US focus moves from pleasure of rhetoric to pragmatism of action

Sat, Nov 8, 2008, 00:00

ANALYSIS:Barack Obama's battle is won - but here comes the harder bit as he sets about his work, writes Denis Staunton

HOURS BEFORE he won Tuesday's presidential election, Barack Obama made a decision that set the tone for the days ahead - he cancelled a planned fireworks display at the victory party in Chicago's Grant Park. While supporters across the United States and admirers around the world danced in the streets, the president-elect remained sombre, using his acceptance speech to emphasise the hefty challenges that face him.

Obama will take command in January of a country mired in economic misery, fighting two wars with an overstretched military it can scarcely afford. The hopes invested in the new president by millions of Americans, and many more abroad, will almost certainly be impossible to fulfil, even if he runs his administration with the remarkable intelligence and discipline he brought to the election campaign.

The president-elect got down to work yesterday on the most pressing issue he will face, sitting with his advisers to consider the Herculean task of rescuing an economy that is spiralling downwards into recession as unemployment rises, house prices tumble and credit freezes up. One in five Americans now owes more on their mortgages than their homes are worth, unemployment is at its highest level for 14 years and retailers are braced for their worst holiday season in a generation.

Despite bailouts costing hundreds of billions of dollars, Wall Street remains an anxious heartbeat away from the next panic and banks are wary of lending to one another for longer than one night.

Democrats in Congress are considering proposals for a new economic stimulus package that could be introduced even before Obama takes office. Any new stimulus plan is likely to target poorer Americans by extending unemployment benefits and cutting taxes on lower earners.

One of the most effective redistributive moves could come through a reform of the healthcare system to make health insurance more affordable. Healthcare reform, tax cuts for the middle class and infrastructure projects to stimulate the economy will all strain an already overstretched budget as tax revenues are shrinking.

Public opinion appears to favour radical action, however, and some of the new president's supporters fear he will fall into the trap that has claimed many Democrats by heeding counsels of caution.

"What FDR [Franklin Delano Roosevelt] said in his second inaugural address - 'We have always known that heedless self-interest was bad morals; we know now that it is bad economics' - has never rung truer," Nobel economics laureate Paul Krugman wrote in yesterday's New York Times.

"And right now happens to be one of those times when the converse is also true, and good morals are good economics. Helping the neediest in a time of crisis, through expanded health and unemployment benefits, is the morally right thing to do; it's also a far more effective form of economic stimulus than cutting the capital gains tax."

One way to improve the national balance sheet is to stop spending $10 billion (€7.8 billion) a month in Iraq - and Obama has promised to withdraw most US troops within 16 months. The Iraqi government approves of his plan, and ending this unpopular engagement will help to restore US relations with other countries in the region.

Obama's election victory has given many Europeans and others around the world an opportunity to start liking America again and some, including former German foreign minister Joschka Fischer, suggested this week that Europeans should welcome the new president by agreeing to take up a greater share of the military burden in places such as Afghanistan.

Obama may be disappointed by the lack of martial fervour he will find among active European politicians, however, and better diplomatic co-ordination and a more multilateral approach to international issues may serve the new president better than demands for more troops.

He can take some early steps to improve the US's image abroad by ordering an end to the torture of captives and closing down the detention centre at Guantánamo Bay. A new approach to tackling climate change will also help but, unless Obama is prepared to include allies in the decision-making process, he will soon confront the limits of the international goodwill his victory has generated.