President Barack Obama will undoubtedly devote part of his State of the Union Address tonight to the continued improvement of the U.S. economy, which produced 3 million jobs in 2014, helped narrowed the budget deficit to less than 3 percent of gross domestic product, contributed to more than 50 closing record highs in the stock market, and far outperformed sluggish Japan and Europe.
But rather than take comfort from these impressive achievements, Congress should consider how much better the economy would have performed, and still could perform, if lawmakers had been able to fully meet their economic policy responsibilities. The difficulties faced by the rest of the world should now make this an even greater priority.
Despite a highly unbalanced policy stance that relied excessively on unconventional monetary policy, the U.S. economic recovery is consistently planting its roots deeper. Growth is picking up and becoming more inclusive, and the economy may finally achieve a 3 percent annual rate in 2015.
With 11 consecutive months of job creation exceeding 200,000 and the associated drop in the unemployment rate to 5.6 percent, it is only a matter of time before wage growth accelerates. Meanwhile, consumer confidence is likely to rise further, bolstered by the decline in gas prices. The U.S. dollar is likely to solidify its regained standing as the world’s undisputed reserve currency.
This multifaceted improvement in U.S. economic performance stands in stark contrast with the picture elsewhere — so much so that both the International Monetary Fund and World Bank recently characterized the U.S. as the world’s notable outperformer and its single economic engine.
Both Europe and Japan are battling economic stagnation and the threat of damaging deflation. China is trying to achieve a soft landing for its economy amid concerns about pockets of excessive financial leverage. And Russia’s economy is imploding under the combined weight of sharply lower oil prices, Western sanctions and domestic economic mismanagement.
As much as Congress should celebrate America’s standout performance, it should also lament the missed opportunities to help the economy do even more, particularly in terms of improving the well-being of more Americans and sharing the gains more widely.
Far from a demonstration of the potency of congressional policies, the current favorable economic momentum was achieved despite lawmakers’ inability to move on important economic legislation. Instead, the improvements can be attributed to two causes: the bold actions taken by the administration and the Federal Reserve in 2008-09 to avert a multiyear economic depression and the inherent dynamism and entrepreneurship of the U.S. private sector.
Congress’s contribution has essentially been limited to avoiding self-inflicted damage, such as repeats of the October 2013 government shutdown and the Russian roulette game over raising the debt ceiling that could have resulted in a technical default.
In his speech, Obama should urge Congress to be an enabling force for the economy. It can do so quickly by moving in areas where there is already a notable degree of consensus — namely, bilateral trade agreements, corporate tax reform, immigration and infrastructure.
The longer Congress delays in taking such steps, the greater the risk that the U.S. may again achieve less than it should; and the bigger the threat that improvements here could be derailed by difficulties elsewhere in the world.