Barack Obama will not solve America’s most profound economic problems. That is not a partisan political statement about the newly re-elected president. Had Mitt Romney won last week’s contest, he also would not have been able to reduce unemployment, improve the trade balance, rebuild U.S. manufacturing excellence and strengthen the middle class. The fixing of the American economy is just not a one-man or one-woman job.
The Federal Reserve is trying to help with one of those problems, unemployment, but the central bank does not possess the refined tools needed to address this complex issue. Indeed, bold decisions made by the highest authorities cannot resolve any of the developed world’s greatest economic problems. The devil – and the angel – is in the innumerable details.
Of course, there are times when big policy decisions change the course of economic history, as when the new governments of formerly communist countries abandoned central planning, or when the U.S. government rescued its banking system during the last financial crisis. Less dramatically, changes in government deficits and central bank policies on interest rates can moderate fluctuations in the economy by compensating, to some extent, for hyperactivity or sluggishness.
Many economists want some grand gesture right now. Some call on the president to push for a big move towards fiscal austerity, others want massive stimulus, and still others want a big change from the Fed. Such calls are excessive. The economy is not robust, but it is not in crisis. Dramatic moves are far more likely to wreak havoc than to do good.
This is the time to address long-standing and deeply embedded problems. These issues can sometimes be summarised in a single statistic such as the unemployment rate or the share of GDP dedicated to infrastructure investment, but the causes are hugely complex and the cure requires thousands of detailed, dull and often difficult changes.