01/11/2012 12:12 pm ET Updated Mar 12, 2012

Noisy Election Campaign Is a Prelude to Partial Compromise

With the Republican caucus in Iowa and the New Hampshire primary, America has now officially embarked on the road to critical presidential and congressional elections in November. This is a journey that will be heavily influenced by interpretations of what ails the country's economy and what should be done; and the outcome will be consequential for the future of America and for its role in the global economy.

In a throwback to the 1980 and 1992 elections, both the Democratic and Republican parties will focus their campaigning intensely on the economy. Over the next few months, we will hear many different explanations, and related accusations, of why America faces an uncomfortable combination of: persistently high unemployment, unusually sluggish growth, and rising poverty. Many will also lament the extent to which America has lost its competitive edge to other countries, especially in Asia, as well as the erosion in the country's ability to influence global economic and financial outcomes.

In addressing the past, politicians will also speak to the unsettling uncertainty that millions of Americans face -- and understandably so. The Republicans will go further.

Look for them to minimize the potentially-disastrous economic and financial conditions that Barack Obama inherited on assuming the presidency in January 2009 and to argue that, despite (or even because) of policies pursed thereafter, the country faces a recurrent risk of recession at a time of when unemployment is already unacceptably high, the budget deficit is at a historically elevated level, the debt stock has risen rapidly, and the central bank already has its policy interest rates floored at zero -- all are conditions usually associated with an exit from a recession as opposed to the threat of entering into one.

Inevitably, this debate will be heated and partisan, and it will involve massive oversimplifications and misleading accusations. Hopefully, it will not detract too much time and attention from the much more important discussion that speaks not just to the past but, also, to America's current challenge: how to pivot successfully from a disappointing recent economic past to a more promising and prosperous future that is broadly shared among citizens.

In their electioneering, look for Democrats and Republicans to offer Americans two seemingly different visions for the future. The apparent conflicts will be particularly pronounced when it comes to taxation, entitlements, regulatory changes, and international economic relationships.

In stressing these differences, each party will be responding to, and ingratiating themselves with popular movements that pull them further afar from the political center. In this context, Republicans know that a vocal minority of their supporters have migrated right, attracted by the conservative fundamentalism of the Tea Party. On their side, Democrats recognize that part of their base of committed supporters is sympathetic to the Occupy movements that have spring up spontaneously around the country.

These differences will be intensely debated. Indeed, it should come as no great surprise if, in the heat of the campaign, both Mitt Romney (the likely Republican nominee) and Barack Obama are tempted to shun the moderate middle and go to extremes in order to make their points crystal clear. Yet, once the political dust has settled, these seemingly irreconcilable differences are likely to decline in importance past November, once America has decided on its next president and on the composition of the new Congress.

After a very noisy election season, it is likely (though not certain) that Americans as a group could ultimately send to their elected representatives an inherently centrist message. Frustrated by the partisan bickering and the resulting paralysis in Washington over the past years, and which was so alarmingly on display during the debt ceiling crisis last summer, Americans would urge their elected officials to come together for the good of the nation; and they would push them to iterate to the correct compromises in areas that are critical to the country's future economic and financial well-being.

Whoever wins the November elections will have to lead and unite the nation in order to strike the correct balance in three key economic areas -- and it is possible to do so, although there are no guarantees: between tax and spending reform, between immediate stimulus and medium-term debt and deficit reduction, and between incentives for businesses and stronger social safety nets.

There is another, even more important, yet more tenuous balance that must be struck, and done so in a more explicit and decisive fashion -- that between generations.

The current generation of baby boomers possesses a range of tax breaks and historical contracts that expanded (and seemed to make sense) during America's "great age" of leverage, debt and credit entitlement. However, in today's environment of low growth and de-levering, they can only be sustained by fairer burden sharing within this generation. If this shared responsibility does not materialize, the country will end up placing an even greater burden on other generations.

Regardless of who wins the elections, this much more delicate generational balance may prove a much more difficult one to strike. There is resistance to both fairer burden sharing, including higher taxes on the rich, and entitlement erosions; and other generations, including future ones, do not possess the political clout and influence that is needed to affect meaningful change.

After a very noisy campaign, America's elections will likely allow for progress on some important and overdue policy initiatives. But, unfortunately, it may well take a lot more to resolve a major inter-generational issue that also inhibits America's ability to regain quickly and fully its economic dynamism, as well as restore confidence in both the fairness and effectiveness of the system; and, it may also be why the country would not be able to quickly restore its role as a powerful growth locomotive for the global economy and as a source of underlying stability for it.

An earlier version of this post appeared in Handesblatt.