America has been the world's most dysfunctional democracy for decades
But only now is the chaos starting to damage its economy
Good governance is a fundamental requirement for a strong economy. It helps to reduce risk and uncertainty, attract investment, facilitate access to capital, clamp down on corruption and waste, maximise trust and so on. This is textbook stuff. Except, it scarcely applies to the world’s largest and most dynamic economy: the United States.
Since the mid-1990s, there have been four major US government shutdowns. Given that these shutdowns force government programs and operations to cease, they are unsurprisingly disruptive and costly. For example, the Office of Management and Budget estimated that the lost productivity of government workers during the 2013 shutdown amounted to $2bn1 and reduced fourth-quarter GDP that year by 0.3 percentage points. This is to say nothing of the impact on hundreds of thousands of federal workers, who go unpaid during these periods.
And these are only the major incidents. Since 1976, the US government has shut down 22 times, either partially or completely. Even in the years without such disruptions, the government has been reliant on short-term spending measures, known as continuing resolutions, to ensure it remains open. Indeed, since the presidency of Jimmy Carter, there have been only four years (1977, 1989, 1995 and 1997) in which Congress managed to pass its 12 appropriations bills on time, according to the Brookings Institution2.
Then there is the debt ceiling, which has been raised roughly 80 times since 1917, but is increasingly only done so after political brinkmanship and warnings that a default would precipitate a global financial crisis. Indeed, there have been so-called debt ceiling crises in 1995, 2011, 2013, 2021 and 2023.
What about foreign policy? President Joe Biden was fond of telling allies and foes alike that his election victory showed that America was back. Yet, as of October last year, the US had no ambassador to Albania, Bangladesh, Belarus, Bolivia, Burma, Cambodia, Colombia, Dominican Republic, Germany, Lesotho, Libya, Malawi, Mauritania, Moldova, Norway, Slovenia, Spain, Sudan, Syria, and Turkey3. Why? Welcome to the sclerotic body that is the US Senate, where a single member can place a hold on a nominee for any reason.
Yet remarkably, despite this everyday dysfunction, the US economy has been the envy of the world. America still accounts for a quarter of global output, despite the rise of China and India. It is home to many of the world’s great technology companies. The productivity of its factories is legendary (at least compared to Britain’s).
If anything, as the US political system has grown more chaotic, it has pulled further away from its G7 competitors. Indeed, its economy has outgrown every G7 rival since the Covid-19 pandemic to a quite remarkable degree.
But this is different. Trump is different. He is not only unleashing greater dysfunction within the political system, he is governing in the way an authoritarian might. People are being wrongly sent to El Salvadorian prisons, entire departments unlawfully shuttered and students disappeared from the streets.
At the same time, thanks to his penchant for mercantilism in general and tariffs in particular, the US economy is experiencing a self-inflicted crisis. Business investment decisions have been frozen. The cost of US government borrowing has risen, and the bond markets are indicating that Treasury bills – the lifeblood of the global economy – may no longer be considered the safe asset they once were.
To be clear, this is not the first time that sharp levels of political polarisation have impacted the US economy. America’s recovery from the Great Recession was slowed by Republican obstructionism, which reduced the size of the fiscal stimulus and generally depressed consumer demand. Ironically, this lesson encouraged the Biden administration to pass a massive stimulus of its own, which may have contributed to inflation. But we have seen nothing like this before. The US economy may not be able to shrug this one off and motor on.
For decades, America’s economy has been a little like New York City. Chaotic, dysfunctional but the envy of the world. The Trump administration is threatening to burn it to the ground.
Proof? "The Trump administration is considering giving more support to farmers because of fears the trade war it started with China could cripple food producers, many of them in Republican states."