Beneath Washington Gridlock, a Tectonic Shift Toward Growth

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There is a vigorous debate under way about just how much drag political gridlock is exerting on the U.S. economy. To which we can only say: Gridlock? What gridlock?

Beneath the obvious dysfunction and partisan fireworks of Washington, the building blocks of a strong U.S. economic and strategic resurgence are quietly moving into place. Fortunately, the capital's hidden consensus doesn't depend on political goodwill -- still in short supply -- but on the two parties' vigorous pursuit of self-interest.

The predicate of economic growth is the discovery of vast U.S. natural gas and oil reserves and the development of technologies to exploit it. Neither party has much incentive to block rapid hydrocarbon development, which can generate jobs and power the economy.

Democrats and Republicans can realize the fruits of the energy boon simply by staying out of the way. Common ground among their constituents -- labor unions, energy companies, industrial firms -- is helping to align the two parties. In addition, many in the administration and on Capitol Hill are keen to reap the national security benefits of reduced dependence on foreign oil and gas, and they're eager to increase exports of U.S. gas to allies. Environmental groups remain concerned about the effects of hydraulic fracturing on water quality, but their worries have been overrun in the rush for an infrastructure and industrial resurgence accompanied by blue-collar jobs at good wages.

On trade, a similar story is emerging. President Barack Obama, who leads the more protectionist party, has been slow to embrace an aggressive agenda but is now slowly beginning to move on trade. Once Obama moves the ball, Republicans will encourage rather than oppose him, and even a small push on trade can generate potentially startling results.

The U.S. is now engaged in an end-run around the cumbersome World Trade Organization, instead seeking growth by mobilizing "coalitions of the willing." The most obvious case is Asia, where concerns about China's rise amid a global economic slowdown have accelerated activity on the Trans-Pacific Partnership trade deal. The TPP will integrate the trade, financial flows and supply chains of countries that account for 40 percent of global Gross Domestic Product. Previously unthinkable change -- liberalizing trade between the U.S. and Japan, for example -- is within reach. In addition, the U.S. is poised to kick off a similar deal across the Atlantic, providing both the U.S. and EU with new economic opportunities.

Open trade directly boosts growth. But these particular deals are also producing ancillary benefits, causing countries outside the trade regime, including China, to knock down additional trade barriers. Moreover, these deals emphasize high standards and level playing fields for trade and investment, which tilt the global economic playing field in favor of the U.S.

Finally, a labor market overhaul through comprehensive immigration reform appears likely, while a unique confluence of events has boosted prospects for a tax overhaul. These sorts of structural reforms would allow U.S. businesses to invest more efficiently, attract talent and draw on lower cost (legal) labor. A more dynamic workforce and a more efficient tax code would boost growth and enable the U.S. to better compete internationally.

As growth accelerates, the economic pie will grow and the trade-offs that currently paralyze fiscal policy will become less stark. This will facilitate bipartisan convergence on Medicare sustainability and other dicey issues. Moreover, as growth reduces the demand to slash spending, the strains on U.S. hard power will ease, enabling Washington to sustain its commitments to global security and international stability.

The era of ugly politics isn't over. Recent Obama administration scandals and grandstanding on the upcoming debt limit will no doubt produce more evidence of a broken political culture. But beneath the grinding public tensions, a quiet consensus in Washington is preparing the U.S. for growth.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the authors on this story:
David A Gordon at info@dgordondevelopment.com
Sean West