February 2021. It is a cold, blustery morning in Washington. The newly inaugurated Republican president of the United States is on his way to the office of the Chinese managing director of the International Monetary Fund (IMF) to sign the agreement under which the IMF will provide $3 trillion in emergency financing (about 12 percent of GDP) to the United States and the conditionality to which the United States will have to adhere.Over the preceding decade, the US economy has had to contend with three interconnected problems: slow growth, a fragile fiscal situation, and a beleaguered middle class. Under the weight of public and private debt accumulated after the crisis of 2008–10, high and persistent unemployment, and diminished participation in the labor force, the US economy has grown at just below 2 percent in the 2010s. As a consequence, and despite intermittent attempts to come to grips with the rising costs of entitlements, especially related to health care, public finances are not on fundamentally secure footing.
Public-sector liabilities have built up to 50 percent of GDP, as Peter Boone and Simon Johnson warned a decade ago, because the US financial system has remained as cavalier in its risk-taking and as toxic-asset-laden in its balance sheets as before the financial crisis of 2008–10. And inequality has increased even further, with income gains at the very top (.01 percent of the population) becoming even larger. Economic and social mobility have declined, giving rise to a middle class that understandably does not want to move down the skill spectrum but whose prospects of moving up, through education and skill acquisition, are increasingly limited by competition from India and China. Read More
