What if members of the United States Congress, now returning from their summer recess, were to receive a "back to school" letter from concerned citizens? Here is what a first draft might look like. Dear Member of Congress:
Welcome back to the Capitol. We hope that you had a good summer break, and that you return to Washington not just rested, but also energised to take on our country's mounting economic challenges.
The news has been mixed during your absence. We have seen some improvement in economic data, but not enough to suggest that we are any closer to overcoming decisively this painful period of low growth and high unemployment. And, with a self-inflicted fiscal cliff looming ? one that could send our country back into recession, pulling the rest of the world with us ? businesses are reluctant to hire and invest in new capital goods. Fortunately, the Federal Reserve has signalled its intention to remain active, but its policy tools are poorly suited to the challenges that we face.
Meanwhile, global difficulties remain substantial. We continue to face strong headwinds originating from the deepening European debt crisis, as well as geopolitical tensions in the Middle East. China, once the world's unstoppable growth engine, is slowing. And, despite all the happy talk, multilateral policy co-ordination is essentially non-existent.
All of this calls for courageous and visionary economic leadership; otherwise, our problems will fester and grow, and the solutions will become even more complex. Already, too many of our economy's difficulties, including worrisome trends in youth joblessness and long-term unemployment, risk becoming structurally embedded.
No doubt you have also noticed that, with less than 10 weeks to go until the November presidential election, our country is in the grip of an increasingly ugly political campaign. So, with this combination of bad economics and bad politics, we look to you for direction and leadership. It is that simple, and that important.
We need you to overcome a prolonged period of congressional paralysis and polarisation in order to address the country's malaise. We need you to pivot in your responses from the tactical to the strategic, from the cyclical to the secular, from the partial to the comprehensive, and from sequential to simultaneous reforms.
If this call to national duty is not enough, we would remind you of your own self-interest. According to the latest NBC News/Wall Street Journal poll, your support among us, the electorate, stands at just 12%.
We concede that there is no magic wand to overcome our country's problems. After all, for too many years leading up to the global financial crisis, America "bought" and "borrowed" its growth by leveraging balance sheets, rather than "earning" it through increased competitiveness. The result was massive misallocation of human resources, insufficient infrastructure investment, over-reliance on credit entitlements, and, of course, unsustainable debt. To make matters worse, this occurred at a time when systemically important emerging economies hit their "developmental breakout phase," powered by trade and other aspects of globalisation.
We do not expect you to solve America's problems overnight. Instead, we look to you to embark on an appropriate and sustainable policy path. So, as you unpack your bags and renew old friendships and rivalries, please keep the following in mind.
Changing course requires that you, together with the president, have a much more open and consistent economic dialogue with us, the general public, about the challenges that we face. It also requires that you and the president converge on a multi-prong, multi-year policy initiative that, at a minimum, makes simultaneous advances in six critical areas:
? Fiscal reform: We desperately need you to eliminate the looming fiscal cliff in the context of medium-term reforms of both the tax system and entitlements. This would also allow for greater fiscal stimulus at a time when other components of aggregate demand are slowing.
? Labour-market reform: Persistently high unemployment and large-scale withdrawal from the labour force are a constant reminder of a malfunctioning labour market that needs support through better training and retooling. Reform must also address the related challenges of a lagging education system and an insufficient social safety net.
? Housing and housing finance: At the root of the global financial crisis, the troubled US housing market continues to act as a millstone around the economy's neck. The longer the problems persist, the greater the pressure on consumer and business sentiment, and the harder it is for the unemployed to find and relocate to new job opportunities.
? Clogged credit pipes: With banks' balance sheets contracting, too many small and medium-size companies are unable to mobilise credit for investment and growth. Recognising that it will take years until banks are properly stabilised, America needs to build new conduits for credit.
? Infrastructure: Those of you who have travelled abroad know that our infrastructure is desperately lagging that of a growing number of countries. This makes it even harder for our companies to compete and prosper.
? Global policy co-ordination: America's traditional leadership role has evaporated in recent years as our problems have made us more insular and inward-looking. This would not be a major problem if the resulting vacuum had been filled. But that has not happened. On the contrary, the G7 has lost relevance, the International Monetary Fund is hampered by its representation and legitimacy deficits, and the G20 is still finding its feet.
Engineering such an agenda is not an overwhelming challenge. But that will provide little comfort if you, our elected representatives, do not collaborate effectively.
The choice Congress faces this term is simple: either address head on America's challenges, or risk being remembered as the body whose dithering condemned future generations to being worse off than their parents.
The United States has slipped further down a global ranking of the world's most competitive economies, according to a World Economic Forum (WEF) survey released on Wednesday.
The world's largest economy, which was placed 5th last year, fell two positions to the 7th spot - marking its fourth year of decline. A lack of macroeconomic stability, the business community?s continued mistrust of the government and concerns over its fiscal health were some of the reasons for the downgrade, according to the annual survey. "A number of weaknesses are chipping away at its competitiveness...the U.S. fiscal imbalances and continued political deadlock over resolving these challenges," said Jennifer Blanke, Economist at the Geneva-based WEF. Political deadlock over reducing the unsustainable federal government budget deficit ? projected to hit $1.1 trillion this year ? prompted Standard & Poor?s to downgrade the country?s credit rating by one notch toAA+ from AAA last August.
A mix of U.S. tax hikes and spending cuts ? referred to as the "fiscal cliff" - are set to come into force in January unless lawmakers reach a compromise for avoiding them.
The survey, which has been conducted annually for over three decades, ranks the competitiveness of 144 countries based on 12 key indicators including infrastructure, macroeconomic environment, labor market efficiency and innovation.
?If you look at competitiveness, what we are talking about is productivity. It?s countries that are productive that can support the sorts of rising living standards and high wages that everyone is looking for,? Blanke told CNBC.
Despite declining in the overall ranking, the forum highlighted that the U.S. remains one of the world?s top innovators ? supported by an ?excellent? university system - and continues to offer vast opportunities because of the sheer size of its domestic economy.
Switzerland and Singapore retained their positions as the most competitive economies, coming in 1st and 2nd, respectively.
THE GLOBAL COMPETITIVENESS INDEX 2012?2013
Source: World Economic Forum
Switzerland?s top spot was achieved as a result of its strong performance across the board, according to WEF, with notable labor market efficiency, sophistication of its business sector and its innovative capacity. The country has among the highest rates of patents per capita globally.
?Switzerland?s productivity is further enhanced by a business sector that offers excellent on-the-job-training opportunities and labor markets that balance employee protection with the interests of employers,? the report said. China Tops the BRICs
Among the large emerging economies, China was ranked highest at 26, thanks to favorable macroeconomic conditions. This was significantly higher than Brazil, India and Russia which came in at 53, 56 and 66, respectively.
China runs a moderate budget deficit, boasts a low government debt-to-GDP ratio of 26 percent and its gross savings rate remains above 50 percent of GDP, the forum said. In addition, the rating of its sovereign debt (AA-) is significantly better than that of the other BRICs and of many advanced economies.
However, the world?s second largest economy has slipped two notches from last year?s ranking, owing to a deterioration in the development of its financial markets and technological readiness.
?Insufficient domestic and foreign competition is of particular concern, as the various barriers to entry appear to be more prevalent and more important than in previous years,? WEF report said. US Slips Down the Ranks of Global Competitiveness - CNBC - Asia Business News - CNBC