Wednesday, September 03, 2008

Economic Facts: U.S. Economy Doing Quite Well


Successive speakers at the Democratic National Convention poured scorn on President Bush's economic record. Yet Democrats cited no good evidence for their claims that the administration has produced a stagnant economy, widening disparities of income and wealth, high unemployment, and a heavy burden of government debt.

How does the performance of the U.S. economy really compare with other advanced economies over the eight years of George Bush's presidency? Data published by the International Monetary Fund, the Organization for Economic Cooperation and Development, the World Bank, the International Comparison Program (a cooperative venture coordinated by the World Bank) and the U.S. Census Bureau allow a nonpartisan, factual assessment.

Economic Fact #1: The latest World Bank findings show that GDP per capita in the U.S. reached $41,813 (in purchasing power parity dollars) in 2005. This was a third higher than the United Kingdom's, 37% above Germany's and 38% more than Japan's (see chart above).

Economic Fact #2: U.S. output has expanded faster than in most advanced economies since 2000. The IMF reports that real U.S. GDP grew at an average annual rate of 2.2% over the period 2001-2008 (including its forecast for the current year). The U.S. economy is 19% larger than in 2008, and this U.S. expansion compares with 14% by France, 13% by Japan and just 8% by Italy and Germany over the same period.

Economic Fact #3: Average per-capita consumption of the U.S. population was second only to Luxembourg's, out of 146 countries covered in 2005. The U.S. average was $32,045. This was 27% above the levels in the UK ($25,155), 38% higher than Canada ($23,526), 30% above France ($23,027) and 47% above Germany ($21,742). China stood at $1,751.

Economic Fact #4: The U.S. unemployment rate averaged 4.7% from 2001-2007. This compares with a 5.2% average rate during President Clinton's term of office, and is well below the euro zone average of 8.3% since 2000.

Read more here
of Keith Marsden's article in today's WSJ.

MP: The way the media reports it, the U.S. is a basket-case economy on the verge of plunging into another Great Depression. The factual evidence suggests otherwise.

14 Comments:

At 9/03/2008 8:56 AM, Blogger Ironman said...

There may be a practical way to quantify the influence of the media's biased reporting upon the public's perception of the health of the economy. I just wanted to say thanks, since one of your earlier posts provided the frame of reference!

 
At 9/03/2008 9:09 AM, Blogger Walt G. said...

My basic economics class was over 30 years ago. I don’t remember: Is the GDP reduced by the current national debt of slightly over $30,000 per capita? That’s how I track my net worth (bty: it’s not so great this year). Although I agree the media paints an abysmal current economic condition, I wouldn’t consider an analysis that does not include liabilities valid or very useful.

If debt is not included in the analysis, isn't that distorting facts, too?

 
At 9/03/2008 9:22 AM, Blogger the buggy professor said...

1) Once again, Mark, you have helped with your chart and figures to combat fatuously exaggerated commentaries --- generally, journalism at its worse --- in most of the media. Not all of it, of course; but most . . . or so it seems.

...

2) Note that the gaps in performance of the US economy and its main rivals among advanced countries --- Japan, Germany, France, and Britain --- has grown even greater since those 2005 figures.

According to CIA estimates in PPP --- purchasing power parity terms --- GDP per capita for these countries at the end of 2007 was this:

USA: .....$45,800
UK: .. ....35,100
Germany . .34,200
Japan . . .33,600
France . . 33,200


3) The US performance since the end of the 1970s --- which coincided with two major changes in the advanced countries economies: i) an end to post WWII catch-up convergence growth of other industrial countries, and ii) the US pioneer vanguard role in creating a post-industrial, knowledge-based economy --- has been all the more impressive because it contradicts the theoretical views of economic growth:

Namely, once a country has stable government, decent economic institutions (protection of private property, legal punishment of corruption etc), and a population sufficiently educated to work effectively with the most advanced technologies, then the poorer among these countries will grow much faster than the lead country or countries at or near the technological frontier.

