The OECD Economic Survey of the United States for 2012

The Program on America and the Global Economy hosted the Deputy-Secretary General of the Organization for Economic Cooperation and Development along with the US Ambassador to the organization yesterday to discuss the newly released OECD Economic Survey of the United States, 2012.  The organization compiles a comprehensive economic report for each member country as well as major non-member countries (i.e. the BRIC’s) every two years.  The focus of the surveys is on the macroeconomic and structural policies and key challenges that could boost economic performance on a sustainable basis in each country.

The 2012 report on the U.S. finds that the economic recovery is gaining momentum, but other key conclusions warn that legislative decisions are needed to avoid the “fiscal cliff” at the end of 2012; unemployment duration is still painfully high, income inequality and relative poverty are among the highest in the OECD, and that innovation performance has weakened.

The gains the U.S. economy has made are noted and moderate growth is expected for the next two years but a further deterioration of the European crisis or the potential for U.S. policymakers to allow for immediate sharp cuts in government spending could jeopardize the outlook, the report said. Specifically, the organization warned that U.S. lawmakers must avoid the so-called fiscal cliff of expiring tax cuts and automatic spending cuts.  A fiscal plan must be put in place to address deficits, but it should be adopted gradually as opposed to the immediate spending cuts sought by some Washington policy makers, according to the report.

To promote job creation and increase wages, the report recommended implementation of various training and re-employment programs outlined in the Administration’s FY 2013 budget and stressed the improvement of education and training overall to reduce labor-force mismatches and reduced wages.  Specifically it suggested “reducing financial and other barriers to tertiary education and providing vocational training opportunities in secondary school”.

The report was perhaps most critical of the high rate of income inequality in the U.S. economy which remains well above the OECD average, and that the level of relative poverty is one of the highest in the organization. The report said the U.S. had the fourth-worst measure of income inequality ahead of only Turkey, Mexico and Chile at the end of the last decade. Among the recommendations offered by the report, tax breaks that mainly benefit the wealthiest should be phased out over time.

“Although the middle class have seen their taxes remain roughly constant, or slightly increase, average income taxes have significantly declined for the most wealthy, especially the 1% top earners,” the report said.

Additionally, the report said the U.S. should do more to fix the educational system, including moving away from the local property-tax based funding process that is prevalent throughout the country. The OECD found that the U.S. is one of only three countries in the organization that spends less on students from disadvantaged backgrounds than on other students, and that the best teachers rarely work with students in the schools that most need their abilities. “The U.S. education system is less effective than those of other countries in helping children realize their potential,” the report concluded.

Also, the report highlighted the importance of research and development for innovation and economic growth and recommended that cuts to R&D funding be as limited as possible.  Patent reform and the increase in students graduating with degrees in STEM fields are growing needs as well.

Look for the video of the event hosted at the Wilson Center later in the week.


Posted by: Sean Norris

Sources: Bloomberg, The Wall Street Journal, The Organization for Economic Cooperation and Development

Photo Credit: OECD Conference Centre Entrance courtesy of flickr user OECD


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