“The greatest nation on earth—the
greatest nation on earth—cannot keep conducting its business by drifting from
one manufactured crisis to the next. We can’t do it,” fulminated Barack Obama
last month. The crisis of the moment, the “sequester” (a package of budget cuts
designed to be so ghastly that Congress would pass a better version), duly came
into effect on March 1st. Unless Congress agrees on an extension to its budget,
the government will start to shut down on March 28th. In May the greatest
nation will hit its debt ceiling; unless it is raised, Uncle Sam will soon
start defaulting on his bills.
This is the America that China’s
leaders laugh at, and the rest of the democratic world despairs of. Its debt is
rising, its population is ageing in a budget-threatening way, its schools are
mediocre by international standards, its infrastructure rickety, its
regulations dense, its tax code byzantine, its immigration system
hare-brained—and it has fallen from first position in the World Economic
Forum’s competitiveness rankings to seventh in just four years. Last year both
Mr Obama and his election opponent, Mitt Romney, complained about the American
dream slipping away. Today, the country’s main businesses sit on nearly $2
trillion in cash, afraid to invest in part because corporate bosses cannot
imagine any of Washington’s feuding partisans fixing anything.
Yet there is also another America,
where things work. One hint comes from what those bosses like to call the real
economy. Recent numbers from the jobs market and the housing sector have been
quite healthy. Consumer balance-sheets are being repaired. The stock market has
just hit a record high. Some of this is cyclical: the private sector is
rebounding from the crunch. But it also reflects the fact that, beyond the
District of Columbia, the rest of the country is starting to tackle some of its
deeper competitive problems. Businesses and politicians are not waiting for the
federal government to ride to their rescue. Instead, as our special
report this week shows, they are getting to grips with the failings
Congress is ignoring.
One reason for optimism is that
America’s inventors are as busy as they have ever been, and its entrepreneurs
are seizing on their ideas with the same alacrity as always. Investment in
research and development as a share of output recently matched the previous
record, 2.9% of GDP, set at the height of the space race. America is home to 27
of the 30 universities that put out the most-cited scientific research—and it
is still good at developing those ideas. Although many countries possess big
reserves of oil and gas trapped in impermeable rocks, American businesses
worked out how to free that energy and then commercialised that technology at a
rapid pace; the resulting “shale gale” is now billowing the economy’s sails.
Some of the money for fracking
technology came from the federal government, but the shale revolution has
largely happened despite Mr Obama and his tribe of green regulators. It has
been driven from the bottom up—by entrepreneurs and by states like North Dakota
(see article)
competing to lure in investors with notably more fervour than, say, France.
This fits a pattern. Pressed for
cash, states are adopting sweeping reforms as they vie to attract investments
and migrants. Louisiana and Nebraska want to abolish corporate and personal
income taxes. Kansas has created a post called “the Repealer” to get rid of red
tape and pays a “bounty” to high schools for every vocational qualification
their students earn in certain fields; Ohio has privatized its economic-development
agency; Virginia has just reformed its petrol-tax system.
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