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.

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