The United States and the New Global EconomyA CSIS Initiative to Position the United States
for the 21st Century Global Economic and Financial System
Most analysts agree that the United States is now in the midst of one of the most significant, balanced, and prolonged economic expansions since the 1960s. The last four quarters have generated growth in excess of 4%, the last of which (1Q97) generated a remarkable 5.7% surge. Productivity growth has increased significantly. Unemployment is at its lowest levels in years. Inflation is negligible. The stock markets have been at historic highs both in terms of equity averages and market capitalization levels. And the national deficit--which only five years ago was characterized as a major problem in the global economy--has declined to less than one half of the deficit target the EU countries are now seeking to achieve in the lead-up to the single curre ncy. U.S. industries have taken the lead in many key sectors associated with the post-industrial knowledge economy and are well poised to compete internationally. Furthermore, there are no easily identifiable short-term imbalances that could interrupt the current seven-year expansion.
Despite the encouraging condition of the U.S. economy, however, there are longer-range issues that American leaders cannot afford to neglect. The United States is entering the new millennium facing an array of serious, structural economic and financial challenges. Large government deficits, a mounting stock of national debt, a tax system that favors disinvestment and dissavings, physical infrastructure deterioration, pressures on its human resource base (including underemployment and stagnant wages), l ooming financial dislocations brought about by an aging demographic bubble, and pronounced external economic imbalances are among the challenges that policymakers must confront in the years ahead. Three years ago, in testimony before the Senate Committee on Banking, Housing and Urban Affairs, Gerald Corrigan described these challenges as follows:
"[I]n the face of myopic trade policies, efforts to regulate and control capital flows, or continued large-scale government dissavings in the form of budget deficits at the national level such as in the United States, the period ahead could prove to be extraordinarily difficult.... In the fullness of time, the marketplace will treat harshly even the largest of nations that fail to conduct their economic and financial affairs in a sound and prudent fashion."As significant as these problems could be to the U. S. economy in the future, what is most noteworthy about the current political debate on domestic reform is the near complete absence of serious discussion about the world economy and its relationship to U.S. economic performance at home. When issues of international economic policy do arise, there are signs--across the political spectrum--of growing economic nationalism and parochialism. The Cochairman of the CSIS International Research Council and fo rmer Chairman of the Council of Economic Advisers, Murray Weidenbaum, describes this as the paradox of the "simultaneous rise of the new spirit of isolationism amidst the increasing globalization of business and economic activity."
The fact remains, however, that to an increasing extent, the economic welfare of communities throughout the United States is contingent on events elsewhere in the world. Income and employment levels are no longer insulated from changes elsewhere in the global economy. With each passing day, every state, every district, and every community in the United States is increasingly affected by global interest rates, global capital flows, global trade trends, and shifts in the global labor market. Peter Druck er recently put it this way:
"Too many economists, politicians and segments of the public treat the external economy as something separate and safely ignored. The world economy has become too important for a country not to have a world-economy policy. Managed trade i s a delusion of grandeur. Outright protectionism can only do harm, but simply trying to thwart protectionism is not enough. What is needed is a deliberate and active--indeed, aggressive--policy.... For the United States and a number of other countries, it means abandoning ways of thinking that have dominated American economics perhaps since 1933, and certainly since 1945."This is precisely the goal of the Center's project on "The United States and the New Global Economy." We look to develop a policy blueprint for the country to prosper in a rapidly changing world economic landscape. This blueprint, furthermore, will rep resent a mix of high-level public- and private-sector deliberation. In this way, CSIS seeks to establish a bridge between government and business on these key policy issues, and to narrow the gaps in perception that currently exist.
This 18-month project has two main goals:
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Center for Strategic and International Studies - 1997