The Likely Economic Challenges of an Obama Second Term

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Both sides must put intransigence aside and cut a deal that will save the U.S. economy. Photo credit: By Pete Souza

Persistently high unemployment. A fragile, U-shaped economic recovery.

A propped-up stock market.

The looming fiscal cliff.

With these challenges and more dead ahead, President Obama may find the just-completed re-election process to be the easy part of the rest of his time in office.

Without question, the United States and the world have gone through extraordinary economic strife over the past five years.

In fact, we’ve argued that, although a global depression appears to have been narrowly avoided, it may have been at an exorbitant cost, a running tab that has been open and unpaid for decades.

The bill skyrocketed over the past ten years due to wars, tax cuts and rampant government spending, with particular emphasis on Keynesian-style stimulus to combat the Great Recession. When it’s all said and done, small wonder that the recovery hasn’t followed standard patterns.

From a fiscal perspective, the past three decades have been anything but ordinary.

U.S. Economy: The Next Twelve Months

With only six weeks left to go before the U.S. economy teeters over the edge of the fiscal cliff, the administration and lame duck Congress will first be forced to tackle this issue. If they fail, the net result will be the largest tax increase in American history levied upon the vast majority of taxpayers. As a result, both sides have a substantial incentive to craft a deal. Indeed, shortly after the election, Speaker of the House John Boehner said, “For purposes of forging a bipartisan agreement that begins to solve the problem, we’re willing to accept new revenue, under the right conditions.” This statement was a significant departure from previous stances against raising revenues by any other method than supply-side economics espoused by entrenched Republicans.

Neither side is likely to give much ground, but the odds are that a deal will be struck. Both sides have too much to lose.

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