CRF Blog

The way ahead

by Bill Hayes

In The way ahead for The Economist, President Barack Obama outlines four critical areas that he believes the next president will have to address.

Further progress requires recognising that America’s economy is an enormously complicated mechanism. As appealing as some more radical reforms can sound in the abstract — breaking up all the biggest banks or erecting prohibitively steep tariffs on imports — the economy is not an abstraction. It cannot simply be redesigned wholesale and put back together again without real consequences for real people.

Instead, fully restoring faith in an economy where hardworking Americans can get ahead requires addressing four major structural challenges: boosting productivity growth, combating rising inequality, ensuring that everyone who wants a job can get one and building a resilient economy that’s primed for future growth.

First, in recent years, we have seen incredible technological advances through the internet, mobile broadband and devices, artificial intelligence, robotics, advanced materials, improvements in energy efficiency and personalised medicine. But while these innovations have changed lives, they have not yet substantially boosted measured productivity growth. Over the past decade, America has enjoyed the fastest productivity growth in the G7, but it has slowed across nearly all advanced economies …. Without a faster-growing economy, we will not be able to generate the wage gains people want, regardless of how we divide up the pie.

A major source of the recent productivity slowdown has been a shortfall of public and private investment caused, in part, by a hangover from the financial crisis. But it has also been caused by self-imposed constraints: an anti-tax ideology that rejects virtually all sources of new public funding; a fixation on deficits at the expense of the deferred maintenance bills we are passing to our children, particularly for infrastructure; and a political system so partisan that previously bipartisan ideas like bridge and airport upgrades are nonstarters. [more]