The Second Coming of Barack Obama

The US cannot determine the world economy’s future on its own, but the course taken by America nonetheless has huge global importance, given that it remains the largest economy and retains considerable influence in venues such as the International Monetary Fund, the World Bank, and the G-20. American ideas continue to affect the policy debate worldwide.

So, what should Obama’s top economic-policy priorities be in his second term? Despite the difficulties facing the global economy, there are huge investible resources in the US, China, Germany, and elsewhere. While there are climate and resource constraints, we are still at the beginning of a technological revolution that holds tremendous potential for higher productivity and greater prosperity, along with challenging implications for labor and employment.

But sustainable economic growth requires that those with investible resources actually invest them. And that will not happen unless and until a broad-based recovery of the middle- and lower-income groups in advanced economies, including the US, delivers the prolonged rebound in demand for which investors are waiting.

There are plenty of profits to be made – actual taxes on capital are not too high, and cheap finance is available to the corporate sector. But the concentration of income at the top – more than 90% of the gains from US economic growth in 2011, for example, went to the top 1% – is constraining broad-based recovery and leaving macroeconomic policy caught between the need for continued stimulus and the dangers of growing public debt and asset bubbles inflated by record-low interest rates.

In other words, a more balanced income distribution is not only a social or ethical issue; it is crucial for macroeconomic and, indeed, long-term corporate success. This is vital for many countries, above all the US and China.

Then there is the pressing need – in the US and globally – for education and appropriate skill formation. Without the skills required by new and incipient technologies, too many workers will simply be unemployable. A key benefit of prioritizing broad-based quality education is that it also helps to solve the income-distribution problem.

Finally, there is the need for effective international cooperation. China’s current-account surplus has declined, but now northern Europe runs a $500 billion surplus, while demand in southern Europe is collapsing and the US is running a deficit that is close to $500 billion. The longer-term challenge of climate change and extreme weather patterns also requires global cooperation and a post-election shift toward much stronger US engagement, which could unleash a multifaceted clean-energy revolution, fueling large job-creating investments and a new cycle of growth.

After America’s long, hard-fought election campaign, it is time for comprehensive policy reforms. One hopes that the US Congress will recognize this as well, leading to support for measures that could help hundreds of millions of people in the US and around the world.

Kemal Derviº, a former minister of economy in Turkey, administrator of the United Nations Development Program (UNDP), and vice president of the World Bank, is currently Vice President of the Brookings Institution.

Copyright: Project Syndicate, 2012.

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