In the realm of global finance, the economy of the United States of America is analogous to a chameleon—constantly shifting, adapting, and leading the world on an economic dance that’s sometimes hard to follow.
At one moment, the narrative centers on the Federal Reserve and the banking industry, at another, the dialogue shifts towards industrial policy and international relations, most notably with China.
This constant metamorphosis of economic focus is the result of the intricate and often conflicting components that shape the financial landscape of America.
The fragmented triad: Monetary, industrial, and fiscal policy in America
One could consider the economic policy of the United States a triptych, composed of monetary, industrial, and fiscal policies. However, these aren’t harmonious pieces of a grand design.
They often diverge in their objectives and mechanisms, functioning within different paradigms and frequently contradicting one another.
The Federal Reserve hones in on microscopic adjustments, while industrial policy relies on strategic planning, and fiscal policy is swayed by ideological tides. This fragmentation, as much as it adds a layer of complexity, serves a purpose in a divided society with a polarized political class.
Such compartmentalization of economic management isn’t new. America has managed to navigate through these convoluted waters and has largely brought the world along for the ride.
Nevertheless, the risks of catastrophic missteps or even simple miscalculations are present and cannot be dismissed.
In recent months, the wheels of American fiscal and monetary policy have shifted gears towards what could be considered a recessionary path. The new stance of protectionism has the potential to increase costs, and many professionals forecast a looming recession by late 2023.
As America grapples with these short-term concerns, the more profound question remains—can a disorganized policy process find sustainable solutions to the long-term challenges presented by our era of pervasive crises?
The dilemma of reliance on private innovation
America has traditionally relied on private sector innovation, entrepreneurship, and technological advances to pull through challenging times. However, this approach might not be entirely feasible in the current context.
Private innovation, while pivotal, draws heavily from public goods such as state-funded research universities, which are now under threat due to financial constraints.
Furthermore, an increasing portion of the American society is not adequately prepared to face the modern world and its challenges, thereby highlighting the need for comprehensive assistance and support.
The influence of the United States extends far beyond its borders, a fact that is both a source of strength and a potential pitfall. As the bedrock of the global economy, even the slightest tremors in the financial corridors of Wall Street echo across the globe.
Moreover, as the world’s most powerful military superpower, America’s domestic affairs are not simply national issues—they have global implications.
The stakes, thus, are higher than ever. Abject failures in banking regulations, aggressive militarism, unilateral economic policies, lack of societal cohesion, and polarizing partisanship all put the economic stability of not just America but the world at risk.
The Biden administration’s attempt to address these issues with a combination of industrial policies may seem like the best available approach, yet it’s essential to recall that the original Washington consensus of the 90s and 2000s had a solid foundation within the political class.
The notion of a “new Washington consensus,” while enticing, is an audacious aspiration given the prevailing conditions.