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The Polarization of the Political System Weakens US Economic Stability

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yandex.net

NEW YORK – February 19, 2019

Proposals such as the New Green Deal, “free healthcare for all,” and other similar measures by the Democratic Party that have recently gained popularity among voters reflect the growth of populist sentiment in the US and portend the turbulence of the further economic course of the White House.

In recent years, increasingly different proposals for the redistribution of income have been heard in the US.

A sharp increase in taxes on wealthy Americans, the separation of large financial companies into smaller structures, limiting the repurchase of shares with the conditions for providing social guarantees to employees,and other similar proposals have been repeatedly voiced.

These trends are increasingly noted by many experts. Most of the proposals at the moment look like outright populism and have no real chance of acceptance, especially given the remaining balance of powers due to the preservation of the majority of relatively conservative politicians in the Democratic and Republican parties in both houses of the US Congress.

Nevertheless, representatives of financial and political elites have to respond to such proposals. In particular, the former mayor of New York, billionaire Michael Bloomberg (the founder of Bloomberg and the head of Bloomberg LP) at the end of January 2019 announced that the proposals to introduce a free health care system in the US would “bankrupt the US for a long time.”

Such ideas in the United States began to emerge on the wave of so-called "democratic socialism,” one of whose representatives is Alexandria Ocasio-Cortez, who joined the House of Representatives from the Democratic Party following the mid-term elections in November.

She is also responsible for a significant share of populist proposals, including the so-called “Green New Deal,” named after Franklin Roosevelt’s New Deal in the 1930s, launched to deal with the Great Depression.

One of the main reasons for the growing populism in the US in recent years is the aggravation of wealth inequality. The purchase of financial assets during a series of quantitative easing programs (QE), according to the estimates of the US Federal Reserve, most significantly affected most wealthy Americans. At the same time, the purchasing power of most Americans, according to estimates by the Bureau of Labor Statistics at the US Department of Labor, published by the research company Pew Research in 2018, has not changed over the past 40 years.

The Polarization of the Political System Weakens US Economic Stability

The problem of inequality is quite acute for all developed countries, but for the US this situation looks the most serious.

In 2014, well-known British economist Jim O’Neal warned about the upcoming rise in populist sentiment, which would entail ideas of increasing taxes on the rich and other proposals for the redistribution of income.

In the current situation the emergence of new ideas about the redistribution of income in the US, as well as the growing popularity of such proposals, mean that the authorities will somehow be forced to respond to these trends.

The polarization of the American political system may mean an increase in the likelihood of sharp changes in the economic course of the new US authorities in the future. Citigroup Special Economic Advisor Willem Buiter in an interview with Bloomberg noted that for the US this means a more chaotic economic course.

The first sign of a dramatic change in the US’s economic course was the change of leadership of the White House after the 2016 presidential election. The Trump administration refused to sign the Paris Climate Agreement. At the same time, the trade war with China and the use of import duties are examples of Trump’s economic populism, against the backdrop of election promises to “return jobs” to America.

The growing uncertainty about the further tax regime in the US, the sharpening of protectionist tendencies, and nationalist and populist sentiments in general, mean a decrease in the predictability of the further economic course of the American authorities.

Author: USA Really