But political theater and blame games aside, there is one important reason why U.S. and global markets are a mess, and it doesn't have all that much to do with the S&P downgrade.
The U.S. economy, the world's largest, is in for some seriously slow growth for the foreseeable future. And there's very little that anyone can do about it. Longer term, of course, the U.S. is struggling with a serious debt burden — an uncomfortable truth that the Washington, D.C. debt ceiling debacle and subsequent S&P downgrade made abundantly clear.
But looking deeper, there's another troubling trend to consider: globalization — which for years benefited the wide open U.S. economy by offering U.S. companies new markets and U.S. consumers cheaper prices — is today fundamentally changing the structure of how America, Inc. operates. According to Nobel Prize-winning economist Michael Spence, growth and employment in the U.S. economy are beginning to diverge. The rise of China, India and other rapidly developing countries is creating permanent shifts in the structure of the U.S. economy; namely, highly educated American workers are finding opportunities, while those with less education struggle with worsening job prospects and stagnating incomes.
This is hardly a recipe for broad-based, consumer-driven growth the U.S. economy needs. It's a gutting of the middle class that, if left unchecked, could have a devastating effect."The United States should brace itself for a long period of high unemployment," Spence warns.
So what's the solution? Most policymakers point to things that take time, cost money and, of course, add to the country's debt problems, such as sustained investments in education, infrastructure and new forms of cleaner energy that could help boost long-term economic growth.
For more: Dow plunges 630 points after S&P downgrade | GlobalPost
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