MILAN – In a recent set of studies, Carmen Reinhart and Kenneth Rogoff used a vast array of historical data to show that the accumulation of high levels of public (and private) debt relative to GDP has an extended negative effect on growth. The size of the effect incited debate about errors in their calculations. Few, however, doubt the validity of the pattern.

This should not be surprising. Accumulating excessive debt usually entails moving some part of domestic aggregate demand forward in time, so the exit from that debt must include more savings and diminished demand. The negative shock adversely impacts the non-tradable sector, which is large (roughly two-thirds of an advanced economy) and wholly dependent on domestic demand. As a result, growth and employment rates fall during the deleveraging period.

In an open economy, deleveraging does not necessarily impair the tradable sector so thoroughly. But, even in such an economy, years of debt-fueled domestic demand may produce a loss of competitiveness and structural distortions. And the crises that often divide the leveraging and deleveraging phases cause additional balance-sheet damage and prolong the healing process.

Thanks in part to research by Reinhart and Rogoff, we know that excessive leverage is unsustainable, and that restoring balance takes time. As a result, questions and doubts remain about an eventual return to the pre-crisis trend line for GDP, and especially for employment.

What this line of research explicitly does not tell us is that deleveraging will restore growth by itself. No one believes that fiscal balance is the whole growth model anywhere.

Consider southern Europe. From the standpoint of growth and employment, public and private debt masked an absence of productivity growth, declining competitiveness in the tradable sector, and a range of underlying structural shortcomings – including labor-market rigidities, deficiencies in education and skills training, and underinvestment in infrastructure. Debt drove growth, creating aggregate demand that would not have existed otherwise. (The same is true of the United States and Japan, though the details differ.)

Government is not the sole actor in this. When the deleveraging cycle begins, the private sector starts to adjust structurally – a pattern clearly seen in the data on growth in the tradable side of the US economy. Muted wage growth increases competitiveness, and underutilized labor and capital are redeployed.

How fast this happens partly depends on the private sector’s flexibility and dynamism. But it also depends on the ability and willingness of government to provide a bridging function for the deficiency in aggregate demand, and to pursue reforms and investments that boost long-term growth prospects.

If public-sector deleveraging is not a complete growth policy – and it isn’t – why is there so much attention on fiscal austerity and so little action (as opposed to lip service) on growth and employment?

Several possibilities – not mutually exclusive – come to mind. One is that some policymakers think that fiscal balance really is the main pillar in a growth strategy: Deleverage quickly and get on with it.

The belief that the fiscal multiplier is usually low may have contributed to underestimation of the short-run economic costs of austerity policies – and thus to persistently optimistic forecasts of growth and employment. Recent research by the International Monetary Fund on the context-specific variability of fiscal multipliers has raised serious questions about the costs and effectiveness of rapid fiscal consolidation.

Estimates of the fiscal multiplier must be based on an assumption or a model that says what would have happened in the absence of government spending of some type. If the assumption or the model is wrong, so is the estimate. The counterfactual needs to be made explicit and assessed carefully and in context.

In some countries with high levels of debt and impaired growth, fiscal stimulus could raise the risk premium on sovereign debt and be counterproductive; others have more flexibility. Countries vary widely in terms of household balance-sheet damage, which clearly affects the propensity to save – and hence the multiplier effect. Uncertainty is a reality, and judgment is required.

Then there is the time dimension. If infrastructure investment, for example, generates some growth and employment in the short to medium term and higher sustainable growth in the longer term, should we rule it out because some estimates of the multiplier are less than one? Similarly, if fiscal stimulus has a muted effect because the recipients of the income are saving to restore damaged household balance sheets, it is not clear we want to discount the accelerated deleveraging benefit, even if it shows up in domestic demand only later.

Policymakers (and perhaps financial markets) may have believed that central banks would provide an adequate bridging function through aggressive unconventional monetary policy designed to hold down short- and long-term interest rates. Certainly central banks have played a critical role. But central banks have stated that they do not have the policy instruments to accelerate the pace of economic recovery.

