A new start for America

Barack Obama, son of a black African father and a white American mother, on Tuesday becomes the 44th president of the United States. His assumption of the office is an inspiring moment for the US and the world. In part this is because he is a remarkable man with the makings of a great president. More than that, it is because the new leader of the most powerful country on earth bears witness to a momentous and distinctively American principle: that all men are created equal.

For years, black Americans saw Thomas Jefferson’s pledge in the Declaration of Independence mocked by legal impediment and lingering prejudice. As the new president has often pointed out, his election does not build the colour-blind society dreamed of by Martin Luther King; still less does it perfect the union that the founders of the United States envisaged. Nonetheless it is a huge and historic advance. It stands as a challenge to other nations to live by the principles they espouse. The world, as much as the US, is not just impressed by this inauguration, it is moved – and it is right to be.

One might wish that the celebrations were less encumbered by an underlying sense of crisis. History has decreed otherwise. President Obama replaces a failed predecessor and faces tests as great as any since the time of Franklin Roosevelt and the Great Depression, and they are on many fronts.

The economy is deep in recession and, as in the 1930s, it is no ordinary recession. The government has spent hundreds of billions of dollars on rescue efforts, but the US financial system is far from repaired. The danger of a prolonged slump is still real. The new president must deal with Iraq and Afghanistan, turmoil in the wider Middle East and Pakistan, tensions with Russia and the challenges of a rising China and India. He must lead an effective global response to the prospect of accelerated climate change or else the problem may soon run out of control.

At home Mr Obama must reaffirm the rule of law and restore the constitution’s balance of separated powers, while confronting grave threats to the nation’s security. As if that were not enough, he has promised comprehensive reform of US healthcare – an undertaking that is long overdue, and large enough in its own right to consume any ordinary presidency.

Can he succeed? The new president appears to have the character and temperament that the times demand, and the country is expressing vast confidence in its new leader. Yet every president is at the mercy of events, and is circumscribed by Congress, especially on domestic policy. In getting his way, not least with his own party, Mr Obama will need continued strong public support. If he retains that, with the right policies and priorities we believe he can speed the recovery and return the country to its rightful place in the world’s esteem.

The most pressing need at home is for action on the economy. The new team must look afresh at the financial system and make a clean break with the muddled efforts of the Bush administration. Mr Obama’s officials must urgently investigate and expose the full extent of the system’s impaired assets. Values must be written down, insolvent banks nationalised outright, and solvent ones recapitalised with an equity stake for taxpayers. The cost of this unflinching reappraisal will be large, but vital if the system is to play its part in financing the recovery.

Alongside a more determined approach to stabilising the financial system, Mr Obama must win public support for a big new fiscal stimulus. If anything, his current proposal of $825bn over two years is too modest. Even so, he is facing resistance. Sceptics disinclined to study the evidence point to the failure of previous efforts and deplore additional public borrowing on principle. The new president must win the argument, and quickly. Without a powerful new fiscal stimulus, the outlook for demand in 2009, and hence for output and employment, is bleak – not just for the US but for the world.

Perhaps Mr Obama’s most difficult test will come if he succeeds in those initiatives. He must prepare the public for the longer-term consequences of rescuing the financial system and injecting new demand into the economy – namely, higher taxes and cuts in public spending. It would be tempting to stay silent on this. But citizens and foreign investors need to know plans are afoot to bring the budget back into balance.

If this is done, a further requirement is a strong new emphasis on international co-operation. That is painfully obvious in foreign and security policy but applies just as much to the economy. When the time comes for fiscal consolidation in the US, and preferably long before, policy in countries with current-account surpluses must become much more expansive. New institutions are needed for this kind of co-operation. It falls to Mr Obama to create them. For now, just as he commands the confidence of his people, the new president inspires admiration worldwide. If he offers a new spirit of co-operation on these questions, he must receive a generous response. Barack Obama is the US president the world said it wanted. Making a success of his presidency – which is in the world’s interests – will be as much its responsibility as his.