US politics and the health of a nation

Hurry up Washington, the world it waiting. NASA Earth Observatory

The US debt crisis is over for now, but legislators have just kicked the can down the road. In this series on the US debt ceiling, academics from Australia, the UK and the US assess the lingering global implications.

Some semblance of calm has descended over Washington after the farce of the government shutdown. But it would be a stretch to say that things have returned to normal and the full extent of the economic damage will not be known for some time.

Initial estimates suggest that the reduction in government services is likely to have directly reduced US GDP by between 0.3 and 0.6% of GDP. But the precise impact may never be known as the collection of economic data was one of the casualties of the shutdown.

The indirect damage is likely to be greater and more sustained. First, the deal is only temporary and the failure to come up with a long-term solution will add to global instability. Uncertainty in financial markets spreads like a virus and destabilises economies. Second, the shutdown has caused damage to many scientific programmes – and this is likely to harm economic growth in the future.

The economic mismanagement of the world’s most powerful economy does not bode well for a sustained recovery of the world economy. Of course, economic mismanagement is not confined to the US; the European economy is still in a state of torpor following the failure to deal with the Euro crisis. Policymakers on both sides of the Atlantic have shown a failure to grasp the long-term structural problems facing advanced economies and instead have resorted to sticking plaster policies.

The challenge is to clearly identify the role and boundaries of the state in advanced countries. Some liberal market economies such as the US - as well as Australia and the United Kingdom - emphasise the power of the free market and have relatively small government sectors compared to other countries. Other advanced economies such as the Nordic countries and Germany have relatively larger government sectors.

But a common trend in all advanced countries, from 1960 to the onset of the financial crisis, was for the relative size of the state (as a share of GDP) to increase. For free market zealots, this reflected the rise of big government and the erosion of individual freedom. The reality is somewhat different: public expenditure has increased to provide health, education and pensions. Simply, as prosperity increased in the advanced countries, individual citizens wanted a longer and better quality of life: and the state is an important provider in these areas.

For the US, the focus of debate is healthcare. The demand for healthcare will increase as people live longer and as chronic disease becomes more widespread in later life. It is a curse of prosperity – but most people would welcome a longer lifespan. The issue is who is going to supply the healthcare, and who is going to pay for it?

Of course, ultimately, citizens pay for their health care – directly, or through insurance contributions, or by taxation. The method of payment is a political decision – and the current debate about Obamacare reflects political divisions in the US. But some evidence should inform the debate. In particular, the current US health system is expensive and inefficient – as well as being highly inequitable. And many health systems which are controlled or financed by the state are more efficient and provide better healthcare for their citizens.

From a British perspective some of the discussion about healthcare is both bizarre and distorted. Some US commentators seem to suggest that Britain is some sort of tyrannical Marxist dystopia with the National Health Service presiding over death panels and with patients starving to death. These are myths. What the data show is that the UK has the 14th most efficient healthcare system in the world whereas the US has the 46th.

The US will eventually choose the healthcare system it wants. But the longer the prevarication and posturing continues the more damage that will be caused to both the US and the world economy. When the future path of government policy is uncertain, businesses and individuals become more cautious and delay spending and investment. That is the last thing we need now as the world is struggling to recover from the financial crisis. And if economic growth does eventually return to “normal” the demand for more health and education by an ageing population will continue to expand.