Among the costs and risks of their low-interest-rate policies are a return to the leveraged growth pattern and growing uncertainty about the limits of a central bank’s balance-sheet expansion. In other words, will the elevated asset values caused by low discount rates suddenly reset downward at some point? No one knows.

Countries are subject to varying degrees of fiscal constraint, assuming (especially in the case of Europe) a limited appetite for unlimited, unconditional cross-border transfers. Those that have some flexibility can and should use it to protect the unemployed and the young, accelerate deleveraging, and implement reforms designed to support growth and employment; others’ options – and thus their medium-term growth prospects – are more constrained.

All countries – and policymakers – face difficult choices concerning the timing of austerity, perceived sovereign-credit risk, growth-oriented reforms, and equitable sharing of the costs of restoring growth. So far, the burden-sharing challenge, along with naive and incomplete growth models, may have contributed to gridlock and inaction.

Experience can be a harsh, though necessary, teacher. Growth will not be restored easily or quickly. Perhaps we needed the preoccupation with austerity to teach us the value of a balanced growth agenda.

This article originally appeared at www.project-syndicate.org.

Experts agree that broadband internet is a critical piece of 21st-century infrastructure. The Federal Communications Commission has stated that “broadband is a foundation for economic growth, job creation, global competitiveness and a better way of life.”

As analysts continue to debate how U.S. digital infrastructure stacks up against its international peers, policymakers need to understand the potential economic benefits and costs associated with emerging broadband technologies. This Backgrounder examines some of these issues and their implications for U.S. competitiveness.

In the litany of Washington debates about current and future U.S. economic competitiveness, demographics is consistently placed on the advantage side of the U.S. competitiveness ledger. A broad view of the macro demographic trends—taking into account only population growth and age-profile—would indeed seem to support this claim. Yet this ignores other U.S. trends that could strike a blow at worker productivity, undermining the potential economic advantage of favorable demographics.

Economists use a handy formula to roughly calculate GDP growth: labor force growth x productivity growth. This means that to keep an economy growing, either the labor force or productivity need to expand (or there must be an expansion of one to compensate for any contraction of the other). A population’s age-profile matters, too. It’s best to have the bulk of a population be of working age. That way there are fewer nonworking, and therefore unproductive, children and elderly putting a burden on the economy.

At least compared to major economic competitors, the basic contours of U.S. demographics appear favorable, satisfying the labor force component of the GDP growth formula. Thanks to immigration and a lofty birthrate, the number of Americans aged 25 to 64 will continue to grow at a slow and steady pace for decades, with the age-profile relatively stable and concentrated in those ages. Most major European and East Asian countries face the (historically unprecedented) prospect of steadily contracting workforces and sharply older populations within a few decades. China and South Korea are in especially unenviable positions; thanks to stunning declines in fertility, their populations will age faster than any in human history.

But a more complete telling of the U.S. labor force position is less rosy. What matters more than raw working-age population numbers is the share of the working-age population that is actually working or seeking work, otherwise known as the labor force participation rate. Here the United States compares less well, especially for men. Employed Americans do indeed work longer hours and take fewer vacations than employed Europeans.  But as Nick Eberstadt lays out in his superb book A Nation of Takers, American men in their late thirties are actually more likely to go on permanent vacation; their labor force participation rate is lower than their counterparts’ in nearly every European country—including in debt-riddled and welfare-bloated Greece.

Productivity growth—the other component of the GDP growth equation—could be more difficult to muster in the United States as well. Productivity improves when fewer inputs are needed per unit of output. Smart, capable, vigorous workers (i.e., good human capital) help drive productivity higher. In other words, it’s not just the size of the labor force, but the quality of the labor force that counts. In the 2000s, the productivity growth of the U.S. labor force was more or less on par with that of the Japanese and European labor force. That may soon change.

