck Congress. A number of significant policy initiatives are already in place, but more needs to be done, and critical decisions will have to be made within the next few weeks."
Cary Leahey, senior economist at Decision Economics, said he expects Obama to press for an immediate stimulus plan in the lame-duck Congress worth about 200 billion dollars to avert a steeper economic downturn.
Leahey said an Obama administration is likely to react to the global crisis with a tougher approach to financial regulation, reversing some 30 years of deregulation.
"I was taught that economics is the study of managed capitalism. But since 1978 and the deregulation of the airline industry we have been moving away from this," Leahey said.
"Now the pendulum is strongly swinging the other way and the focus will be on the managed form of capitalism," he said.
"The challenge of course is to set up some protection for investors and the economy as a whole but not to lose the innovation which has actually lowered borrowing costs for many and until 2008 led to outside gains for equity markets."
Irwin Stelzer, senior fellow at the Washington-based Hudson Institute, said an Obama administration is likely to chart a new economic course.
"I think you'll have a capitalism with less destruction and less creativity," he said, referring to the process of "creative destruction" cited by some economists on economic renewal.
"The direction of regulation will be to reduce risk," he said. "I think you'll see a capitalism that is reformed institutionally in the way that Franklin Roosevelt did it ... that moves more in the direction of revulsion of income inequality."
Stelzer added, "The real question is whether you will have heavy-handed reforms where you have swarms of regulators ... or the kind of regulation that gets the guidelines and incentives right and lets people move on with their business."
Some analysts remained skeptical about Obama's ability to tackle the crisis and implement an ambitious program that includes relief to the middle-class and small businesses, and expanding health care to millions of uninsured people.
"We are in a crisis that is not likely self-correcting," University of Maryland economist Peter Morici said.
"Wall Street is already heavily regulated, but people find their way around it," he said, noting that Obama "has told us very little about how he can fix trade, fix energy, fix the banks."
"He has done a good job of putting together a coalition of bankers and unions and they are precisely the people who got us into this mess."
Russell Redenbaugh and James Juliano of Kairos Capital Advisors LLC said in a note to clients that the election of Obama "was a vote for more socialism."
"It is what the majority of voters want, and it may even be what a majority of public companies want. But it is a bad idea," they wrote.
"The stock market is comprised of companies that are already public, and thus is a measure of successful companies. Ironically, these already successful companies often prefer to be protected from upstarts."
But they said the move away from a freer market in which companies are allowed to fail will also make it harder for new start-ups to challenge established firms.
"Should the expense be so great that the US and the world miss out on the next Google, Apple, or Microsoft? We think not," they said. "In that case, the price of a resurgent state would be way too high.”