From Jump Start to Engine Overhaul
What happens in America doesn’t stay in America when it comes to fiscal policy and public investments
Think of the world’s economy as a Formula One car race. For decades, America maintained its overall lead in the race – a car unrivaled in its performance. But China has started to lap it and is catching up quickly.
The engine of America’s economy has sputtered a few times this century, most significantly during the 2008-2009 global financial crisis and most recently during the self-imposed lockdowns to stop a pandemic.
The current debate about another round of fiscal stimulus, including the size of additional cash payments to Americans and at what income levels, is about how much America needs to jump start the economy’s battery to get things running smoothly again. This debate could play out for several weeks to come and may stretch on longer than many expect.
The main debate playing out between Congress and the Biden administration is how much of a charge the battery needs in order to get running again. Give it too much of a fiscal policy jolt, and it could damage the battery and cause things to run hot with inflationary pressures, as some observers argue. Don’t do enough, and the economy could dip back down again – this past week’s jobs report offered a worrisome sign on this front.
But there’s another interesting and in many ways more important debate that will come after this current fiscal stimulus debate – one that directly impacts America’s ability to compete in that Formula One race of the global economy. This is the debate about how much the federal government should invest in a major overhaul of America’s economic system by upping public investments in things like infrastructure, research and development in technology, and helping the country make an energy policy transition to a clean energy.
For the past year, America’s economy has pulled over into the pitstop, but not much has been done to deal with growing problems with the engine – an engine that has left key parts of America behind while others have flourished.
A debate that seeks to take the wider view – one that takes into account that the Formula One race of the global economy still keeps moving along as the international system rearranges itself – should prioritize the debate about public investments to spark private innovation and competition at home to better compete in the world. We need to talk more about the engine overhaul needed – the public investments needed – so America doesn’t continue to get lapped in the race.
“A More Perfect Union,” a Center for American Progress report released in January 2021 at an event the same afternoon the U.S. House of Representatives voted to impeach former U.S. President Donald Trump a second time, offered a policy framework for rewiring America’s economy, rebuilding the social safety net, and reconnecting America with the world.
At the core of the report’s argument is the need for stronger public investments to help America to compete in the world, including investments in:
Rebuilding America’s basic infrastructure with an eye toward clean energy transitions and the post-COVID recovery;
Renewing America’s leadership in basic scientific research and technological development and incentivizing geographically dispersed research, development, and manufacturing hubs within America to share the benefits more widely; and
Investing in structural changes to America’s energy systems, transportation networks, and land-use patterns.
These measures at home should be coupled with new steps on the international front, including a new global economic diplomacy that pursues agreements with partners on key technology issues such as digital regulation and taxation and supply chain security in critical industries such as strategic minerals.
All of these efforts are proposed with that Formula One of the global economy in mind – how to make sure America is doing everything it can to maintain its competitive edge in a changing world by bringing wider sectors of American society along.
The racing analogy is limited in part because the global economy is much more complicated and interlinked than ever before. Even as globalization and the international system re-adjusts, there are important opportunities for America to find win-win scenarios, particularly with like-minded countries that have political economy systems and values closer to ours.
A central idea that links the domestic public investments to this changing international context offered by the report:
“The core goal of U.S. economic statecraft should be to build a shared industrial and innovation ecosystem that spans both the Atlantic and Pacific oceans, incorporating America’s most important allies in Europe and the Asia-Pacific. This economic concert of power would bind America and its closest partners together in a shared project to compete effectively with China, promote the collective prosperity of its member nations, and show that democracy can deliver on its economic promises. While building and strengthening this group, the United States should seek to expand its economic engagement in India, Africa, and Latin America—regions of the world that are positioned to see economic growth and are also arenas of economic competition with China.”
This is all a very tall order indeed for a nation that is about to turn its tired and angry eyes back to the past with another Trump impeachment set to dominate the headlines this coming week. At some point, America will be able to look more toward the future because the race continues.
There has been a growing recognition on the left and the right that things haven’t been working well in America’s economy for a while. The rise of populist voices on the left and the right has manifested itself in political and social movements that have produced uneven results.
Part of the challenge is that America’s narrow politics is clouded by emotionally charged cultural and identity fights that are blended in with the economic debate. Movements from Occupy Wall Street to Trump’s “America First” have raised the concerns of some Americans but dysfunctional and divided politics have failed to mediate these differences in a way that produces clear results for the vast majority of Americans. The unclear outcomes of these debates have contributed to the sharp decline in trust in America’s institutions.
But the broader debate about overhauling America’s economic engine is necessary – in large part because there is popular support for such an ambitious program. A very strong majority of Americans – more than 9 in 10 – support making investments in America’s own infrastructure, education and health care to successfully compete against China.
Americans understand that their country is in the Formula One race and that our position has faltered. But Americans need leaders willing and able to take a few steps beyond the current moment the country is stuck in and offer a broader and more inclusive vision of where we need to go.