America has dealt a major blow to the Obama presidency just two years after they voted him and his Democrats into power in November 2008.
The opposition Republicans have fought back from their disastrous defeat at the end of the President Bush presidency to claim the majority of seats in the House of Representatives in Tuesday’s midterm elections.
But given the Republicans’ agenda, it may not only be a blow for Obama, but indeed for America and the world.
Winning 239 seats out of 435, the Republicans reclaimed the majority in the House of Representatives, the larger of the two law-making houses of Congress in Washington, in what was the biggest power shift in 70 years.
They also won 46 seats in the Senate, decreasing the Democrats’ majority from 9 to 1 in the 100-seat chamber (3 are still to be counted).
In addition to the election for Congress, 37 governorships (state presidencies) were up for election (5 are still being counted).
The Republicans won 23 of these, versus the Democrats’ 9 including a tightly contested race in California which veteran Democrat Jerry Brown won despite his opponent Meg Whitman, the former CEO of Ebay, spending a record US$140 million of her own money on her campaign.
What it means for America
On December 31, President Obama wants to let the Bush tax cuts expire for the wealthy (on income earned over US$250,000) but extend them for the poor and middle classes.
The Republicans want to extend these tax cuts for the wealthy too, as they believe it will help the economy grow because wealthy people will spend more.
But Democrats’ claim the tax revenue earned on this top tax bracket is needed to pay for their stimulus spending and to shrink their budget deficit.
The Republicans (and particularly its tea party candidates) are also against the budget deficit, but instead of decreasing it by increasing taxes for the rich, they want the government to cut spending.
However, most economists agree that the government needs to be spending more right now, rather than less, to get the country out of their economic lull.
Republicans are also against Obama’s immigration reform that would have given immigrant workers more legal and social rights in America.
And finally, they want to annul the changes that Democrats made to healthcare last year.
But this may prove increasingly difficult. Most political commentators are predicting legislative gridlock or paralysis in Congress over the next two years.
With the Republicans controlling one house and the Democrats controlling the other, this leaves a stale mate, given laws need approval from both houses.
The only way progress will be made is through compromise and cooperation, and it appears neither side is prepared to do that.
They have almost no values or policies in common, and are seemingly locked in a political game to make each other look bad.
What it means for the world
For everyone else, it’s now highly unlikely that a global climate change agreement will be reached in the next two years.
The Republicans and some Democrats are opposed to it (they see it as a financial attack on American industry that will reduce profits and jobs). And other countries like China and India won’t sign it if America doesn’t.
Economically, Republicans may use their public support to start advocating international trade barriers and taxes that protect and promote American jobs.
If so, other countries will be forced to retaliate creating a similar protectionist downward spiral that caused the 1930’s recession to evolve into the Great Depression.
Even though the World Trade Organisation was set up to prevent such protectionist behaviour, in practice resolving disputes often takes more than a year, and there is little they can do to stop it once countries start a war of retaliation.
In fact, Congress has already passed a law saying it’s ok for them to use protectionist measures like tariff taxes against any country that deliberately manipulates its currency (specifically aimed at China).
So given these prospects, the outlook for America and the world after Tuesday’s elections is somewhat bleaker.
However, the result could be good for Obama politically. America’s economic problems are systemic and are not going to go away in the next two years.
As a result, by the time he comes up for re-election in 2012, Americans may have swung back to blaming Republicans for their economic woes. In the meantime, though, the suffering shall continue.
By The Casual Truth
Photo – The Republicans’ new House of Representatives majority leader and speaker John Boehner