That's owing to a variety of influences;

* far more investment opportunities at lower levels of capital accumulation

* the ability to acquire up-to-date technologies created by the lead country or countries at knock-down prices: either by licensing, multinational implants, or legal work-around patents (or by outright piracy, a Chinese specialty)

* If their business organizations and entrepreneurship are decent, then, too, these imported technologies can then be diffused within specific industrial sectors and across them

* They can take advantage of export-led growth into the rich economies . . . especially the US. Since WWII, there has been no fast-growing economy over sustained periods of decades that hasn't enjoyed such export-led growth, mainly directed at the US: Germany, the UK, Northern Europe (Southern EU countries direct most of their export-led growth to the richer Northern ones), Japan, the rest of East Asian capitalist countries, and more recently China.

....

4) There are other influences at work that generate catch-up convergence growth, but these are the main ones.

Yet convergence growth on the part of the EU major countries and Japan stopped in the mid- to late-1980s (1991 for Japan). And the US lead has actually increased considerably again . . . a testimony to our country's great strengths:

* an unrivaled hard-work ethos among the rich countries

* a flexible, intelligent labor force, generally optimistic about the future and future change . . . except when, as with all past populist movements since the 1793 whiskey rebellion, large numbers of average Americans feel the economy is stacked against them by the rich, the powerful, and the government

* entrepreneurial dynamism without parallel. One good Anglo-American study a few years ago showed that 1 out of 11 American adults start a new business every year. In the EU countries, it was 1 in 33 for Britain and Italy. And 1 in 50 for Germany. About the same, believe it or not, for Japan.

* An R&D technological base without match, reinforced by close ties between universities and the business community

* Far less red-tape in the application of laws and regulations, however much American business people (often rightly) still feel trammeled by bureaucracy and government

* Flexible financial innovations, such as venture capital . . . which, however, when they seem to work for the advantage of a few powerful manipulators will, as they did in the 1890s until WWI and in the 1930s again and, rightly or wrongly, today, seem not to work for the betterment of our society and average people, but for the "manipulators" and "powerful cheaters" with ties to politicians and government that will bail them out if need be for catastrophic mistakes

.....

Hence, in summary, a terrific macro-economic performance since the early 1980s --- hardly created by George W Bush's era (growth in GDP has been sub-par for all business cycle upswings since 1949, and about 1.0% annually lower than in the Clinton era). And, on the other, stagnant wages, and inflation rates that the average household faces --- hardly the creation of Bush policies --- that, together with all the financial scandals and boom-bust bursts and collapses, have left 80% of Americans saying that we are in a very bad or fairly bad economy . . . with the same percentage saying the country is on the wrong track.

....

Michael Gordon, AKA, the buggy professor

 
At 9/03/2008 9:38 AM, Anonymous LoneSnark said...

Walt G, we are not talking about net worth, we are talking about income.

That said, on a national level that $30,000 in per capita debt is counteracted by the fact that the debt in question is held by some other American which counts it as an asset. Yes, as some of that debt is held by foreigners then on a purely national level we probably have a net liability in that regard.

From the world's perspective, barring any debts owed to Martians then world has no net debt, the human race just owes itself a bunch of cash.

 
At 9/03/2008 10:47 AM, Blogger Walt G. said...

lonesnark,

Thanks. I always try to relate economic information to something I understand and that also applies to everyday usage, so I just used net worth for comparison purposes. I am not so sure I care who owns the debt as who has to pay it back. I would not consider buying an asset without knowing the liabilites, but that might just be me.

 
At 9/03/2008 11:34 AM, Blogger Francois said...

Must be the figures Gramm used to claim we're a nation of whiners.

Of course 80% of the US population HAS to be wrong about the state of the economy. How can we trust people anyway? What do they know?

(Shaking my head in disbelief)

If I treated my patients the way you treat the economy, quite a few would sue me; and quite a few others would die.

But hey! The numbers would tell me that I'm "right", right?

 
At 9/03/2008 2:19 PM, Anonymous Fred said...

Joe Heller by Kurt Vonnegut

True story, Word of Honor:
Joseph Heller, an important and funny writer
now dead,
and I were at a party given by a billionaire
on Shelter Island.

