It’s never wise to base policy on the gyrations of the stock market, but the sell-off on Wall Street this week reflects investors’ increasing nervousness about global economic growth — and their fears are not unfounded. To the contrary, the International Monetary Fund’s forecasters describe the global recovery as “disappointing” and “uneven” and have reduced their 2014 growth projection for the world economy downward, from 3.7 percent in April to 3.4 percent now. IMF Managing Director Christine Lagarde warns of a “new mediocre” in economic performance. Behind that lapidary phrase is a human reality of joblessness, stagnant wages and frustrated hopes.
The increasingly urgent question is: What can be done about it? The United States, as it happens, has actually done as much, or more, than most countries around the world, despite the gridlock on Capitol Hill. The Federal Reserve’s aggressive monetary policies helped rekindle growth to the point where this country is now expanding much faster than Europe or Japan. Higher taxes on high earners have blunted inequality and stabilized the deficit, if only in the short term, while the Dodd-Frank reform bill has reined in Wall Street excesses. The United States is making substantially more efficient use of health care dollars, post-Obamacare.
Median household earnings, however, remain slightly below 1989 levels, and wages are not yet rising despite falling unemployment. The Federal Reserve has gone through most of the tools in its bag and is likely to raise interest rates next year.
Congress and the president will have to take over from here. The list of measures that could boost growth in the short term is longer than you might think. Corporate tax reform, for example, has already been thoroughly discussed in the House and Senate, with relatively little daylight between the two parties. Several Democrats as well as the overwhelming majority of Republicans support the Keystone XL pipeline. Bipartisan coalitions in the Senate have drafted bills to reform housing finance and reauthorize federal highway programs. Postal reform, too, is teed up. All of these would be consistent with the IMF’s call for structural reform and greater infrastructure investment.
U.S. leadership internationally is also necessary to promote growth. Lest global trade stagnate, and economic reform in Japan stall, the Trans-Pacific Partnership trade agreement must be brought to a successful conclusion, aided by congressional approval of fast-track negotiating authority for the president. The Obama administration should keep urging Germany to reduce its trade surplus, which is a major factor inhibiting the growth potential of Europe’s debtor countries. And U.S. engagement can help resolve the crises in Ukraine and the Middle East, which the IMF identifies as aggravating factors in the global slowdown.
The obvious riposte to all of this is that Washington is hopelessly gridlocked and nothing will get done. Perhaps, but every one of the growth-enhancing measures on our list has demonstrated bipartisan support. And the political realities may look different to both Obama and his Republican opponents after Nov. 4. One political reality neither should underestimate is the damage that prolonged economic stagnation can do to the social stability and political consensus upon which democracy ultimately rests, in this country and abroad.
