How to fix the American economy

The Economist lays out America's systemic economic problems, which politicians and the public ignore:

PESSIMISM about the United States rarely pays off in the long run. Time and again, when Americans have felt particularly glum, their economy has been on the brink of a revival. ...

On the plus side, it is hard to think of any large country with as many inherent long-term advantages as America: what would China give to have a Silicon Valley? Or Germany an Ivy League? But it is also plain that the United States does indeed have long-term economic weaknesses—and ones that will take time to fix. The real worry for Americans should be that their politicians, not least their president, are doing so little to tackle these underlying problems. ...

Of course, plenty more could be done to spur innovation. The system of corporate taxation is a mess and deters domestic investment. Mr Obama is right that America’s infrastructure is creaking. But the solution there has as much to do with reforming Neanderthal funding systems as it does with the greater public spending he advocates. Too much of the “competitiveness” talk is a canard—one that justifies misguided policies, such as subsidies for green technology, and diverts attention from the country’s real to-do list.

High on that list is sorting out America’s public finances. The budget deficit is huge and public debt, at over 90% of GDP when measured in an internationally comparable manner, is high and rising fast. ... Neither party is prepared to make the basic compromises that are essential to a deal. Republicans refuse to accept that taxes will have to rise, Democrats that spending on “entitlements” such as health care and pensions must fall. ...

Below the radar screen, America had employment problems long before the recession, particularly for lesser-skilled men. These were caused not only by sweeping changes from technology and globalisation, which affect all countries, but also by America’s habit of locking up large numbers of young black men, which drastically diminishes their future employment prospects. ...

All this means that grappling with entrenched joblessness deserves to be far higher on America’s policy agenda. Unfortunately, the few (leftish) politicians who acknowledge the problem tend to have misguided solutions, such as trade barriers or industrial policy to prop up yesterday’s jobs or to spot tomorrow’s. That won’t work: government has a terrible record at picking winners. ... Stemming the decline in low-skilled men’s work will also demand more education reform to boost skills, as well as a saner approach to drugs and imprisonment.