Defeated rival may still have the secret for an economic recovery

Magnanimous in victory, Barack Obama said he would sit down with Mitt Romney to discuss what they could do to move the country forward. Romney seems the sort of man who would respond to that.

Down here, where unemployment hit 7.3 per cent in the September survey reported this week, we can only hope they get together.

It is hard to think of a better stimulant for the world economy right now than a credible bipartisan agreement to bring down the United States budget deficit.


Bringing down the deficit is not what economists have in mind when they worry about the "fiscal cliff" that faces the US unless the President and Republicans in Congress can do a deal before the end of the year.

Quite the reverse - economic wisdom says the recovery is still too delicate to reduce the deficit and the best the President can do is a deal postponing the day of reckoning again, or as Americans call it, "kicking the can down the road".

That sort of deal should not be difficult for a newly re-elected president to do with a lame-duck Congress, but this President probably doesn't want to be remembered for kicking any can down a road.

Obama just may have something bigger in mind.

Many times during their television debates he heard Romney claim to know what is required to give companies the confidence to invest, create jobs and lift the economy out of this four-year slump.

Romney, wearing his business credentials, seemed to have more in mind than tax cuts.

When they meet, Obama may raise something else that the man from Bain Capital said in the first debate. Romney reckoned it was possible to recover the revenue he would lose in tax cuts by depriving the higher-paid of some of the rebates, exemptions and deductions that US taxpayers enjoy.

Some of those deductions are generous. Americans get one for home-mortgage payments, can you believe?

Many other gaps in the US tax code are "pork" that congressional representatives take home from federal budget negotiations for significant industries in their district.

The industries don't need it but they contribute to the congressman's campaign and it's a pay-off. It distorts state economies and blows out the federal budget, and it is exactly the sort of corruption Obama enthusiasts hope he can change.

In his victory speech on Wednesday night, he mentioned one specific task: "Reducing our deficit [and] reforming our tax code."

Reducing the deficit takes money out of circulation and economics argues against that at the moment, but sometimes the best economics is psychology.

When Romney said he knows what makes firms invest and expand, he was probably referring to public policy they can believe in.

Businesses know the economy has been kept alive by public finance for four years. They have retrenched, reduced company debt and accumulated capital. Now they are all cashed up with nowhere to go.

The Economist this week reported that company cash stockpiles are now 40 per cent above the 2008 level in the US, and similar mountains of "dead money" are accumulating in Britain, Canada and Japan.

It may not take much to trip the dam and release the flow. A hard-nosed decision by the re-elected President to eliminate tax breaks might do it.

Right now, in the glow of a new mandate, he is more powerful than he will ever be. He can deal with a Congress that is usually more compliant in the period between an election and the arrival of newly elected members in late January.

The "Tea Party" Republicans who regard closing loopholes as a tax increase are out of favour with many in their party who are blaming the extremists for Romney's defeat.

If the President does not seize this moment to do something daring, he probably never will.

If he cannot persuade Romney to endorse a substantial reduction in tax exemptions, he can at least remind Americans that the Republican candidate advocated just such a programme in the campaign.

Artificial stimulants are not doing much for confidence anywhere.

The US fiscal deficit is not the only cloud on the world economy. The Federal Reserve's "quantitative easing" has yet to do much except depreciate the US dollar and impose an exchange rate that is now depressing economies such as ours.

Romney said that if elected he would replace Federal Reserve chairman Ben Bernanke. The President should bring that subject into their discussion, too.

On election night, Obama told the country: "Whether I earned your vote or not, I have listened to you, learned from you, and that has made me a better President."

He added: "You voted for action, not politics as usual."

Something is brewing in him. I hope it will be enough to get us out of this rut.