The U.S. population is losing its edge on educational attainment. According to the OECD, Americans aged 55 to 64 are among the best-educated in their age group in the developed world in terms of high school and college completion. Americans aged 24 to 35 are solidly in the middle-of-the-pack. And uniquely among nations, the cohort entering the U.S. labor force is no more educated than the cohort currently retiring.

Health trends are also worse in the United States. Around 1950, Americans, and particularly American white women, were among the longest-lived and healthiest in the world. Now it’s flipped. A recently released report by the Institute of Medicine found that, compared against sixteen other “peer” countries, Americans have among the worst life expectancy and health at every age and income level. According to demographer S. Jay Olshansky, the United States could be the first rich country to experience declining average life expectancy—which at present is reserved to former Soviet countries and Sub-Saharan Africa. Least-educated white Americans are already experiencing a drop in life expectancy, and at a rate that is astounding demographers.

In a less understood trend—and one which is certainly less reported on in the media—Americans’ romantic relationships are comparatively unstable, with real negative consequences for American children. Studies have shown that relationship transitions (i.e., when a parent switches from one partner to another) are especially damaging to children—even more than being raised by a single mother without any partners. Americans have historically married more, divorced more, and have had shorter-term cohabitations than Europeans. But the differences in relationship stability are larger now than they used to be.  In a study from the mid-1990s, 12 percent of American children had experienced three or more parental partnerships by age fifteen. The next-highest, in Sweden, was just 3 percent. It is likely, if not certain, that the gap has widened in the past two decades.

Taken together, these trends—male withdrawal from the workforce, stagnating educational attainment, worsening health, and increasingly unstable living arrangements for children—could well take the edge off the U.S. demographic advantage.

There are many remarkable findings in the polling cited by Andrew Kohut and Michael Dimock in their new working paper for Renewing America, entitled “Resilient American Values: Optimism in an Era of Growing Inequality and Economic Difficulty,” but the most remarkable I thought is a set of side-by-side pie charts. In the first, the Pew Research Center asked Americans if they “admire people who are rich,” and just 27 percent said yes. But then Americans were asked if they “admire people who get rich by working hard,” and fully 88 percent said they agreed.

That huge discrepancy underscores the striking conclusion of the paper: After five years of recession, weak growth, and high unemployment, Americans are hurting economically, they are angry over what they see as unfairness and lack of opportunity in the economic system, but the country’s core values remain remarkably intact. As the authors write, based on decades of polling results: “There is little indication that beliefs in individualism, the efficacy of hard work, and the potential for personal progress have been seriously eroded by the economic body blow the American public has absorbed.”

The findings are important because they would seem to indicate that, for all the enormous challenges the United States faces, a growing class-based values divide is not one of them. Sociologist Charles Murray, for instance, in his detailed study Coming Apart: The State of White America, 1960-2010, suggests that beliefs in hard work, family, God, and community have broken down among poorer Americans even as they continue to be embraced by wealthier Americans. If this is the case, then rebuilding those values could take generations.

But Kohut and Dimock find little support for that thesis in opinion polls. Wealthier and poorer Americans, for instance, are in complete agreement on the importance of hard work, and are similarly critical of what they see as growing dependence on government assistance. Religious feeling appears to be at least as strong among poorer Americans as among their wealthier counterparts, as is commitment to community, charity, and volunteering. Wealthier Americans do, as Murray suggests, appear more committed to the traditional institution of marriage than poorer Americans, perhaps because of the growing prevalence of single parent households. But on most questions about the importance of marriage the gaps are small.

The study also reveals surprisingly little class resentment, despite growing income inequality in the United States. Asked, for instance, whether the United States benefits from having a class of rich people, two-thirds of Americans said yes in a 2012 Gallup survey, unchanged from opinions two decades ago.

