If Markets Picked Presidents

Who would be better for the global economy: Barack Obama or Mitt Romney?

Are international markets invested in who wins the U.S. presidential election? They certainly should be. There are huge differences in how Barack Obama and Mitt Romney would handle the global economy. But if the election were decided on these issues alone, it would be a pretty tough choice. Here are my appraisals of the candidates' points of view on the main issues:


The Obama administration's record on trade is nothing to write home about. Two years after resigning as U.S. trade representative, Susan Schwab wrote a 2011 article in Foreign Affairs essentially arguing that Washington should give up on negotiations through the World Trade Organization to open foreign markets. She was right -- the Doha Round of talks is dead. With this in mind, the White House should have pursued more bilateral and regional deals.

Instead, the administration played it safe. It pushed existing agreements signed with Colombia, South Korea, and Panama through Congress -- but that was par for the course. The United States should be trying to secure more deals in economically and strategically important regions such as Latin America and Southeast Asia. In the latter, such a strategy would have fit well with the administration's much-publicized "pivot to Asia." The talks for a "Trans-Pacific Partnership," which would create a free trade zone in the Asia-Pacific, are a start -- but half of the countries involved already have free trade agreements with the United States.

With former U.S. Trade Representative Rob Portman among his top advisors, Romney is likely to seek new deals much more actively. He has pledged to request trade promotion authority from Congress, which would allow him to sign new agreements without legislative approval. Yet despite the huge benefits Romney has reaped from the global economy, he has taken a bizarrely protectionist stance on one of America's biggest trading partners: China.

Romney has said that he will label China a currency manipulator on his first day in office. ("They will recognize that if they cheat, there is a price to pay," he warned.) But though China's exchange rate can only move within a band set by Beijing, to call China a currency manipulator is now a stretch. The yuan has gained 19 percent against the dollar and 33 percent against the euro in the past five years as demand for Chinese securities has risen. Meanwhile, Chinese trade surpluses have shrunk to just 2 or 3 percent of GDP. Also, antagonizing China does the United States no good at all, as American consumers enjoy higher living standards thanks to cheap Chinese exports. Rather than demonizing China, the next U.S. president should be building a stronger economic relationship -- with more exchanges of people, ideas, goods, and services, not less.

Most disappointingly, neither candidate has a plan for managing the ongoing challenges of globalization. While pursuing gains from trade with varying avidity, successive administrations have done next to nothing for Americans whose jobs have disappeared or become uncompetitive. Reintegrating them into the workforce is a task as great as the reassimilation of veterans after World War II, yet no presidential candidate has proposed anything as ambitious as, say, the GI Bill.

Verdict: Tie

Foreign Aid

Obama and Romney recently responded to a request from the ONE Campaign, a global anti-poverty organization, to lay out their thoughts on foreign aid. Refreshingly, both said such assistance is an important part of U.S. foreign policy and economic policy, and both referred to aid using variations of the term "investment."

But Romney embraced the investment approach, which has advantages in both rigor and effectiveness, more fully than Obama. His emphasis was on laying the groundwork for private enterprise in poor countries: eliminating barriers to trade and investment, and, crucially, solidifying property rights and the rule of law. These are some of the same policies that allowed China to lift hundreds of millions of people out of poverty and jump-started growth in sub-Saharan Africa, even in countries without enormous natural resources.

Unfortunately, however, Romney made only passing reference to global health programs, even though health is a prerequisite for development. One also hopes that his emphasis on faith-based aid organizations would not exclude non-faith-based but equally meritorious groups.

In contrast, Obama's point of view on foreign assistance seemed outmoded and narrow, hinging solely on interventions targeting hunger and health. These can indeed be useful, even essential, but by themselves do little to support a broader environment conducive to economic growth. Voters can also examine Obama's record. His administration's Feed the Future initiative has promoted some helpful agricultural programs, especially in helping poor farmers get better access to markets and information. But because agriculture is most efficient when it is capital-intensive, not labor-intensive, it's just as important to generate options for people who want to get off the farm.

On global health, Obama mentioned epidemics, family planning, and human trafficking. Yet the biggest need in most poor countries is for regular, primary care delivered by efficient health systems. Right now, too much funding is tied to just a few diseases. In this area, the president's thinking needs an update.

Verdict: Advantage Romney

Financial Stability

Only a few years have passed since the global economy came under threat from forces that originated mainly in the United States -- abuses of the derivatives markets and a flood of cheap credit. In the next four years, the United States will have a correspondingly large role in fostering the financial stability it once helped destroy. That means keeping its own house in order while working to create a global regulatory structure capable of monitoring and controlling systemic risks.

Putting Romney in charge of financial regulation might be akin to letting the fox guard the henhouse or, alternatively, using a mob informant to determine where the bodies are buried. The Republican presidential hopeful comes from the world of high finance, and he has made use of some sophisticated dodges of financial regulations in order to increase his fortune. Glenn Hubbard, one of his top economic advisors and potentially his choice for Treasury secretary, has recognized the failures of regulation but is wary of the burden new rules might place on the financial sector. So far, Romney has said little about how he would help resolve the crisis in the eurozone, which is arguably the economic problem that will affect Americans most in the coming years.

Obama hasn't said much either, but he has emerged as a team player on the global economic stage by supporting the Basel III international banking standards through the G-20. This decision did not endear him to finance's high and mighty, but others may have. For one thing, his administration has done little to punish the highfliers whose negligence or malfeasance contributed to the financial crisis. He has also stuck by his Treasury secretary, Timothy Geithner, through accusations of pandering to Wall Street, and he could have taken a stronger line on consumer protection while Congress concocted the Dodd-Frank legislation, which reformed financial institutions.

