The world isn't waiting

While Americans (and to some extent, everyone else) have a lot to be excited about, it sure hasn't taken long for the post-election euphoria to wear away. Obama's judgment and temperament helped him win the election, they will be among his best attributes going forward. However, Americans must remember that they are neither infallible nor may they necessarily lead to the policies we've come to expect.

On fiscal matters, the money for Obama's healthcare and other spending plans is gone - spent in the Paulson bailout plan. At least Paulson is moving towards the Dodd plan equity stake strategy rather than directly purchasing toxic assets, but the plan is (as we must expect) far from perfect. However, the fact remains that our financial sector is too vital to collapse - it is the engine of growth for our economy, especially in the long term. Eliminating or rolling back the bailout plan would be disastrous - not just for the immediate impact on the market, but for creating a climate of uncertainty hostile to investment. Nor will Obama's tax plans help very much. During a recession, increasing taxes on the very wealthiest and capital gains will have diminishing marginal returns - recessions, especially centered in the financial sector, will disproportionately reduce the incomes of wealthy investors (even if they suffer far less than ordinary Americans in absolute terms).

Though we should not foolishly cling to the impossibility of balancing the budget, we must spend wisely. So when the Big Three begin requesting billions in their own bailouts, we should not be so eager to appease them. While the auto industry and media will naturally claim that these companies, like the banks, are "too big to fail," the reality is that finance and manufacturing play vastly different roles in the American economy. Without solvent banks, simple but incredibly vital economic functions - saving and loaning money, for example, come into peril. Allowing for massive amounts of bank failures deprives the market of liquidity, crippling economic growth and innovation (starting a new company requires investment, after all). Car companies simply cannot claim to be this vital to the American economy, however important they are. Though undoubtedly the Big Three will get some form of bailout (Obama wouldn't want someone like Mitt Romney taking the industrial Midwest in 2012), it is likely this money could be better spent elsewhere. The jobs lost by these major companies will be highly visible - but not the jobs that will be lost in other companies due to the difference in allocation of resources. Even if someone were to point out this unemployment, the natural response would be, "good thing we bailed out those automakers, or they'd have gone under too!"

America cannot afford to constantly prop up every industry whose management and labor organizations legislate themselves into stagnation. We have bailed out the Big Three in better times - why do we think doing it now will help them finally achieve the magical recovery they've wanted? Even if we did stipulate the management be sacked and some new visionary team be put in place, can we really expect them to fix when even successful automakers are facing a hard year? Eventually, Washington will have to realize that doing the best thing for the workers will mean spending more money on new industries and trade adjustment assistance. This is the economic equivalent of "Weekend at Bernie's," and at some point we may have to stop waiting for the miracle that makes Detroit great again.

How far Obama deviates from his original platform is still unknown, but we should not be too shocked when - not if - he does. We can only hope that the deviations he does make will be positive - like promoting global cooperation on recovery by affirming free trade.

As for foreign policy, goodwill has failed to erase many of the expected dilemmas. On election day, Russia forced Obama to take Eastern Europe's side of the missile defense dispute by deploying missiles to Kaliningrad. This, combined with his preference for Ukrainian and Georgian NATO membership, will make Russian cooperation on Iran more difficult. Speaking of Iran, don't hold your breath for a great breakthrough there, either. Within days of the election, the mood of the BBC went from this to this. As for Pakistan, the economic crisis has only made intervening in the country more dangerous, while the recent calls for mediating the Kashmir dispute have the potential to harm our interests in the region even more. Germany, not just Britain, seems to be growing more skeptical about committing to Afghanistan - if this is indicative of a greater trend among ISAF members, we have a problem:

A new strategy would only work if Western countries openly discussed their
objectives in Afghanistan. They would have to admit that they cannot establish a
democracy, equal rights for women, or a welfare state in Afghanistan. Shifting
the focus from nation building to simply combating al-Qaida terrorists would
presumably be the only basis for Europeans and Obama to formulate a joint
policy.

And it isn't even January, yet.