Economic battle lines in US election race

Election posters in Janesville Posters in Janesville supporting local man Paul Ryan and Mitt Romney

The city of Janesville, Wisconsin, was known for years for two things: pens and car parts.

The Parker Pen Company was founded in the town in 1888, and since 1919 it was the home to expanding General Motors (GM) car plant.

But like many US cities, Janesville was hit hard by the recession of 2008.

With the presidential election looming on 6 November, the city is now a battleground for the Democratic and Republican parties candidates - and more importantly, for the two parties' competing economic ideologies.

Recession bites

John Beckord has been following the ups and down of the local economy for the past 11 years.

As head of the local business organisation, Forward Janesville, he has spent the past four years trying to help the city get back on its feet.

The GM plant was closed in 2008 as the market in light trucks collapsed during the teeth of the financial crisis, with the loss of about 3,000 jobs.

"After the closure of the GM plant, we entered into a deep recession - and it hurt. We ended up losing about 30 companies," says Mr Beckord.

Start Quote

Any household, small business or big business should have to both plan a budget and balance a budget to make a profit. You cannot run a deficit and stay in business”

End Quote Joe Pregont Chief executive, Prent

But four years on, Janesville is on its way back.

On a tour of the city Mr Beckord points out some of the city's success stories.

"We now have new industries to replace the old. We've got advanced manufacturing, food processing as well as logistics and distribution," he says.

"We've added something like 1,800 new jobs and 20 companies are now headquartered here."

Local boy

So what's behind Janesville's renaissance?

Many in the city credit Paul Ryan, the local congressman and now Republican vice-presidential candidate.

He still lives in Janesville and he has been in Congress since he was just 28 years old.

Paul Ryan Vice-presidential nominee Paul Ryan still lives in Janesville, Wisconsin

Mr Ryan's central belief is that economy can only flourish when the country's deficit has been tackled, and the size of government has reduced, all of which he says will boost private business across the US.

For many in the business community in Janesville, this philosophy rings true.

Joe Pregont runs medical plastics moulding firm Prent, which employs more than 600 people in the city and has factories in China and Denmark.

On his busy factory floor, Mr Pregont says that Ryan's strong economic prescription is just what the country needs.

"Any household, small business or big business should have to both plan a budget and balance a budget to make a profit. You cannot run a deficit and stay in business," says Mr Pregont.

The Ryan Plan

Few question Mr Ryan's diagnosis of the problem of the country's rising deficit, but his prescription has many critics.

Along with many Republicans, he thinks that spending cuts and not tax rises are the best way to get the deficit under control.

Chad Stone, Centre on Budget and Policy Priorities Chad Stone warns about the economic impact of trying to tackle the deficit too quickly

President Barack Obama has different ideas. He has submitted a budget plan that sees the deficit cut coming broadly equally from spending cuts and tax rises.

Under Mr Ryan's plan total federal spending on things like education, highways and medical care would fall to 16% of GDP by 2050, the lowest level since World War II.

It's not just the presidential election that Paul Ryan will be concentrating on in four weeks' time.

He's also up for re-election for Congress in his district of Wisconsin.

Surrounded by campaign posters and banners at his office in nearby Kenosha, his Democratic opponent, Rob Zerban, is plotting a surprise.

His campaign has centred on Mr Ryan's plans for spending cuts and the dangers he thinks they pose.

"I think the Ryan Plan is dangerous and irresponsible," says Mr Zerban.

"It would slash the social safety net that people rely on and this kind of austerity would affect the most vulnerable in our society."

Over the cliff?

This divide on deficit reduction and government spending between the parties in rural Wisconsin is being played out on a bigger stage in Washington DC.

Whichever candidate wins the election, one of the first issue they will have to confront is the $600bn (£373bn) worth of spending cuts and tax increases due to automatically come in on 1 January 2013.

President Obama on the campaign trail in Nevada Despite the Republicans having a local man, President Obama has supporters in Janesville

Known as the "Fiscal Cliff" it was designed to act as encouragement for Republicans and Democrats to come to an agreement on how to tackle the deficit - but their differences on policy have made this impossible.

Now with sluggish growth persisting, the economy will be hit by a huge fiscal tightening right at the time it does not need it.

"Attempts to bring down the deficit have good long-run effects, but bringing it all in at once would most likely cause a recession next year in the US," said Chad Stone from the Center on Budget and Policy Priorities.

With the election campaign in full swing, there has been little inclination for compromise, and the world will have to wait until well after 6 November before any negotiations can start.

Start Quote

On paper, the Ryan plan is a lot more ambitious. But that is why many independent economists have said they don't believe it to be credible. ”

End Quote

While the parties campaign, there has been a growing line of opponents to the implementation of the Fiscal Cliff.

The ratings agency Moody's has said that the uncertainty is the single biggest threat to the global recovery and has threatened to cut the US triple A rating.

Lloyd Blankfein, the chairman of Goldman Sachs, has said that the bickering could harm the image of the US as a place to do business.

Compromise sign

With so much on the line, surely the two sides will put aside some of their ideological differences to form a compromise agreement or at least postpone some of the tax increases and spending cuts?

The economy - especially the US' deficit problem - is expected to be a key issue in the presidential debates

The International Monetary Fund (IMF) has been leading the way in urging both sides to come to an agreement as soon as possible.

"I think there is a fair degree of agreement about what the outline of an agreement could be, but how exactly it's going to play out - it's impossible to say," said Gian Maria Milesi-Ferretti, the US mission chief for the IMF.

After months of campaigning and mud slinging before the election, it looks almost certain that the first few months of the new presidency will be dominated by yet more ideological wrangling.

The future of the US economy really is in the hands of the politicians.

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