We are in the middle of a global storm of deleveraging, deflation, and default. These storms don’t happen frequently, maybe once a century or so, but when they do occur, it's time to batten down the hatches. As a result, governments are changing the rules today, in big ways and in small ways, in the U.S. and around the world. That’s not a value judgment, just a statement of fact. 

 

 

Regardless of who is elected to the White House in November, and regardless of the constellation of forces in the House and Senate, U.S. policy makers are in a very enviable position. The U.S. is the only place in the developed world where honest-to-god economic growth still seems possible. Technological innovation remains strong, and cheap energy from shale reserves is an enormous positive. Also, let’s not forget that the U.S. is the world’s sole military superpower, which is an uncomfortable truth in some circles, but in fact underpins and insures everything.  The point is that U.S. leaders have, by a wide margin, more degrees of freedom in their policy choices than any other country.

 

Two constraints I would highlight, however, are particularly pernicious. The first is the dramatic decline in U.S. labor mobility, which for the past 150 years has been a phenomenal engine of economic growth and resilience for this country. Labor mobility is the ability to make a fresh start, to pursue opportunity, and it is a prerequisite for class mobility. It is a hidden cost of the housing crisis, as negative equity locks homeowners in place. The second constraint on policy I would highlight, and it’s related to the first, is the political and social fragmentation that increasingly plagues this country. Both the Occupy and the Tea Party movements are symptomatic of this fragmentation, but I believe they are entirely natural responses to the calcification in socio-economic mobility of the past decade. As a result, my biggest concern with the U.S. is the same concern I have about Europe. Can the center hold?