It would be easy to misread the survey findings as somehow suggesting that Americans think the economic status quo is just fine. That would be far from the truth. Indeed, they are angry about a great many things—such as  a tax system in which the wealthy are not seen as paying their fair share, and government bailouts that they see as rescuing politically powerful Wall Street bankers and profligate home buyers. What the public sees, the authors write, “is a greater lack of fairness in public policy, which increasingly is seen as favoring the rich and powerful rather than promoting opportunities for people like them.”

“Indeed, what the general public wants,” they write, “is not a war on the rich, but more policies that increased their prospects to get ahead.” And there is nothing remarkable about that. It is what most Americans have long believed.

This Renewing America backgrounder examines the issue of corporate tax reform and the implications for U.S. global competitiveness.

In the wake of the collapse of the garment factory in Bangladesh, I have been thinking a lot about the issue of corporate social responsibility. The factory was making clothes for western companies including Primark of the UK and Loblaws of Canada, and in many ways the clothing companies have been among the most focused in recent years at trying to police their supply chains to ensure safer working conditions and decent wages. Yet at least 430 people were killed working to meet deadlines set by western companies in a facility that should have been torn down years ago.

A compelling new article by MIT political scientist Richard Locke in the Boston Review, drawn from his new book The Promise and Limits of Private Power: Promoting Labor Standards in a Global Economy, does a lot to explain why. “Despite many good faith efforts over the past fifteen years, private regulation has had limited impact,” he writes. “Child labor, hazardous working conditions, excessive hours, and poor wages continue to plague many workplaces in the developing world, creating scandal and embarrassment for the global companies that source from these factories and farms.”

Locke’s conclusions are based on a decade of research that began with an intense focus on one company, Nike, which has been a leader in trying to ensure fair labor standards among its suppliers around the world. Yet even Nike, he concludes, has been unable to maintain consistent high standards in its contract facilities.

The focus on corporate social responsibility as a response to weak labor standards in developing countries was always a poor second best. In the early 1990s, he points out, there had been a big effort by trade unions and other NGOs to include social and labor clauses in trade agreements, with the goal of increasing pressure on developing country governments to protect labor rights and uphold sound environment regulations. The North American Free Trade Agreement (NAFTA), whose negotiations I covered as a reporter, pioneered this approach by including labor and environmental “side accords.” But the effort was largely ineffectual, in part because developing country governments fought the inclusion of social clauses in trade agreements as a form of disguised protectionism. While labor and environmental chapters are still included in U.S. trade agreements, their real world impact has been minimal.

In the absence of strong international agreements, Locke writes, “private, voluntary regulation became the dominant approach.” But even among serious, committed companies like Nike, the results have been underwhelming. The core problem is competing priorities. The global brands “want high-quality products delivered as quickly and cheaply as possible. They also fear that harsh working conditions could, if discovered, create scandal and hence risk to their reputation. Yet because they are competing with one another, they are unwilling to pay extra for improved working conditions, which could lead to price increases that threaten market share.”

Modern business models, in which product life cycles are short and companies are constantly remaking their product lines to please finicky consumers, put further pressure on developing world factories to drive their workforce ever harder.

Locke concludes that little progress is possible without a more active role by governments. Governments in the developing world, with western support, need to use a mix of carrots and sticks to encourage, and if necessary compel, companies to improve wages and working conditions. Some like Cambodia, Brazil, Argentina, and India are doing so in places, but they remain the exceptions.

The United States has a strong interest in encouraging progress. Apart from better protecting workers in developing countries, rising standards around the world can discourage global companies from flocking to countries like Bangladesh in search of ever lower labor costs. The trickle of manufacturing back to the United States is coming in part because rising wages in China are reducing that country’s once enormous cost advantages. It is in the U.S. interest to encourage the same trends in other countries.

The United States and other developed country governments could do a lot more, particularly in pressuring their companies to put people before profits. Sander Levin, the top Democrat on the House Ways and Means Committee who has been a leader on this issue for more than two decades, called on President Obama this week to “bring together key European and American retailers that have sourced from Bangladesh to adopt a common response leading to a universal standard guaranteeing basic workplace safety and fundamental worker rights.”

