U.S. economic policy is mired in a structural crisis. First, the deep integration of the U.S. into the world economy has weakened the effects of traditional fiscal and monetary policies. Second, the way in which the U.S. integrated itself more deeply into the world economy, along with changes in the global distribution of geopolitical power, limits the use of economic policy tools that would be more effective. Third, U.S. federalism embodies a dysfunctional division of responsibilities and powers between states and the federal government that is producing an incoherent and ineffective policy response to adverse global economic forces.
The structural weaknesses in the U.S. economic policy approach virtually insure that a complete recovery from the great recession will not be achieved. Unemployment, underemployment, and poverty rates in the U.S. will stabilize at higher levels than was the norm before the great recession. The stagnation of middle class incomes will continue. Federal, state, and local revenues, which primarily depend on middle class ability and willingness to pay taxes, will stabilize at much lower levels, while the demands for economic supports for families trapped below the self-sufficiency income level will grow, as will demands for health care subsidies, tax breaks, and income entitlements. There will be more losers than winners as the economic losses accumulate.
The social and political consequences of economic policy failures are enormous. Economic policy failures have damaged long-standing public policy efforts to promote the general welfare – efforts in health care, education, poverty reduction, environmental restoration, food safety, criminal justice, and more.
As the public policy damage spreads and deepens, hardships and frustrations are accumulating.
Voters are growing more angry at ineffectual government and impatient with leaving primary responsibility for job creation and income growth to the private sector. Political tensions over the proper role of government and constitutional philosophy are mounting, and political battles are become increasingly bigger, louder, and meaner.
The possibility for descent into very destructive political instability is increasing. The policy crisis must be resolved.