America's problems are more political than financial

To the rest of the world, the US looks insane as it deals with real problems that its political system is struggling to solve. The system is even creating fake problems that it may choose to leave unsolved.

To the rest of the world, the US looks insane as it deals with real problems that its political system is struggling to solve. The system is even creating fake problems that it may choose to leave unsolved.

"The United States was the one bright spot in the world recovery," Organisation for Economic Co-operation and Development secretary-general Angel Gurria said. "It was leading the recovery! Leading the creation of jobs! This unfortunate situation with the budget and debt happens at the moment it was looking good."

The OECD is the modern-day descendant of the Organisation for European Economic Co-operation, which managed the Marshall Plan in the aftermath of World War II. Today, the OECD has 34 member countries and a mandate "to help governments foster prosperity and fight poverty through economic growth and financial stability".

That global perspective drives Mr Gurria's admiration of the US economy. Look around, he said. "The US is growing at 2-3 per cent, while Europe is only starting to rise from negative growth, and Japan is struggling to get prices up to 2 per cent inflation. The US is growing with very low inflation, and you are creating jobs. Perhaps you'd like it to be at a brisker speed, but you've created more than 7 million jobs in the past few years. These are just facts. You look even better compared with Europe, but even by themselves, these numbers are objectively positive."

The US fiscal situation is also much improved.

"Sequestration was not desired," Mr Gurria said. "But it has the effect that now the deficit is going below 4 per cent. Not long ago, you were near double digits. So you have a fiscal consolidation; some might say it was too fast, but the deficit today in the US is much lower than in the European countries. Everyone at home has a lot of doubts in their own economy and their own economic leadership and their own performance, but the fact of the matter is the US has been doing a good job."

At least, it was doing a good job. But then the government shut down. And then US leaders began fighting over default. Consumer confidence is plummeting as a result.

At best, the US is slowing its recovery, and that of the rest of the world. At worst, it is going to trigger another global crisis. That is why, Mr Gurria said, his concern was not that the US economy was weak, but that its political system was. "More than any number of GDP or growth or debt, the question is whether the US has the institutions to move forward on the issues it has to deal with internally and then play the leadership role it plays for the global economy," he said.

One of the key roles the OECD plays for countries that are trying to improve their economies (as opposed to trying to sabotage them) is as a collector of best practices. So I asked Mr Gurria whether a big deal on the budget should include taxes or focus just on spending cuts.

His answer was interesting: It should include taxes, he said, but not the kind of taxes the US tends to favour. "You do need more revenues, and you do need to cut expenses. But you also don't want to go in a direction whereby increasing taxes creates a [reluctance] to create new jobs. You don't want to increase taxes on work. You don't want to increase taxes on investment and the creation of wealth. If you need more revenues, go for consumption taxes, go for property taxes, go for green taxes, but don't make it more expensive to create new jobs."

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