U-S-A, U-S-A: Our Terrible Growth Is Still the Envy of the Rich World

Growth is expected to slow to 1.4% for developed nations in 2013, even if they avoid big errors


We might be giants. At least when it comes to economic growth among rich countries. That's the depressing message from the latest projections for 2013 and beyond from the Organization for Cooperation and Development (OECD) that has our modest 2 percent growth the envy of most of the developed world.

Blame tight budgets and tighter money. Britain is suffering from too much austerity, Japan from too little money-printing, and the euro zone from both. With housing finally coming out of dormancy, the U.S. is in comparatively good shape if we can just avoid the fiscal cliff and all of the austerity it entails. The chart below from the OECD shows just how much better shape we might be in compared to our peers -- though that's not saying much when cumulative growth is only expected to be 1.4 percent in the rich country club.


There are two big assumptions here that the U.S. and Europe will avoid any more big policy errors. The OECD projects U.S. growth in a world where politicians spread the pain from the fiscal cliff over a few years and where the European Central Bank (ECB) both cuts interest rates and promises to hold them there for an extended period, much as the Fed has done. In other words, the OECD assumes -- or is it hopes? -- that governments will keep pressing down on the economic gas, and not fall prey to fear of the phantom menace that is inflation. 

That's quite a turnaround for an organization that just a few years ago was pathologically afraid of the inflation monster under the bed. Back in 2011, the OECD advised the Fed and Bank of England to follow the ECB's lead and raise rates to preempt inflation that was just around the corner. Of course, inflation wasn't just around the corner, and the ECB's rate hikes went down as some of the worst mistakes in the history of central banking -- setting off a panic that nearly ended the euro. This inflation bias makes the OECD's calls for further monetary easing now in Europe, Japan, China and India all the more attention-grabbing. If they're worried, everybody should be worried.

Look at that list of countries where the OECD wants more monetary stimulus again. They're not just worried about rich countries. They're worried about China and India too. In 2009, the developing world bailed out the developed world with still strong growth, but in 2013 that's no longer the case. China is still growing fast for any country not named "China", but it's not nearly as fast as they did a few years ago. Then there's India and Brazil -- growth has slowed to a crawl for them. 

In other words, the global recovery is still fragile, and policymakers shouldn't underestimate its fragility. If that sounds like the same story you heard in 2010 or 2011 or 2012, well, that's because it is. And that's why we need to give austerity the works.
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Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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