October 14, 2013

Analysis: To the world, U.S. budget battle is befuddling

The leader of a worldwide organization that fosters growth says his concern isn’t that the United States’ economy is weak, but that its political system is.

By Ezra Klein
The Washington Post

To the rest of the world, the United States looks insane right now.

They’re dealing with real problems that their political systems are struggling to solve. The United States’ political system is creating fake problems that it may choose to leave unsolved.

“The United States was the one bright spot in the world recovery,” says OECD Secretary General Angel Gurria. “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 – or, more formally, the Organization for Economic Cooperation and Development – is the modern-day descendant of the the Organization for European Economic Cooperation, 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 Gurria’s admiration of the U.S. economy. Look around, he says. “The U.S. is growing at 2-3 percent while Europe is only starting to rise from negative growth, and Japan is struggling to get prices up to 2 percent inflation. The U.S. 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 last few years. These are just facts. You look even better compared to Europe, but even by themselves these numbers are objectively positive.”

The United States’ fiscal situation is also much improved. “Sequestration was not desired,” Gurria says. “But it has the effect that now the deficit is going below 4 percent. 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 United States 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 U.S. has been doing a good job.”

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

At best, the United States is slowing its recovery – and that of the rest of the world. At worst, it’s going to trigger another global crisis. That’s why, Gurria says, his concern isn’t that the United States’ economy is weak, but that its political system is.

“More than any number of GDP or growth or debt, the question is whether the U.S. will 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.

In other words, the question is whether we’ll stop being insane.

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 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 United States tends to favor.

“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 reticence 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.”


Klein is a columnist at the Washington Post. His work focuses on domestic and economic policymaking, as well as the political system.

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