`Obama-nomics 2.0` to dictate US economic policy in 2nd term

Under “Obama-nomics 2.0,” expansion of the national debt ceiling, tax hikes and reduced government spending will immediately emerge as hot issues. After they are concluded to a certain extent in the first half of this year, the shape of economic policy for Obama`s second term will likely show.

Most experts say the administration will seek expansion of social overhead capital, revival of U.S. manufacturing, creation of jobs through energy industry reform, and implementation of a drive to expand exports in his second term.

○ Strong pressure on GOP in fiscal negotiations

President Obama signed an agreement on the so-called fiscal cliff early this year to end a looming crisis, but this was merely a stop-gap measure. The administration and Republicans managed to narrow differences over tax rates, as the Republican Party accepted a tax increase on high income earners raking in a combined annual income of 450,000 U.S. dollars per couple from 35 percent to 39.6 percent in their talks on the fiscal cliff. Both sides had been discussing adjustment of tax rates and reduction of fiscal spending.

But they also shelved for two months negotiations on an automatic cut in fiscal spending by 110 billion dollars every year to reduce the fiscal deficit by 1.2 trillion dollars over the next 10 years. In addition, they must agree on raising the national debt ceiling, which will likely reach its limit around mid-February, and the government budget.

The president`s economic team and Democrats are expected to strongly pressure Republicans on these issues. After President Obama expressed a hardline stance Tuesday in saying the expansion of the debt ceiling is not subject to negotiations, the Republicans suggested a plan on a three-month temporary expansion of the debt Friday.

The Republican Party seems to be losing ground in talks over a higher ceiling again after negotiations over the fiscal cliff. But the talks will hardly be smooth because the Republicans stick to their earlier stance that social welfare spending, including Medicare, should be drastically reduced.

○ Revival of growth potential considered key task

A law on creating two million jobs through 2014 that President Obama announced in his speech to Congress in September 2011 will likely be enacted. On Nov. 27 last year soon after securing his second term, as an initial economic stimulus, he presented an employment subsidy policy for subsidizing from state coffers 10 percent of the hike in wages, which are caused by new hires and a raise for existing employees. In addition, he announced a plan to revive the struggling U.S. manufacturing sector by trying to bring back the overseas plants of American companies back to the country.

○ GOP cooperation to determine president`s success or failure

In the end, whether the president can implement his ambitious plan to revive U.S. growth potential depends on how positively Congress, especially the Republican Party, will cooperate with his initiatives. Consultations with Republicans are essential as the president tries to secure budget to create jobs, but Republicans, who put top priority on securing fiscal soundness through reduced spending, will likely reject the move if certain conditions are not met.

witness@donga.com