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4 reasons Obama's second term may be different

November 09, 2012

| MoneyRates.com Senior Financial Analyst, CFA

Election Day 2012 delivered three major outcomes:

1. Barack Obama won another term as president.
2. Republicans retained control of the House of Representatives.
3. The Democratic/Independent coalition retained control of the Senate.

In other words, voters signed up for the same general conditions they had before the election. So why might things be any different for Americans' finances over the next four years?

Reasons change may be near

It seems doubtful that votes to keep the White House and Congress in the same hands were resounding endorsements of the status quo. Americans face pressing economic problems, including persistently high unemployment and a looming deficit crisis. But here are four reasons why the years ahead may be different:

  1. The uncertainty is resolved. Business managers hate uncertainty. Forget any myths about whether Republicans or Democrats are inherently better for business conditions. Since the end of World War II, the economy has performed nearly identically under Republican and Democratic administrations. Annual inflation-adjusted GDP has averaged 2.9 percent under Republicans, and 3.0 percent under Democrats. The bottom line is that smart businesses will adjust to whatever rules are in place -- they just want to know what the rules are going to be.
  2. Obama can't run again. Right from Obama's inauguration, a goal of Republican Congressional strategy was to try to make him a one-term President by minimizing the number of legislative victories he could claim. By nature, that's a negative, obstructionist approach. Now that Obama has won a second term, there will be no incumbent running in 2016. That means that would-be candidates on both sides of the aisle will want to start burnishing their track records, and that means having some accomplishments to show.
  3. Recognition is growing that gridlock is not a winning formula. For a long time, there was a notion among fiscal conservatives that gridlock in Washington was actually a good thing, because it prevented new spending measures from being passed. However, the huge expansion in the federal budget due to two wars and the fiscal crisis changed the game. The current course of spending means that active steps need to be taken to rein in the budget.
  4. A narrow anti-tax platform won narrow support. The Obama campaign was successful in eroding Mitt Romney's perceived advantage on economic issues by defining the key fiscal difference between the two candidates as the willingness to tax earners above $250,000 in order to address the deficit. This was a numbers game that Obama was bound to win. Right or wrong, Romney's defense of the wallets of the wealthiest Americans wasn't going to win him many votes.

Whether things are really different will be easy to tell: If America sails off the fiscal cliff at the end of this year, or otherwise fails to put in place many widely agreed-upon measures to responsibly address the deficit, it will be a sign that it's back to business as usual in Washington.

But if not, it could be a sign that the economy is starting down a new path. If that path leads to better yields on savings accounts and improved banking conditions before 2016, it will be a victory for the president and consumers alike.

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