Sure, growth could be more robust. Sure, some workers are getting left behind. Sure, corporate debt is high and markets look frothy. But those problems aren’t the biggest threat facing the economies of the United States and Europe.
At a time that technology is transforming society, the postwar order is being challenged and Asia is on the rise, we convened some of the smartest economic minds from both sides of the Atlantic in a working group at POLITICO headquarters. Our goal was to identify the factors that would make or break Western economies in the decades to come.
So we were surprised that a conversation which ranged from robots to transfer pricing kept returning to one central theme: Political systems on both continents have become so dysfunctional that they threaten the West’s economic future.
That’s not to say the economic risks aren’t real. Our participants, many of them economists, cooked up a witches’ brew of worries, from a dangerous overhang of corporate debt to wage stagnation to the stubborn underemployment of 20-something men. But they considered those problems solvable — at least, if political systems were operating normally.
“The economy itself is doing quite well,’’ said one participant. “It’s the political risk underlying our system which is the greatest risk to the economy going forward.”
“Are there policy prescriptions for all this? Absolutely,’’ said another participant. “As an economist, you can sit there and say, ‘Look, there’s a solution.’ It’s just politically, they’re all very hard to do.”
Our participants described a vicious cycle underway between Western economics and politics: Economic dislocations and limited upward social mobility are eroding communities and fueling resurgent nationalism. That in turn fragments political parties and promotes a dysfunctional political discourse that retards constructive economic remedies.
“In a time where the economic forces are requiring a lot of political reaction, we are not able to react,” one participant said.