What do the economists at the International Monetary Fund see when they look at the U.S.? An economy in the midst of a long expansion ("its third longest expansion since 1850"), with "persistently strong" job growth, "subdued" inflation and something close to "full employment."
For some time now there has been a general sense that household incomes are stagnating for a large share of the population, job opportunities are deteriorating, prospects for upward mobility are waning, and economic gains are increasingly accruing to those that are already wealthy. This sense is generally borne out by economic data and when comparing the U.S. with other advanced economies.
I realize the type is awfully small if you're reading this on anything other than a big computer screen, but the overall point is that the U.S. has been losing ground relative to other OECD members in most measures of living standards. And in the areas where the U.S. hasn't lost ground (poverty rates, high school graduation rates), it was at or near the bottom of the heap to begin with.
The clear message is that the U.S. -- the richest nation on Earth, as is frequently proclaimed, although it's actually not the richest per capita -- is increasingly becoming the developed world's poor relation as far as the actual living standards of most of its population go.
This analysis is contained in the staff report of the IMF's annual "consultation" with the U.S., which was published last week. Another IMF report released last week, an update to its World Economic Outlook that downgraded short-term growth forecasts for the U.S. and U.K., got a lot more attention.
But the consultation report is more interesting. It is interesting not because the IMF economists have turned up shocking new information or have especially amazing ideas for improving the relative position of the U.S. It's just that as outsiders looking in (yes, outsiders who work in Washington, but still ...), they at least offer a different perspective than one hears every day on Capitol Hill.
Income polarization is suppressing consumption (see Alichi et al., 2016), weighing on labor supply and reducing the ability of households to adapt to shocks. High levels of poverty are creating disparities in the education system, hampering human capital formation and eating into future productivity.
What is to be done? Well, the IMF has suggestions, although they seem a little too sweeping to be helpful. Here are some comments on tax reform:
The U.S. personal and business tax system needs to be simpler and less distortionary, with lower tax rates and fewer exemptions. The redesign of the tax system should aim to raise labor force participation, mitigate income polarization and support low- and middle-income households. Given the unfavorable debt dynamics and the resources needed to strengthen the supply side, tax reform ought to be designed to be revenue enhancing over the medium term.
On health care: