The US Congress achieved something last week. In the face of an attempt to make school lunches healthier, politicians fought against a plan to limit the serving of fast food. Instead, the red tomato sauce used to make pizzas will remain officially classified as a "vegetable", so that they can still be served to the nation's schoolchildren. The move followed intense – and successful – lobbying by the frozen food industry.

Meanwhile, elsewhere in Washington weightier matters were not so straightforward. This Wednesday a "supercommittee" of Republicans and Democrats faces a deadline to come up with a deal to reduce America's vast deficits. If it fails, a huge programme of government spending cuts totalling some $1.2tn will be triggered, slashing at the defence budget and devastating vital social programmes at a time of economic hardship and growing poverty.

Needless to say, the supercommittee is hopelessly deadlocked. So, while the political system responds to the needs of the frozen food industry, it cannot agree on something as important as deficit reduction: even in the face of the threat of mind-boggling cuts. "Pizza sauce is not a vegetable," said Burdett Loomis, a political science professor at the University of Kansas. "But if they can't get it right on pizza sauce, how can they do something on the deficit, or healthcare?"

To many Americans that feels typical of the current state of their political system. The country faces a spiralling deficit, unemployment stuck at 9%, a moribund economy and the inexorable rise of China. Yet America's politicians seem more divided than ever before and neither side seems especially popular. For many Democrats, President Barack Obama is a profound disappointment. Among Republicans the likely 2012 frontrunner, Mitt Romney, is unpopular with conservatives. The rest of the Republican field has shocked many with its poor quality. Rick Perry's failure to remember his own policies in a TV debate, ending his stumble with a now famous: "Oops!" And Herman Cain – also embroiled in a sex scandal – recently gave a spectacularly ill-informed answer to a question on Libya. In a response that has become an instant YouTube hit, the pizza magnate stammered, stalled and almost dried up altogether when asked if he backed Obama's decision to support the Libyan rebels. He has also confused China with Iran. The gaffes have compounded a growing perception that US politics has become dangerously dysfunctional.

A flood of outside money, the corrupting influence of lobbyists and the endless shouting of TV news pundits has turned many people off the whole system. A poll last month put the approval rating of Congress at just 9%. To put that into context, during Watergate Richard Nixon's approval rating was 24%. BP, during the Gulf oil spill, hit 16 %. This year Rasmussen pollsters asked Americans if they approved of the US going communist. A full 11% said they were OK with that; two points ahead of Congress.

America's system of governance, designed by the founding fathers and then jiggled around with since, suddenly seems ill-equipped to deal with the nation's problems. The checks and balances built into the constitution appear gridlocked, rather than promoting sensible governance. Nor is it just ordinary people who feel this way. America's inability to get important things done has a global impact. This summer, when ratings agency Standard & Poor's handed out a first ever downgrade to the world superpower, it was clear why. "The downgrade reflects our view that the effectiveness, stability and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges," the agency said.

Glen Browder, 68, has a good view of how much politics has changed. The former Democratic congressman from Alabama served in the House of Representatives until 1997. He was a founder member of the Blue Dogs, a group on the party's right, aimed at furthering links with the Republican left. Now he is a political scientist at Jacksonville State University, studying the job he left behind. He is blunt about how much it has changed and one reason why. "I don't think I would get elected today. It costs so much money and I was never very good at raising it and I am not willing to do the things you have to do to get it. I would not be functional today as a politician."

The influence of money and the development of a "permanent campaign" mentality have gone hand-in-hand. As campaigns stretched out, they required more money. It has to come from somewhere, and so in recent years the lobbying industry has ballooned. Nor is that money free. Special interests, whether a big oil company or union (or even a frozen pizza-maker) expect a return on their investment. The figures alone tell the story. In 2010 lobbyists spent $3.5bn on their activities, up from $1.4bn in 1998.

In the same year there were almost 13,000 official lobbyists in the capital, and thousands more unregistered. On key issues lobbyists are a plague. The healthcare industry alone employs six lobbyists for every elected politician. Campaign spending has exploded: in 2008 candidates spent $1.7bn in total. Obama spent £740m, which is more than the combined spending of George W Bush and his challenger, John Kerry, just four years earlier. The situation is getting worse. A recent supreme court ruling scrapped some existing campaign finance laws limiting the involvement of special interests, which triggered an unrelenting flood of new money into politics.

Yet despite the huge influence of money, and the power it brings to donors, even some business leaders are furious at the elite's inability to get things done. Howard Schultz, the Starbucks chief executive, has vowed to stop giving money to campaigns and urged fellow business leaders to follow suit, until politicians take action on resolving the defici problemt. "We have a crisis of confidence in America," Schultz told a TV interviewer: "America is better than this." But Schultz's efforts failed to halt the flood of money into politics. For every Schultz who stops donating, there are many eager to buy influence.

Yet that is not the entire problem. While some polling data suggests many ordinary Americans still inhabit the middle ground on most issues, the political parties rarely reflect that. Widespread gerrymandering of congressional districts, whereby borders are drawn to lump together specific social groups, has resulted in many seats becoming safe. That renders elections between Republicans and Democrats pointlessas one side is guaranteed to win. The real contest comes when party activists duke it out among hardcore supporters in primaries. The inevitable result: a drift to extremes. "There has been a hollowing of the political centre," said Larry Haas, a former Clinton aide.

The phenomenon of the Tea Party has risen out of this. By exerting so much power over the Republican base, the party has swarmed through the primary system, either forcing incumbents to bend to its will or seeing them lose to Tea Party supporters. The result has been a party that has lurched to the right and become ideologically unmoveable on issues such as tax rises for the wealthy – that many Americans support.

Republicans agree the boundaries of debate have shifted. Mark McKinnon has been a top aide for both Bush and John McCain. But he left McCain's campaign in 2008 stating he did not want to participate in the sort of negative attacks on Obama current politics would demand. Since then, things have got worse, he says. "The system is soaked in hyper-partisanship. It is really broken."

No wonder some are looking for an alternative. American politics since the civil war has been stuck in a two-way fight between Republicans and Democrats. Third-party runs, whether from the right or left, have had little meaningful success. And, as fighting elections has become more expensive, the barriers to entry have reduced such efforts to wealthy individuals such as oil billionaire Ross Perot or publishing magnate Steve Forbes.

However, this year will be different. A remarkable online effort, called Americans Elect, has sprung up that appears certain to put a credible third option on the ballot, come next November. Set up by private donations, AE aims to collect enough signatures to qualify in all 50 states. They need 2.9m signatures, which sounds a tall order. But after three months AE already has more than 2m.

But who will the candidate and running mate be? That will be decided by an "online nominating convention" in which anyone can register to be a delegate and vote. The candidate chosen by delegates will have to agree to run, but they can be from any background. One rule: if they are a Democrat or Republican they must chose a running mate from a different party. Names discussed include Schultz, General David Petraeus and news anchor Tom Brokaw. "The situation is ripe for the idea that the people running on this ticket will be different. That is very attractive," said Kahlil Byrd, AE's chief executive. Such ideas please optimists who say the current economic and political crisis pales in comparison with the civil war or Great Depression, or even the travails of the civil rights era. "The problems of today have to be put into a historical perspective ... I am not convinced that all is lost," said Haas.

But some are less positive. After he left politics Browder wrote a book called The Future of American Democracy. It painted a bleak picture of a splintering society, divided upon itself and fracturing within a political system that could no longer cope and no longer worked.

That was in 2002. What does Browder think now? "We are just 10 years further on the course," he said.