The author is a contributing editor at the Financial Times and writes the Chartbook newsletter
As the most important economy in the world, the economic decision-making of the United States has the characteristics of ever-changing. At the start of the year, the world was focused on the Fed, interest rates and banks. Shaking the kaleidoscope, a few weeks later national security adviser Jack Sullivan announced a new consensus in Washington around aggressive industrial policy and Treasury Secretary Janet Yellen was charting an economic path to avoid war with China.
A few weeks later, the kaleidoscope rocked again. The world is holding its breath for votes on the debt ceiling and the votes of politicians on the left and right to decide whether America will pay its bills.
The Dutch economist Jan Tinbergen, at the height of technocratic optimism in the mid-20th century, laid down the rule that we need a unique and independent policy tool for each individual policy objective. This means assigning tactics to the overall intelligence of the target.
There is currently no such general intelligence in the United States. Monetary policy, industrial policy and fiscal policy not only have different goals, but also have completely different logics. The Fed pursues technocratic fine-tuning. Industrial policy is strategic. Fiscal policy is ideological.
There is no Tinbergen’s unified technocratic wisdom here. Nor should the chaos be glorified by citing the wisdom and principles of decentralization of the 18th century founders. The kaleidoscope is driven by the twisted logic of a deeply divided society and a polarized political class.
If you wanted reassurance, you might say that this incoherence in US policymaking is nothing new, that the US has muddled through it, and so has the world. But the risk of catastrophe is real, as is the risk of more mundane miscalculation.
While a default was averted after the Senate this week approved a deal between the White House and congressional Republicans, the U.S. fiscal and monetary policy levers are now firmly pushed in the direction of recession. While industrial policy has benefited some, the general push for new protectionism in Washington has raised rather than lowered costs, at least in the short run. No wonder professional forecasters continue to expect a recession later in 2023.
If this is avoided, the more fundamental question is whether such an incoherent policy process might provide answers to the growing number of long-term questions raised by the multi-crisis era.
Many Americans will simply shrug and say, let politicians compete to craft policies that are strong enough to withstand the onslaught of partisanship. For the rest, let’s rely on innovation, technology and entrepreneurship to deliver the goods. For someone who is well placed in American society, this might work, but it’s a very limited vision.
If private enterprise can be self-sufficient, it may be promising. But it is a myth that private innovation lives on its own resources. In fact, it relies on public goods, such as world-class government-funded research universities, which are underfunded and threatened.
If American society were actually made up of strong, well-equipped individuals and families, the Darwinian model of society might not have resulted in massive inequality and dysfunction. But the truth is, a large segment of American society is woefully ill-prepared for the modern world and desperately needs help. Americans, especially American children, are paying the price for the ruthless dysfunction of Congress. Those cut are programs that not only help those in need, but help ensure collective prosperity. The shameful figures on infant mortality and life expectancy illustrate the problem.
If the U.S. is a small, isolated country whose finances are out of widespread concern, the rest of the world need not worry about the fiscal brinkmanship of its politicians. But it is not; it is the backbone of the world economy. The slightest tremor on Wall Street has reverberations around the globe.
If America were a post-nationalist state with no military footprint, one could make its domestic dynamics a national curiosity. but it is not the truth. It is the largest military superpower in the world.
Therefore, serious failures in banking regulation, rampant belligerence, unilateralism in economic policy, lack of social solidarity, irresponsible partisanship, and an ideology that defies reality must be taken seriously. socialist.
The team around Biden is undoubtedly pulling out all the stops. They think they can address domestic and global challenges through a clever mix of industrial policy.
This is probably the best option. But for context, it’s worth reminding ourselves that the original Washington Consensus of the 1990s and 2000s actually had a solid footing in the American political class. Given today’s circumstances, the idea of a “new Washington Consensus” that Sullivan floated a few weeks ago is nothing short of hallucination.