Magazine article Public Finance

Keeping Up with the Johanns

Magazine article Public Finance

Keeping Up with the Johanns

Article excerpt

This US presidential election has attracted a higher profile in the European media than ever before.

In some senses our fascination with the US seems odd - why should the appointment of one country's leader inspire such extraordinary interest? However, the reality is that this is a contest where one man - be it Barack Obama or John McCain will become leader of the predominant global power whose internal direction and policies have a major impact on the rest of the world.

When this butterfly flaps its wings, tornadoes may be experienced everywhere. The roots of the current global financial crisis, for example, fie primarily in the domestic policies and practices of the US banks.

But this US election is also unusual in another respect. Far more than in the past, both candidates appear to be drawing on European ideas and influences to form their policy programmes. Perhaps this has come about in response to the key theme of this election - the need for a change away from the existing Republican, neo-conservative approach towards neglected issues such as the environment or eguity in health care.

The domestic and international choices of the new US president in energy and environmental matters are indeed of crucial relevance to Europe since they deal with matters of an inherently global nature.

Both senators McCain and Obama have committed to reducing carbon emissions in the US, though Obama proposes a higher goal of an 80% reduction of 1990 levels by 2050, versus McCain's 60%. Obama's strategy focuses on a market-based cap and trade system, similar to the European Union's emissions trading scheme.

Both plans draw on the approach taken in Europe of trying to create quasi-market mechanisms for dealing with environmental issues. McCain emphasises incentives for the private sector, while Obama favours direct government intervention, often with federal money. It remains to be seen whether this more comprehensive, and costly, approach could actually be implemented as the US tips into recession.

In the midst of a global economic downturn and an enormous government deficit, both the public and Congress are less likely to be in favour of sweeping changes that will incur large upfront costs.

Yet the danger of a failed energy policy has been dramatically illustrated by the financial crisis. While its origins had nothing to do with energy per se, rising energy prices have nonetheless played a major role in reducing household incomes, thereby contributing to mortgage defaults. The unfolding of the financial crisis itself has shown the US the importance of developing a common understanding of shared international challenges and taking co-ordinated action to manage markets, whether financial or energy. …

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