Rising inequality and slow growth are widely recognized as key factors behind the spread of public discontent in advanced economies, particularly in the United States. But these problems are themselves symptoms of an underlying malady that the U.S. political system may be unable to address.
After promising annual growth of “4, 5, and even 6%,” U.S. President Donald Trump and his congressional Republican enablers have delivered only unprecedented deficits. According to the Congressional Budget Office’s latest projectioins, the federal budget deficit will reach $900 billion this year, and will surpass the $1 trillion mark every year after 2021. And, yet, the sugar high induced by the latest deficit increase is already fading, with the International Monetary Fund forecasting .U.S growth of 2.5% in 2019 and 1.8% in 2020, down from 2.9% in 2018. Many factors are contributing to the U.S. economy’s low-growth/high-inequality problem. Trump and the Republicans’ poorly designed tax “reform” has exacerbated existing deficiencies in the tax code, funneling even more income to the highest earners. At the same time, globalization continues to be poorly managed, and financial markets continue to be geared toward extracting profits (rent-seeking, in economists’ parlance), rather than providing useful services.
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The world’s advanced economies are suffering from a number of deep-seated problems. In the United States, in particular, inequality is at its highest since 1928, and GDP growth remains woefully tepid compared to the decades after World War II.