Politics-Proof Economies?

By A. Michael Spence and David Brady

... whatever the merit of government action, what governments do not do is also important.

Governments’ inability to act decisively to address their economies’ growth, employment, and distributional challenges has emerged as a major source of concern almost everywhere. In the United States, in particular, political polarization, congressional gridlock, and irresponsible grandstanding have garnered much attention, with many worried about the economic consequences.

But, as a recent analysis has shown, there is little correlation between a country’s relative economic performance in several dimensions and how “functional” its government is. In fact, in the six years since the global financial crisis erupted, the US has outperformed advanced countries in terms of growth, unemployment, productivity, and unit labor costs, despite a record-high level of political polarization at the national level.

Of course, one should not paint with too broad a brush. Unemployment is lower in Germany, Canada, and Japan. And America’s income distribution is more unequal than most advanced countries’ – and is trending the wrong way. Still, in terms of overall relative economic performance, the US clearly is not paying a high price for political dysfunction.

Read full article as published in Project Syndicate.

A. Michael Spence is the William R. Berkley Professor in Economics & Business.