As the world’s largest economy and dominant global player, the US can drive – or undermine – global policy coordination, says Mohamed A El-Erian.
LAGUNA BEACH, California: What does the future hold for the global economy? As it stands, the most likely answer, unfortunately, is lower growth, worsening inequality, distorted markets, and rising financial risks.
This does not only mean more short-term relief, but also greater emphasis on forward-looking measures that promote productivity, reduce households’ economic insecurity, better align domestic and international growth impulses and counter the increasingly dangerous disconnect between the financial system and the real economy.
As a result, progress on laying the foundations for long-term growth – including in areas where there appeared to be bipartisan agreement, such as infrastructure and, to a lesser extent, worker retraining and retooling – seems a more distant prospect. Instead of being part of the solution, the Fed is now at risk of creating more problems, including resource misallocation, debt overhangs and financial instability – all of which would undermine growth.Intention and outcome are also misaligned in international economic relations.
The only way to achieve this sustainably is to accompany short-term relief measures with forward-looking pro-growth and pro-work fiscal policies and structural reforms.
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