What is clear in the wake of Bangladesh is that the companies will not do this on their own. It will require active, and effective, intervention by governments.

In particular, Orszag advocates for the Medicare Comprehensive Care payment reform, where health-care providers would receive a fixed payment for each patient/beneficiary, rather than being paid for each test or procedure.

On his blog Macro and Markets, Kahn lays out five reasons why the controversy over Reinhart and Rogoff’s data likely will not result in any policy changes, though it will cause economists to take a good, hard look at what is known about debt sustainability.

In searching for best-practices, Mehta calls for a switch from the current U.S. policy that focuses on teacher accountability to a model that focuses on making teachers experts in teaching, including better recruitment, training, knowledge development, and school organization.

The U.S. budget process has become increasingly dysfunctional, a large factor in Standard and Poor’s downgrading the U.S. sovereign credit rating in 2011. Budgets were always passed for each fiscal year from 1977 to 1998, but in the thirteen fiscal years since, Congress has failed to adopt a budget five times, including for FY 2013. A continuing resolution—a stopgap spending measure—was passed in late March to fund discretionary programs of the federal government through the end of September, the last month of the 2013 fiscal year.

In practice, the annual budget process is ad hoc, where crises often drive decision-making. While overhauling the budget process would not cure partisan rancor, multiyear budgeting could improve the process by forcing policymakers to adopt a longer term perspective.

Many experts have recommended that the United States embrace a medium term expenditure framework (MTEF). MTEFs have been successfully deployed in developed and developing nations, and are recommended by both the World Bank and the International Monetary Fund. Germany was an early pioneer, enacting a MTEF in 1969. More than 120 other countries have adopted some form of MTEF, many since 1990.

A properly designed MTEF creates a budget for the next three to five years based upon current forecasts and policy priorities. Under this framework, a budget can be modified in the intervening years to account for economic changes, unforeseen events, and forecast errors, but its broad outlines would limit how much could be altered.

This approach could allow the government to balance its books not just in the boom years, but over an economic cycle. A properly executed MTEF could also improve debt reduction planning by requiring policymakers to align budget decisions with the nation’s long-term financial outlook. Indeed, empirical analysis indicates that MTEF adoption is associated with greater fiscal discipline.

While the U.S. budget is a one-year plan, there are multiyear elements to the current process, such as projections and analysis issued by the Congressional Budget Office (CBO) covering everything from the ten-year cost of a proposed farm bill, to the long-term cost of the U.S. Army’s choice in ground combat vehicles.

Some federal agencies provide five-year budget plans, including the Department of Defense and NASA, though these are merely non-binding recommendations. Many other agencies—such as the Department of Energy and the National Institute of Health—do not submit multiyear estimates. Congress also has limited control over large sections of the budget. For instance, in 2011, mandatory spending—such as Social Security, Medicare, unemployment insurance, and veterans’ benefits—was $2 trillion of the $3.6 trillion in spending, or a majority of the budget. Additionally, some revenue is dedicated to a specific purpose, such as the federal gas tax which goes to the Highway Trust Fund.

Overall, the U.S. federal government’s implementation of medium-term planning techniques trails most other developed nations. In 2009, the OECD ranked the United States 25^th of 30 nations in its use of medium-term perspective in the budget process.

OECD Index comprised between 0 (no MT budget strength) and 1 (high MT budget strength).

The lack of long-term planning is particularly a concern for multiyear infrastructure and scientific projects. For instance, U.S. research labs face difficulty in collaborating with foreign research institutions on major scientific projects because their funding is set annually, unlike many of their foreign peers. Major initiatives already underway can be cancelled or restructured through the annual budget process, particularly after the election of a new president. For instance, the Obama administration cancelled NASA’s Constellation program initiated under the Bush Administration.

The 2014 budget process, which does not look promising, seems to underscore the nation’s accounting woes. The White House officially released its 2014 budget on April 10, almost two months after the legal deadline, while the Senate passed its first budget proposal in four years.