Robin Harding: America’s economic growth is built on sand:
In 2009, Mr Obama was speaking for a consensus about how the US should rebalance. The share of exports and investment should rise while consumption, imports and housing should fall… household and government savings needed to rise and corporate savings to fall… labour should earn more relative to capital, and that should be more evenly distributed…. For a year or two it looked promising – but rebalancing stopped…. Policy makers cannot prescribe the balance of the economy but there is still much they could do to build the US recovery on firmer foundations.
The first and most obvious step is reform of the housing finance agencies Fannie Mae and Freddie Mac…. If – or rather when – the current account deficit starts to rise again, Mr Obama should take on any country that manipulates its currency against the dollar…. The most important element of a better balanced economy is investment, both public and private. That means finding a way to stop the macroeconomic insanity of sequestration cuts to investment in scientific research, education and infrastructure. Not only do they leach short-term demand for the economy, they also actively reduce the very things that America needs more of, in return for minimal reduction to the budget deficit….
Mr Obama was upbeat in his 2009 speech, and chose not to mention it, but this is what becomes of the house built on sand: “And the rain descended, and the floods came, and the winds blew, and beat upon that house; and it fell: and great was the fall of it.”