[Opinion] Obamanomics

Stocks plummeted worldwide after the historic election of Barack Obama as U.S. president Tuesday. Investors rattled by the global financial crisis wondered how Obama’s presidency will help the country and rest of the world weather a potentially severe recession. Obama must have realized the massive challenge of reviving the economy that awaits his administration. The real game, however, lies ahead as world markets pay close attention to Obamanomics.

To sum up the Obama camp’s economic policy, Obamanomics means “big government.” Its key elements include expanding fiscal spending and strengthening regulations in line with the spirit of the Democratic Party, which favors the government role over market functions. Another crucial variable is the U.S. real economy, which faces its worst economic crisis since the Great Depression. Under his economic policies, Obama says he will raise taxes on people who earn more than 250,000 U.S. dollars a year and provide refundable tax credits for the poor and middle class to jumpstart domestic consumption.

To minimize hardship in the recession, the new administration has to come up with a “New Deal” for the 21st century. Many blame the deregulation of the Bush administration as causing the financial crisis, so screening and supervision of financial derivatives and institutions will intensify. In this sense, Obamanomics is likely to be a combination of government intervention in the market and the strongest stimulus package since the New Deal of the 1930s.

Obamanomics can be compared with Reaganomics, which helped the U.S. economy recover in the 1980s through reduction of annual expenditures, tax cuts and deregulation. For Korea, the thing to watch is if Obama takes a protectionist stance considering his comments on the imbalance in auto trade between the United States and Korea. If Obamanomics can help turn around the sagging U.S. economy, the global economy will also benefit, but fears remain over excessive protectionism that triggers trade conflict and worsens the global recession. It still remains to be seen whether Obamanomics brings a soft landing of the U.S. economy at low cost.

Editorial Writer Park Won-jae (parkwj@donga.com)