The global economy faces a deep crisis — deeper, in some ways, than the panic that struck financial markets in August 2008. At least then there was the prospect of short-term government action: tax cuts and spending increases, quantitative easing, and the like. Those measures averted total meltdown, yet the United States, Europe and Japan failed to restore strong, self-sustaining growth, leaving governments so deeply indebted that aggressive new policy interventions are probably not feasible for now. Indeed, what seems to have sent markets panicking last week is a dawning sense that capitalist democracies may have made more promises than their economies are capable of fulfilling — without significant growth-generating structural reforms.
For Americans, a dead-in-the-water economy would be not only a colossal waste of productive potential but also a human tragedy, as Friday’s announcement of another U.S. unemployment rate above 9 percent cruelly demonstrated. “We need to create a self-sustaining cycle where people are spending, companies are hiring and our economy is growing,” President Barack Obama said.
Well said. But how? There is no shortage of proposed “job creation” remedies — a dose of tax relief here, more infrastructure spending there. Some measures under discussion may indeed help a bit, such as the free-trade agreements with South Korea, Colombia and Panama, which at last seem poised for final passage now that the Senate has agreed on a bipartisan plan to vote on them.
But the markets are right to worry. The United States, like its trading partners, is paying the price for years in which our political and economic systems failed to correct festering structural flaws.
Economists warned that the longer we postponed the day of reckoning, the more painful it would be; now, perhaps, that day is here.
The bond markets are understandably skeptical about this country’s political capacity to meet the challenge. It will take more wisdom, patience and unity than our two parties have shown so far — but the job can be done because it must be done.
— Washington Post