Tags: El-Erian | divided US | government

Pimco's El-Erian: Divided US Government No Longer Good for Economy

Sunday, 30 Dec 2012 04:26 PM

A divided government no longer benefits the U.S. economy as it did in the past, said Mohamed El-Erian, CEO of fund giant Pimco.

In the past, indecisiveness and political stalemates in Washington prevented policymakers from passing laws that got in the way of the private businesses, which were otherwise free to go to work with Washington out of their hair.

"It was once fashionable to argue that a divided government was good for the economy," El-Erian wrote in an OpEd appearing in The Huffington Post. "The view then was that politicians would be too busy with political brinkmanship to get in the way of a dynamic private sector. As a result, unfettered by government interference, the private sector was more likely to invest, hire and prosper,"

"It is hard — very hard — to make this argument today."

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

Thanks to the fallout of the 2008 financial crisis, the government had no choice but to address widespread market flaws and major failings in the housing market. Widening income gaps that threaten to dampen the private sector's growth and better education and infrastructure systems abroad also point to a need for Washington to craft policy and with less brinkmanship than in the past.

"The bottom line is simple and consequential: Our self-inflicted fiscal cliff drama may be the most visible illustration of Congressional political dysfunction, but it is unlikely to be the last one or the most challenging," El-Erian wrote.

"If left to fester, the related inability of Congress to step up to economic responsibilities would risk being associated with more than just sluggish growth, persistently high unemployment, and a growing sense of financial discomfort," El-Erian added.

"It would also undermine the country's longer-term growth potential and, with that, the ability of many citizens to realize the American dream."

Lawmakers themselves say they understand anger on the part of voters when it comes to the fiscal cliff, a potentially recessionary combination of tax hikes and spending cuts due to take effect at year end.

“I don’t blame people at home for wondering what in the heck is going on in the nation’s capital,” said Sen. Mary Landrieu, a Lousiana Democrat who is up for reelection in 2014, according to Politico. "It’s hard to explain. … I don’t think it looks good for either party.”

Some Republican lawmakers have echoed those sentiments.

“Short of a deal, the whole rating of Washington will continue to decline,” said Sen. Richard Burr, a North Carolina Republican who is chief deputy whip, according to Politico. “It’s hard to believe we can dig into families and friends, but that’s where we’ll be.”

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.







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