President Barack Obama’s re-election is good news for the world economy and financial markets. Of course a victory by Mitt Romney, unlikely though it was, might have been even better news, which is perhaps why stock markets fell sharply after the election. If Romney had won, his promised tax cuts and willingness to ignore budget deficits would have delivered a big stimulus to the U.S. economy and triggered a potential boom. But even without this fiscal boost, recent U.S. economic indicators, especially on housing, employment and bank lending, have pointed clearly in the right direction – and now there is every reason to expect these positive trends to accelerate.
While the election was a genuine obstacle to U.S. economic recovery, the problem lay not in the policies of either Obama and Romney but in the uncertainty about whose policies would be implemented and what each party might do to sabotage the other’s plans. This political doubt delayed investment decisions and hiring plans, and, in corporate bank accounts and bond markets, clogged the flood of new money created by the Federal Reserve. Now that the election is over, this dam will start to open. Political polarization, at least on economic issues, will start to ease. And the confrontation over taxes and public spending looming at the end of the year should be resolved with much less rancor than expected. All these optimistic conclusions follow from one crucial feature of the election result: The calculations of self-interest for politicians in Washington, for investors on Wall Street and for business people across America have now been transformed.
Let us begin with the business community. Much of it has been fiercely opposed to President Obama, particularly to his signature policies of universal healthcare and restoring Bill Clinton’s top tax rates. Given that, surveys suggested that many companies, and especially small businesses, suspended normal decisions on hiring and investment for months before the election, while they waited for Obamacare to be abandoned and tax hikes to be ruled out.
That waiting game is now over. U.S. businesses can no longer hope for a new president who will restore the untrammeled free-market environment of George W. Bush. Instead of a theoretical choice between Obama’s new regulations and a free market utopia modeled on Ayn Rand, corporate executives must now choose between adapting to Obama’s policies, including healthcare, going out of business or finding another country with a friendlier business environment.
Once they confront this choice, a few may decide to move to Mexico, Canada or China, but most will surely acknowledge that the U.S. remains a relatively attractive place to do business and will simply build the costs of healthcare and taxes into their budgets. They will then switch their attention from politics to business as usual and get on with hiring or investment decisions that make financial sense in this new regulatory environment. If businesses refrain from investment or hiring from now on, this will be for financial reasons, not out of political unease.