Yet Obama seems more committed to ensuring the stability of the federal government, which is part of the bedrock of the global financial system. Last year, when Republicans in Congress almost caused the Treasury to default on its debt, Republican vice-presidential nominee Paul Ryan said it would be no big deal. On the contrary, it would have been a very big deal, and the idea that a Romney administration would play along with such a radical Congress should strike fear into markets around the world.

Verdict: Advantage Obama

So far, neither candidate seems like the ideal choice to put the global economy back on track. There is one more factor that could tip the balance, however. Back in 2003, I polled economists around the United States about George W. Bush's influence over the economy. Most said that there was little the president could do to affect the economic cycle, but they did note that his foreign policy -- namely, the slow march toward war in Iraq -- was probably hurting growth.

The Obama administration has shown a lot of reluctance to engage the United States in another major conflict, but some of Romney's cohorts have spoken openly about attacking Iran. Another war, especially in the Middle East, would create enormous uncertainty throughout the global economy. Given the daunting challenges we already face, that's something the world could definitely do without. Obama may not be a star when it comes to global economics, but he looks like a safer bet than the alternative.

Spencer Platt/Getty Images

Daniel Altman

There's No App for That

It's 2012. It's about time we had economic policies for a new kind of growth.

Some things about our lives as consumers hardly ever change. We like new clothes, we enjoy a meal with friends, and we always seem to run out of toilet paper.  But the nature of our consumption is shifting in an unprecedented way, from tangible stuff to intangible experiences. This is probably a good thing, since essential commodities from copper to corn are getting scarce, and someday the very atoms that make up the universe may be as well. But if we're going to have new kinds of consumption, we'll need new policies to support them as well.

Today a rising share of our consumption is made up of experiences: human interactions, fantasies, and creative moments. They sometimes take place in the real world, with face-to-face contact and other forms of communication facilitated by ever-improving technology. But increasingly, they happen in the virtual world, through the media of computers, television, cinema screens, video game systems, and even our own minds. We pay for some of these experiences directly, like the Angry Birds sequel, but others are supported by services and platforms we buy separately. For example, Twitter may be free to use, but your computer, your Internet service, and the electricity to run both of them are not.

The satisfaction we get from all of these experiences is an important part of our living standards. We get to share our interests, air our views, forge new relationships, receive recognition, and even live beyond the bounds of our physical existence. We can't easily get that kind of satisfaction from plain old stuff.

There are other important differences from an economic point of view. First, producing new experiences usually requires a big upfront investment -- it costs upwards of $10 million to create a video game these days -- but offering an existing experience to an additional Angry Birds consumer has a very low cost. In addition, one consumer's enjoyment of an experience doesn't necessarily preclude or subtract from anyone else's enjoyment; that's not true for something like an apple or a library book. And finally, the satisfaction we obtain from experiences is non-comparable; you and I may both have a great time watching the new James Bond film, but for different reasons and in different ways. We can't necessarily say whether you had a better time than I did.

This last distinction is especially important, because it opens the door to much higher levels of wellbeing. Economists have suggested that people earning more than a certain income may only be happier when their material living standards are higher than those of people around them. It's easy to compare living standards by looking at people's cars, houses, clothes, and the like, but it's much harder to compare edification from experiences. The "keeping up with the Joneses" aspect of our lives may finally start to disappear as experiences make up a greater share of consumption.

This may sound like a "first world problem," but the number of rich countries is steadily increasing. Unfortunately, most of them still live with economic policies designed to promote the supply of and demand for more traditional products such as crops, fuels, and manufactured goods. To enjoy more experiences, we need different priorities.

Among the most important is keeping the marginal cost of adding new users small. To make a new experience available to the maximum number of people at low cost, our societies need better broadband and wireless service, more interoperability for different brands of mobile phones, and more energy-efficient devices. (And yes, we need better WiFi aservice on Amtrak.) These priorities are particularly relevant for experiences like massively multiplayer games, social networks, and other content-sharing platforms where the richness of the experience rises with the number of users.

We also need to understand more about human behavior, the design of experiential products, and the data science that underpins them. As in the case of new information technologies and energy sources, research in these areas has the properties of a public good. Discoveries such as holographic imaging, cybernetic connectivity, and brainwave processing may benefit all of our society, but no individual or company may have sufficient incentive, patience, or capital to undertake the needed research on its own. Governments around the world already give billions in grants for scientific research in biology, medicine, chemistry, and physics. Research into the mind and its links to the five senses could be just as important for enhancing society's wellbeing.

Another requirement for the creation of new experiences is interaction with new content and ideas, which are drawn most easily from cultures outside our own. Greater mixing of cultures, through trade, travel, and migration, can plant the seeds for entire crops of new experiences; consider the West's growing devotion to yoga, the worldwide success of Japanese horror films, or the popularity of Sufi poetry.

Yet lowering obstacles to the movement of people, goods, and services has lately been a low priority in the world's most advanced economies. Negotiations at the World Trade Organization have all but petered out more than 11 years after the launch of the Doha Development Round of talks. Immigration has come under greater constraints in the past decade thanks to the war on terror in the United States, xenophobia in Europe, and parochialism in Asia. And the global economic downturn has led some political leaders to resort to protectionism and poisonous brands of nationalism. Reversing these tendencies would set the stage for a new wave of global growth in living standards.

These new priorities are especially urgent not just because of the scarcity of stuff that the world is facing, but also because of the current trend in its consumption: fewer products that can do more things. Today a watch, calendar, personal stereo, book, briefcase, landline telephone, and even wallet can all be replaced by one device. Yet this one device can carry and convey an infinite number of experiences, and so the scope for higher living standards is similarly unlimited. It's time for economic policies to promote this new kind of growth. There's no app for that -- yet.