Ungovernable America

The U.S. government shutdown reflects irreconcilable differences among different group of the population. Even if some stopgap measures are soon adopted to reopen the government, the cause of the shutdown will not be addressed.

There is a significant risk that the U.S. Congress may not raise the debt limit and the U.S. government will default on its debt. If the United States does default, the global economy is likely to fall back into recession due to the resulting financial turmoil. The most likely scenario is for a temporary solution that would allow the government to continue to service its debt for another year. However, unless some sort of solution is reached to reconcile the differences between the left and the right, sooner or later the U.S. government will default.

A Divided Society

In the five years before the 2008 financial crisis, the top 1 percent of U.S. households garnered 65 percent of the growth in national income. Since, it has increased to 95 percent. The share of the national income going to the top 1 percent increased from 7.3 percent in 1979 to 12.9 percent in 2010. Median U.S. household income declined by 12.4 percent between 2000 and 2011, even as national income rose by 18 percent. These statistics show highly inequitable income distribution that gets more inequitable by the day.

The wealth side story is even more shocking. The top 1 percent accounts for 22 percent of total household wealth. As high-income households tend to have more wealth relative to income, they have benefited enormously from the Fed’s policy of reviving the economy through monetary stimulus, which boosts asset prices. The economic benefit is supposed to happen when some who get rich from asset inflation spend, and the resulting trickle-down effect spreads the prosperity to everyone.

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1 Comment on "Ungovernable America"

  1. I am a fan of Andy but this article is a disappointment.The wealth trends he is talking about really accelerated after China joined WTO; for competiveness reasons, the offshoring of US jobs is reversing.The US will not default and we are seeing a blow off of political dysfunction.Andy should stick to analysis of China. I believe that is a great deal “tail risk” in both economics and politics there.

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