This past week’s American election marks an important historical turning point. A broadly based multi-cultural multi-lingual diverse lifestyle progressive 21st century  coalition won a narrow but decisive victory over a much more conservative traditional 20th century coalition. Both sides worked hard to bring out their vote but the final tally revealed the dimensions of the victory. President Obama received according to the latest tally reported on CNN 61,910,594 votes and 332 electoral college votes. Governor Romney received 58,654,765 votes. The Democrats also increased their seats in the Senate to 53 plus two independents who will lean toward them. The Republicans hold 45 Senate seats. In the House the Republicans maintained their control hanging on to 233 seats to the Democrats 193.

The nature of the victory bodes well for the Democrats and its consequences are likely to last long after President Obama leaves office.The Republican minority is going to have to face up to the fact American society is changing  and previously marginalized minorities have learned how to co-operate, how to get out the vote to build a winning majority capable of winning the Presidency and becoming a powerful force in the Senate. Political gerrymandering in redistricting House seats as one of my colleagues has explained to me makes the situation more difficult in the House but that may well change over time.

Now that Barack Obama has won this historic victory the pressing question is what will he do with it. He faces partly because of his own initial fiscal caution and other centrist leaning fiscal conservatives a partly self imposed fiscal cliff. In negotiating his way out of this he has a dilemma. How much if at all should he compromise on his desire to let the Bush tax cuts lapse on the highest income taxpayers and to what extent , if at all should he permit cuts to social democratic minimum programs like social security and  medicare. Many American politicians describe these programs as ”entitlements” a very ideologically loaded term. These are in fact programs that American taxpayers have been promised over many generations and for which they have paid through their taxes and contributions. Some adjustments in them may be necessary given the  changing demographic nature of American society. But to truly know what adjustments need to be undertaken one needs to forecast revenues and expenditures at a targeted consensus unemployment rate that reflects a full recovery, say for example 4 % unemployment. Then but only then can we conclude what the high employment surplus or deficit may be. At any unemployment above that rate the deficit reflects the fact that the business cycle has not peaked and growth and employment is below the optimal level. So in fact President Obama has a strong argument on his side to proceed cautiously with respect to Republican demands. In addition to political capital he has intellectual capital on his side.