The International Monetary Fund (IMF) recently released a report entitled “United States Sustainability Report”. The report is part of a series addressing certain countries that the IMF identifies as having significant economic challenges that are not sustainable.
There is nothing in the report that is jaw dropping. Nevertheless, with all the political wrangling that U.S. citizens witness daily, the report is fascinating because it shows a dispassionate group of international economists are able to quickly identify the problems and related solutions. The IMF report does not pretend that all of the solutions are painless. However, so long as all sectors of the economy participate in the necessary sacrifice, the IMF report describes the required discomfort in relatively modest terms.
We provide significant quotes from the report in this summary. However, in brief, the IMF tells us that taxes need to be raised, but that this needs to occur through a broadening of the tax base rather than by taxing only a small portion of society (aka the “rich”). Entitlement spending needs to be cut, both by (i) delaying benefits for everyone, and (ii) reducing benefits by those who do not need a social safety net.
The IMF also prepared a sustainability report on China, but the China report had entirely different comments. When addressing the United States, the IMF was critical of low public and private savings rates. In contrast, China has savings rates that are too high. This causes the residents’ welfare to suffer, and reduces the opportunity of the rest of the world to sell their goods and services to China. The IMF indicated that the high Chinese savings rate occurs because of the lack of an effective social safety net. Chinese residents respond by understanding the need to take care of themselves and not spending all their income. It is interesting that a middle ground for each of the two countries would deliver greater balance for each of the two economic giants.