The Economist and the American Economy

It takes something for me to say that The Economist is probably right. Sure enough the cover of The Economist, which has led to many critiques, sarcastic comments, and plain mockery by some friends on the left, was a bit hyperbolic. But the main argument of the piece -- basically that the American economy did pretty well in the recovery from the Pandemic, and that the United States has done well when compared to other advanced economies, and better than it did in the last few recoveries, which is not the case with China, which still grows faster, but has slowed down -- is correct.

Regarding the recovery, it is clear that the US has outperformed most economies, and it is also true that to a great extent that is due to the fiscal packages from the Pandemic, including the Biden ones, that were derided by many, including many Dems, like Larry Summers (and inflation, which resulted from the supply chain problems, in the absence of significant conflict went down pretty fast).

 

Not only this was the first recovery that was NOT jobless in a while, as can be seen by the fact that real GDP went back to trend, it also puts in doubt the notion that there is some fundamental secular stagnation problem with the US economy.

There are, no doubt, structural issues, like increasing inequality, and an hegemonic challenge from China*, but no significant reason that dooms the economy to grow less in the long run. The lower growth was a result of policy decisions, not structural problems. As Steindl would have said, stagnation policies. Had Obama (and then Trump) pushed for a more robust fiscal expansion after the 2008/9 Great Recession as Christina Romer wanted (and contrary to what Larry Summers advocated) then the growth rate would have been higher, and perhaps even the deficits (as a share of GDP, with GDP growing faster) would have been smaller.

Trump's victory in 2016 is, to some extent, the result of that choice too (and not prosecuting the Wall Street crooks, in my view), and Kamala has failed to adopt a more populist tone during the campaign, which I hope does not end up leading to another turn to the far right. The limits to growth have been political, and the Dems have played a role in that. Paradoxically, Biden had moved to the left on that (his willingness to promote a more healthy fiscal expansion).

* On the exaggerated fears of the end of American hegemony, also very common on the left, I'll write later.