Obama and America's Fear of the Japan Trap

Political paralysis threatens the economic future of the United States, and President Obama doesn’t have the necessary elbow room to negotiate a solution.

It’s a precipitous fall. Just three years ago, the United States was considered to be the country with the best economic growth prospects worldwide. Since then, however, the nation with the largest economy has steadily become less competitive.

Initially, that was not primarily due to policy failures. The American economy is still struggling with the fallout from the financial and economic crises. The unemployment rate is at a historic high, and the recent pathetic growth rate isn’t sufficient to reduce that figure because of the number of people constantly entering the job market.

Crippled U.S. Politics

Meanwhile, politics in the United States has become part of the problem. People’s confidence in politicians there has been declining for years and compared to the rest of the world is now shockingly low.

The public squabble over raising the U.S. debt limit a few weeks ago confirmed this observation and graphically showed how crippled American politics now is. In effect, political moderates no longer have a voice in discussing U.S. politics.

Instead, the extremists in both parties stand rigidly opposed to one another and dominate political discourse — truly not a conducive atmosphere for pragmatic compromise.

But compromise is necessary in order to confront the medium-term challenges — above all, the burgeoning Social Security costs.

Obama’s New Economic Recovery Plan

Because a double-dip recession is now probably more likely, President Obama wants to take action by pumping hundreds of billions of dollars into the economy. He wants to be able to act, but the current political conditions allow him hardly any room to maneuver.

While he may be ready to announce a new economic recovery program, the problem is that Republicans who control the House of Representatives will simply ignore it. The concept that the people’s representatives are responsible for the common good appears to have gone missing in Washington’s current poisoned political atmosphere.

This political paralysis threatens the future U.S. economy. This can be seen in the Japanese example: After the real estate bubble burst in Japan, politicians in the ruling party tried to sit the crisis out and postponed taking measures to counter the problem.

The result was two lost decades with short-sighted economic policies and no structural reforms. Those 20 years saw virtually no economic growth and a concurrent rise in government debt. The fact that the United States is headed in a similar direction is especially worrisome. It is, after all, the world’s biggest economy.