The U.S. Election and IPE

The election is over, but coverage continues. The race between President Obama and Romney was exciting, but it hampered any discussion of IPE within the news as the candidates focused on social issues in the last few days despite largely economy-driven campaigns. In what may seem as if a bit of a stretch, I wondered how this Reuters article about the post-election fiscal cliff relates to our recent Krugman reading.

In criticizing the lack of banking regulation during the early 2000s, Krugman says that, “the Bush administration used federal power, including obscure powers of the Office of the Comptroller of the Currency, to block state-level efforts to impose some oversight on subprime lending” (164). Krugman advocates higher regulation rather than increased innovation in 2004, rejecting Alan Greenspan’s proclamation that the financial sector has “become more resilient.”

Given the danger of the fiscal cliff, would Krugman likewise suggest that we must continue to regulate banks and punish Wall Street for their role in the financial crisis? It seems as though he would be less willing to dismiss the need for financial innovation if he saw the trillion-dollar debt and $600-million dollar tax increases that the article addresses.

The fiscal cliff, as the article mentions, will also be affected by a vote in Greece’s parliament to approve an austerity package with international aid. Upon further digging through Reuters, the austerity package was in fact approved albeit by a narrow margin, but doubt for Greece’s future in the EU remains.

Doubt also exists in terms of Obama’s future and the market. After the election results emerged, the DOW dropped 312.95 points (as documented in the article). Despite Obama’s reelection, the threat of the fiscal cliff and the solvency of the American economy continue to haunt the financial sector. Is the regulation that Krugman lauds in 2004 still essential?

Sorry for the political underpinnings of this blog post, it’s the effect of the omnipresent election. There are vestiges of IPE within it, even if they are sometimes hard to find.