After a long period of robust growth, the US economy has been struck by a confluence of adverse developments in reaction to past excesses during the upswing, as well as to exogenous shocks. The sharp housing downturn and the associated turmoil in financial markets have led to higher risk premiums, lower equity wealth and tighter credit standards, thereby hurting real activity. This has happened at a time when policymakers already had to grapple with persistent external imbalances and unsustainable fiscal trends. While financial intermediaries have suffered from heavy write-downs, the household sector has also paid a heavy tribute of eroding real incomes, job losses, home foreclosures and declining wealth. The authorities have chosen to provide macroeconomic policy support to avert a prolonged decline of output, while keeping inflation expectations in check, but activity is nonetheless likely to get weaker before it gets better. Over time, these shocks will be absorbed and the economy will return toward its robust path of potential growth. Nevertheless, a variety of fiscal, social and environmental problems needs to be overcome. In this light, the present Survey discusses three important policy issues

The United States is facing very difficult economic conditions. After a long period of robust economic growth, a protracted downturn in the housing market has triggered a severe financial crisis, which is weighing heavily on real activity. The authorities have vigorously used monetary and fiscal policies to attenuate the downturn in GDP growth. Further support would be desirable, if financial and economic conditions do not quickly improve. As soon as the recovery is firmly established, however, substantial fiscal consolidation will be required to put public finances on a sustainable long-term path. Financial sector regulation will also need to be reformed to overcome the weaknesses exposed by the crisis, in particular by moving to a more unified, comprehensive and objective-oriented model of supervision. Despite recent economic difficulties, the longer-term outlook for the US economy remains favourable, supported by solid productivity growth. Nevertheless, the fruits of growth have not been evenly distributed in recent decades, raising questions about the social sustainability of such growth. There are also growing concerns about highly unequal financial access to health care in the United States, which may contribute to the mediocre health status of the population by international comparison despite very high levels of expenditure. Health insurance reform to give better financial access to health care to low-income persons would help to overcome some equity and efficiency concerns. US greenhouse gas (GHG) emissions continue to be a major contributor to global emissions. Substantial reductions will be required if global co-operation to combat climate change is to succeed. Appropriate pricing on carbon emissions to reflect their environmental cost would allow emission reductions to be achieved at lowest economic costs. 

The financial crisis that emerged in mid-2007 has caused considerable economic disruptions in the United States and elsewhere, and exposed major flaws in the global financial system. After examining the origins of the crisis, this chapter recommends specific policy responses to resolve the immediate problems and discusses how to make the US financial system more resilient and stable in the future. 

In spite of improvements, on various measures of health outcomes the United States appears to rank relatively poorly among OECD countries. Health expenditures, in contrast, are significantly higher than in any other OECD country. While there are factors beyond the health-care system itself that contribute to this gap in performance, there is also likely to be scope to improve the health of Americans while reducing, or at least not increasing spending. This chapter focuses on two factors that contribute to this discrepancy between health outcomes and health expenditures in the United States: inequitable access to medical services and subsidised private insurance policies; and inefficiencies in public health insurance. It then suggests two sets of reforms likely to improve the US health-care system. The first is a package of reforms to achieve close to universal health insurance coverage. The second set of reforms relates to payment methods and coverage decisions within the Medicare programme to realign incentives and increase the extent of economic evaluation of different medical procedures.