The United States’ reputation for sound economic policymaking took a beating in 2013. Some of this was warranted; some of it was not. And now a related distorted narrative—one that in 2014 could needlessly undermine policies that are key to improving America’s economic recovery—is gaining traction.
The 2008 global financial crisis left the US economy mired in a low-level equilibrium, characterised by sluggish job creation, persistently high long-term and youth unemployment, and growing inequalities of income, wealth, and opportunity. Many Americans started 2013 with high hopes that congressional leaders would overcome, even if only partly, the polarisation and political dysfunction that had slowed recovery.
Expectations of less political turbulence were enhanced at the start of 2013 by a bipartisan agreement that avoided the so-called fiscal cliff (though at the last minute and with much rancour) and a deal reached later in January to raise the debt ceiling (albeit temporarily). With expectations of less political brinkmanship and lower policy uncertainty ahead, consensus projections foresaw faster, more inclusive economic growth.
In turn, faster growth was expected to revitalise the labour market, counteract worsening income inequality, mollify concerns about debt and deficit levels, and enable the Federal Reserve to start normalising monetary policy in an orderly fashion. It would also facilitate a return by Congress to more normal economic governance—whether passing an annual budget, something not accomplished in four years, or finally taking steps to enhance rather than impede growth and job creation.
But optimism foundered over the course of 2013, and frustration soared.
Growth has again fallen short of expectations. With another year of uneven job creation, the problems associated with long-term and youth unemployment have become more deeply embedded in the economy’s structure. Inequalities remain too high, and continue to grow. Congressional paralysis has reached levels unparalleled in recent history. And, again, lawmakers have not enacted an annual budget.
This is not to say that there has been no economic or financial progress in 2013. After all, economic growth, while unnecessarily held below potential by Congress (and vulnerable to decline if Congress is not careful), has again outpaced that of Europe. The budget deficit has fallen markedly, while companies and households, too, have continued to strengthen their balance sheets. Many segments of the equities market have bounced back strongly, with price indexes hitting record highs. And Americans are on the verge of obtaining much better access to health care.
What is frustrating is that the country could have—and