The U.S. economy continues to heal steadily after the trauma of the global financial crisis. It is generating jobs, fiscal and external deficits are narrowing, inflation has been contained, and disruptive cases of extreme vulnerability (including housing and banks) have been addressed. The patient has been released.
Yet the economy exited the hospital with structural impairments. It can walk but it cannot run.
The country's growth dynamics remain overly tentative, with the latest estimate for the final quarter of 2012 suggesting a mild contraction (though the revised numbers should be a lot better).
Yes, jobs are being created, but not enough to bring unemployment down from its current 7.9 percent to the historically more acceptable level of around 5 percent. Too many people are what's known as "long-term unemployed" - 39 percent of those officially out of work, to be exact. And a growing number of Americans are depending on, and in some cases falling through, the country's overly stretched safety nets.
As hard as it tries, the economy has yet to attain economic escape velocity. As long as it remains bound by this additional gravity, middle- and lower-income households will find it hard to prosper, income and wealth inequality will increase further and the economy will continue to struggle with a combination of persistently sluggish growth, high unemployment and worrisome pockets of poverty and deprivation.
Four issues would help the economy reaching this escape velocity:
1. At the macro level, the economy needs to transition from "supported growth" (which requires ever-more experimental and untested Federal Reserve policies) to "endogenous growth" (powered by more sustainable and less distortive engines).
2. At the sector level, improving the labor market, education, housing finance, credit intermediation, and infrastructure renewal.
3. At the micro level, engendering private sector confidence that would unlock the trillions of dollars in cash that continue to lie idle on balance sheets and in bank's excess reserves.
4. At the financial level, replacing the blunt spending cuts associated with the sequester with a more thoughtful approach, and agreeing on a framework that puts an end to merry-go-round budgetary negotiations that add to uncertainty and further political polarization.
President Barack Obama can reset the economic narrative at the very start of his second term. In doing so, he would also help citizens reconcile three emotions that run high in America today: excitement, hope and anxiety.
Many people are excited by how the impressive rally in financial markets has improved their 401(k)s and other investments. They are hopeful that, unlike the last few rounds of ups and downs, this rally will be validated by strengthening fundamentals. But they also remain anxious, worried not only about political dysfunction in Washington but also companies' hesitancy to invest, hire and expand.
America remains in full control of its destiny. Unlike struggling countries in Europe and elsewhere, it does not depend on the goodwill of others. Nor does it face immediate financial vulnerability.
What holds back prosperity today has less to do with traditional economic engineering and more with congressional politics. While economists differ on the details of an optimal policy package, there is little disagreement on the objectives and the need for simultaneous progress on growth-enhancing structural reforms, demand management and medium-term fiscal sustainability.
Dysfunction in Washington has repeatedly derailed sensible economic initiatives. From jobs to housing, many helpful reforms have fallen victim to extreme political polarization and endless election posturing.
Substance has repeatedly given way to trifling tactical maneuvers. Even the most basic economic governance responsibility - that of passing an annual budget - has eluded Congress for four straight years now. The sense of common purpose and the anchor of national unity have been replaced by rancor and pettiness.
Gridlock has undermined for too long the dynamism and entrepreneurship of the largest economy in the world - a logjam that has come at a considerable cost to society. I come to this conclusion as an economist who follows closely data and policy discussions, and as one who is hopeful that good sense and national duty will ultimately prevail on Capitol Hill.
But I am also saying all this as a parent. The longer it takes to shock Congress into a more constructive operational mode, the higher the risk that our children's generation will be worse off than that of their parents.
Mohamed El-Erian is CEO of the investment management firm Pimco and author of "When Markets Collide." He wrote this for Foreign Policy, where he is a contributing editor.