Barack Obama became the 44th President of the United States on 20 January 2009, and a new direction
for United States economic policies has begun. The Republican Party, led by President
Bush, has controlled the economic policy agenda over the last eight years with the main focus being tax cuts on higher incomes and capital gains,
reduced barriers to trade, and fewer government regulations. However, these policies are about to change dramatically as a new leader takes over the
reins of the world's largest economy.
There has been a lot of speculation as to what kind of economic leader Barack Obama will be and what kind of agenda he will implement. During the election campaign, opponents painted Obama as a typical tax-and-spend democrat, a liberal with big government and more regulation program ideas. However, in August 2008, Barack Obama stated to The New York Times: "My core economic theory is pragmatism...figuring out what works." This seems to be the direction he is heading, although his agenda does involve a more active government.
Looking at the economic policy advisors he has assembled, it appears that he is not the economic radical many of his opponents feared. His chosen team is generally considered to be experienced centrists. For Treasury Secretary, Obama selected Tim Geithner, a well-known banker and current chairman of the New York Federal Reserve Bank. The Council of Economic Advisors will be led by Christina Romer, a highly regarded academic and leading economic historian. Larry Summers, former Treasury Secretary under President Clinton, and Paul Volcker, former Chairman of the Federal Reserve, will be important advisors as well, bringing previous policy experience to the administration.
What programs Obama will implement and when is not fully known. However, he has outlined what his core positions will be. He is an activist and believes in hands on government with more regulation, more oversight and more spending. He believes in free trade, but is likely to revisit many established agreements because of perceived unfair practices. He believes in expanding progressive taxation as he ran on a platform of changing the income tax structure by increasing income taxes on the top 5% and reducing taxes on everyone else.
However, the credit crisis and recent collapse of equity markets, coupled with the ongoing recession, has forced Obama to intensify his immediate economic focus. In an address to the nation in early December, Obama declared that his economic policy will focus on creating jobs through massive government intervention. He will quickly spend hundreds of billions of dollars on transportation and public school infrastructure; technology implementation for education and health care systems' cost savings; and energy programs to reduce the country's demand for imported crude oil.
Obama has made it clear that he views energy independence as an economic, environmental and national security issue, and it will be a main focus of his administration. He also recognizes that the U.S. auto industry will be a critical component for his plan to succeed. Obama wants better automobile fuel economy, and to ensure this happens, supports providing auto companies billions of dollars for alternatively powered vehicle research and production implementation.
To help achieve these objectives, Obama has proposed a number of policies which will have a significant impact on automobile consumers. Among these are sizeable gasoline tax increases to steer consumer demand into more fuel-efficient transportation and a tax credit of up to $7,500 for consumers who purchase alternatively powered vehicles.
Obama is a strong proponent for government intervention in the U.S. auto industry, declaring the Detroit 3 "the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil." He supported providing loans to the U.S. manufacturers to help them through their current financial crisis, and it is highly likely that as president he will continue to champion the financial assistance the industry needs.
To manage these automotive policies, he is considering the creation of a "Car Czar," a high-level position which will oversee implementation of his automotive policy. Although this position would be mainly focused on the current bailout financing issue, it seems likely that it would expand to help address additional industry-related objectives - particularly achieving higher fuel economy.
Although Obama's economic agenda is still evolving, one thing is certain: the U.S. economic policy will substantially change. And given the current economic situation of the U.S. economy and the auto industry, change is what is needed.
Charles Chesbrough may be reached at charleschesbrough@csmauto.com.
