America in trouble

Banal policy proposals in Washington are a dangerous mismatch for America’s enormous political and economic challenges

David Coates

Watching the economic policy debate in both Washington and London is a deeply frustrating experience. The debate in the UK is at least clearly focused – on the adequacy or otherwise of Osborne’s policy of deliberate austerity – and from that debate real policy emerges.

The equivalent debate in the US isn’t even focused. Instead, it is deadlocked in a debate between two fundamentally incompatible positions in a political system that makes a virtue of divided government. The looming result right now is a series of severe cuts in public spending – the so-called sequester – cuts that nobody is supposed to want but which will kick in automatically unless there is agreed action to stop them.

The only bright spot on the horizon, if it can even be thought of in those terms, is the manufacturing strategy laid out by the President in his recent State of the Union Address. Obama’s strategy proposes a new set of public/private partnerships to create global centres of excellence in high-tech manufacturing and to rejuvenate cities and regions hit by de-industrialisation, plus more tax incentives for corporations bringing jobs back to the United States – corporations, that is, willing to employ a labour force re-skilled for the ‘jobs of the twenty-first century’.

To a British ear, all that must sound both remarkably familiar and extremely modest. It certainly did to mine. But so it should: because the most striking feature of the relationship between federal politics and the national economy in the contemporary United States is the gap between the enormity of the problems that need to be addressed and the banality of the policy solutions being canvassed to address them.

The US economy is currently flat-lining. Its rate of job growth is barely keeping pace with the rate of entrants to the labour market. One American in seven is now officially poor. One American family in two has less than three months of financial reserves, should unemployment or illness strike. The median wage has been effectively stagnant for a generation. And all the President has new to offer is a set of glorified research triangles and the usual corporate tax-breaks.

That doesn’t get anywhere near what is needed because, in truth, the barriers to rapid economic growth in the contemporary US are both interlocked and daunting.

The most obvious one is the political deadlock in Washington, and the enthusiasm of the Republican Party there for a slash-and-burn growth strategy: cutting public programmes on the premise that their presence is a barrier to private sector expansion (Republicans in my state – the one with the third highest jobless rate in the country – just cut unemployment benefits by 30 per cent).

Add to that the continuing absence of private sector expansion – the inadequacy of investment and hiring by US companies large and small. That inadequacy is actually created by weakness in domestic consumer demand, and so it is one that cuts in public spending are already making worse and that the looming sequester (if and when it comes) will seriously amplify.

Then there is the appalling hangover from the failed growth strategy of the Reagan/Clinton years: the sheer economic burden of massive family and student loan debt, of a broken housing sector still beset by foreclosures, and of enormous income and wealth inequality. Mix in too a decade of outsourcing of employment by major American companies (2.4 million jobs shipped overseas in a decade) and America’s growing dependence on export markets (particularly in Europe) which are also in trouble.

We also need to bear in mind the sheer geographical scale of this country. Unlike the UK, it is huge. You can be unemployed and yet be physically miles away from any available work. The result, in a state like North Carolina where I live, is that whole areas are fully denuded of even low-skilled manufacturing employment, with their people locked away in eroding and isolated local economies that contain no inner dynamic of growth. That is a dire economic cocktail that a few additional corporate tax breaks doesn’t even touch.

There are definitely two Americas now. One is the America most visible from the European side of the Atlantic: with its recovering financial sector, its large pharmaceutical companies, its big arms producers and well-subsidised agribusinesses, and its high-spending managerial class.

The other is the less visible America of sprawling suburbs, small towns and isolated hamlets – each with its standardised set of fast-food restaurants and big-box retail stores, its low and stagnant wages, its hard-pressed public schools, and its deep divisions of class, ethnicity, religion and even on occasion (as here in the new south) of language too.

That second America is hurting economically right now, and is struggling both socially and personally. The inability of the political class in Washington to address its growing needs both feeds the libertarianism of the American Right and speaks to the on-going inadequacy of the American centre-left.

I know that things are tough economically and socially in Britain now, and across the whole of southern Europe. But, just for the record, for too many Americans, they are very tough here too. This is a shared crisis, and I hope that we all remember that.