Americans have long viewed their economy as the shining city on the hill for other countries to emulate. Yet since Lehman’s bankruptcy in 2008, and especially over the past four years, the US economy increasingly resembles the emerging market economies to which we have been so free of our economic advice.
One of the main challenges for the new Biden administration will be to stop the country’s drift towards emerging market status.
Among the most glaring weaknesses of many emerging market economies are their poor governance systems. Not only do they have weak economic institutions that are unable to withstand political pressures and chart an independent and technocratic path. Their governments are also often populated or subject to the will of a few oligarchs who use the government to pluck their own nests.
Even before the Trump administration came to power, the 2008-2009 economic and financial crisis exposed the heavy economic and social toll the country had to pay for allowing a handful of Wall Street companies to gamble. too important a role in determining the country’s real estate and financial situation. sector policies. The COVID-19 crisis now exposes the heavy economic and health toll the country has to pay for the unrest and lack of competence of the government, as well as for allowing its institutions to be sidelined by a president who does not stand by has expert advice.
Judging by Joe bidenJoe BidenOvernight Energy & Environment – American Clean Power – Supreme Court to Consider Power Plant Regulation Case Harris Makes Final Argument for McAuliffe Overnight Health Care – Brought to you by Altria – Young Children Get A Little Closer to Vaccine MOREmoved to government, there is reason to believe that its administration will be made up of more competent people. There is also reason to believe that he will have more respect for expert advice and institutional independence than Trump. However, the jury is still out on whether it will be able to stop the other emerging market trends the United States has succumbed to.
A defining characteristic of a dysfunctional emerging market economy is the absence of any semblance of fiscal discipline which ultimately leads to a period of damaging inflation. From this point of view, the United States does not look very good.
Even before the pandemic, thanks to a major unfunded tax cut, the Trump administration managed to run up a very large budget deficit at a time when unemployment was at its lowest in 50 years. This has put the country in a very bad position to deal with the public spending demands of the COVID-19 pandemic. This pandemic has now pushed our budget deficit to over 15% of GDP and our public debt-to-GDP ratio has skyrocketed to around 130%, its post-war high.
A major challenge for the Biden administration will be getting our public finances in order if we are to ultimately avoid a dollar crisis and a nasty surge in inflation. Whether or not Biden meets this challenge will depend on his ability to harness those in his party who are in favor of opening up spending on things like universal health care and free education. Biden’s campaign promises on this point are hardly encouraging for the restoration of sound public finances.
Another defining characteristic of a sclerotic emerging market economy is its antipathy to market competition and international free trade. Here, too, the US economy does not appear to be in a good position after four years of an America First trade policy and many other years of very weak antitrust enforcement that have resulted in a general weakening of competitive forces in our country. economy. Under Trump’s watch, the United States embarked on a haphazard trade policy that imposed import tariffs on allies and enemies alike, as well as a market intervention like that of a emerging market economy.
While there is reason to hope that a Biden administration will be better than the Trump administration in standing up to the Amazons, Google and Facebook of the world and reaffirming America’s traditional role of international economic leadership, we cannot say the same for his business. Politics. Indeed, there is every reason to fear that Biden’s “Build Back Better” plan is no less protectionist than it was. President TrumpDonald Trump Candidates sue after Pennsylvania County sent hundreds of ballots to wrong address Harris makes final pitch for McAuliffe Overnight Defense & National Securitythe “America First” policy. This appears to be the case even if he may choose to pursue these policies in a multilateral framework.
Biden will take office at a time when the country is deeply divided and in the throes of its worst economic and health crisis in the past 90 years. This will make it all the more difficult to put our public finances in order and to resist calls for protection. That is why we must hope that he can exercise real leadership in building bipartisan support for policies that can prevent our country from drifting further into emerging market economies.
Desmond Lachman is a resident researcher at the American Enterprise Institute. He was previously Deputy Director of the Policy Development and Review Department of the International Monetary Fund and Chief Emerging Market Economics Strategist at Salomon Smith Barney.