Despite strong growth since the depths of the pandemic, the United States economy faces major problems—from persistent inflation and rising debt to declining investment and productivity growth. The economy’s near- and long-term prospects are cloudy, at best.

At the root of these difficulties is federal economic policy, which has caused the country to suffer its worst inflationary episode in 40 years. Even with recent declines, the inflation rate remains above previous levels, and it has so eroded families’ paychecks that the median household in 2022, the last year for which we have full data, earned almost 5 percent less than it did in 2019.

Washington’s unprecedented deficit spending is one cause of the inflation explosion and one of the greatest threats to our long-term prosperity. The federal debt held by the public now surpasses $26 trillion, nearly the size of America’s gross domestic product. Just ten years ago, the Congressional Budget Office estimated that, under then-current law, the public debt would equal GDP by 2038; at the time, this sounded like a near-apocalyptic scenario. But now, even to keep today’s debt-to-GDP ratio stable would require massive spending cuts or tax hikes.

To temper inflation, the Federal Reserve has raised interest rates, causing cascading effects across the economy. Higher mortgage rates have made housing less affordable than at the so-called housing bubble’s early 2000s peak. New housing starts declined by more than a quarter in the year after their spring 2022 highs, despite an ongoing housing shortage. The share of the economy devoted to long-term investment besides housing remains below pre-pandemic levels. Higher interest rates have swelled the cost of federal borrowing and further ballooned the budget deficit.

Even amid an era of seeming technological marvels, the U.S. has struggled to convert such advances into real economic gains. Productivity growth since 2007 has been almost as low as during any period after World War II and is nearly on par with the “stagflationary” 1970s. The productivity sluggishness persists partly because the government has imposed ever more regulations on economic life, from homebuilding to financial investment, which even the most innovative firms struggle to manage.

While the contributors to this symposium understand that the U.S. faces significant economic headwinds and entrenched bad policies, they offer solutions, both large and small, to counter these challenges. They understand that the health of the U.S. economy is increasingly important in light of Communist China’s threat to global peace and prosperity, but that mimicking China’s interventionist model will not bolster it. The American economy, for all its troubles, remains the world’s richest and most successful. Whatever its problems, they can be fixed by emphasizing its peculiar strengths, which include, most importantly, a job-creating power that even the most interventionist government has yet to crush.

Photo: Douglas Rissing/iStock


City Journal is a publication of the Manhattan Institute for Policy Research (MI), a leading free-market think tank. Are you interested in supporting the magazine? As a 501(c)(3) nonprofit, donations in support of MI and City Journal are fully tax-deductible as provided by law (EIN #13-2912529).

Further Reading

Up Next