In contrast to other economies, the US has adopted a growth agenda as a way of reducing the deficit, as opposed to reining in expenditure.
That said, the government’s efforts to support growth will probably not be sufficient to reduce the annual deficit to the levels President Obama is projecting [2.9 per cent of GDP in 2018].
US unemployment remains relatively high, especially long-term unemployment and among the young. That’s a problem for the medium- to long-term prospects for the economy. There’s a need to retain and refocus the labour market to areas where growth is going to come.
There is also a case for simplification of the tax code in the US as it relates to the labour market. The system needs to be transparent and it also needs to incentivise the right behaviour.
What we’ve seen in the US economy so far is a reduction in employment. What you want is to incentivise people to work and get companies incentivised to hire.
During its last few years in power, the Bush administration removed the tax burden from high-net-worth individuals, which didn’t really help in terms of investment and employment, but President Obama is not actually reversing the fiscal changes that were made.
Generally, the need to tighten fiscal policy in the US has not been taken very seriously because, with bond yields fairly low, there is no pressure from the markets to do so. In a couple of years, once growth is back on track and there is less concern about the fragility of the recovery, then the government’s focus may shift towards consolidating debt.