I said, "Joe, how does it make you feel
to know that our host only yesterday
may have made more money
than your novel 'Catch-22'
has earned in its entire history?"
And Joe said, "I've got something he can never have."
And I said, "What on earth could that be, Joe?"
And Joe said, "The knowledge that I've got enough."
Not bad! Rest in peace!"

 
At 9/03/2008 3:43 PM, Anonymous QT said...

Francois,

As a doctor, do you accept your patients diagnosing their own illnesses from information they get on the internet?

They are the patient. Don't they know better than you, a mere health professional with years of education and clinical practice experience what is wrong with them?

There is a difference between popular perception and a reasoned conclusion drawn from multiple streams of data.

 
At 9/04/2008 9:44 AM, Blogger Francois said...

"As a doctor, do you accept your patients diagnosing their own illnesses from information they get on the internet?"

Nice attempt to divert from the topic at hand...but no dice!

If the economy is doing so well, why don't we compare it to previous periods with similar GDP?

http://bigpicture.typepad.com/comments/2008/09/taking-a-closer.html

 
At 9/04/2008 9:51 AM, Blogger Francois said...

"There is a difference between popular perception and a reasoned conclusion drawn from multiple streams of data."

The key word here is "reasoned", isn't it?

As for the data, we in the health care field have no choice; we can't massage the data to make more palatable to the political masters of the moment, whereas economists have a strong predilection in doing so.

There is a good why it is called the dismal science.

 
At 9/04/2008 6:24 PM, Anonymous QT said...

Francois,

Not everyone, it seems shares your sky-is-falling outlook, for example
the OECD has just revised its GDP projections for the U.S. upwards while lowering GDP projections for the EU and Japan
. The OECD is predicting that U.S. GDP will outperform both the 15 nation Euro zone and Japan.

Granted 1.8% GDP growth is somewhat sluggish but the U.S. has not gone into recession despite the tremendous challenges posed by the housing slump, sub-prime and the credit crunch.

GDP data seems to suggest that we passed the hump in the final quarter of 2007.

 
At 9/04/2008 7:38 PM, Blogger juandos said...

"If the economy is doing so well, why don't we compare it to previous periods with similar GDP?"...

How can one make an accurate comparison if the government keeps sucking up larger and larger parts of the economy?

 
At 9/05/2008 10:13 AM, Anonymous QT said...

Ouch.

 
At 9/15/2008 1:33 PM, Anonymous Tunsa said...

I wouldn't assume to try to interpret these numbers for you, but here are some of the primary economic indicators that are used in determining the strength of an economy.

- Gross Domestic product (Bureau of Economic Analysis [BEA])
o has varied from .6% - about 3.3% over the last 2 years. Reasonable advancement.

- consumer price index (Federal Reserve)
o 2008 : up 10.6% so far
o 2007: up 2.8%
o 2006: up 3.2%
o 2005: up 3.4%
o 2004: up 2.7%
o 2003: up 2.3%
o 2002: up 1.6%
o 2001: up 2.8%
o 2000: up 3.4%

- unemployment (Dept of Labor)
o currently 6.1%, a rise of 1.4% in the last 12 months

- housing starts (Commerce Dept)
o At their lowest mark since January 1991.
- durable goods (Census Bureau)
o Up for 5 consecutive months (likely due to the stimulus package)

- Yield on 10-year treasury bond (Fed)
o 2008: 3.91 (January) - 3.64 (Today)
o 2007: 4.68 (Jan) – 4.04 (Dec)
o 2006: 4.37 – 4.71
o 2005: 4.23 – 4.39
o 2004: 4.38 – 4.24
o 2003: 4.07 – 4.27
o 2002: 5.20 – 3.83
o 2001: 4.92 – 5.74
o 2000: 6.58 – 5.12

- trade deficit (Census Bureau and BEA)
o Total for May, June, July: avg of $60.4B/month
o Total for April, May, June: avg of $60.2B/month
For July:
o China: $24.9B
o OPEC: $24.2B
o Europe: $11B
o Canada: $8.3B
o Japan: $6.3B
o Mexico: $5.5B
o Venezuela: $5.4B

You can't just look at GDP and spending power as indicators. Consider the entire picture or you're being sophomoric in your evaluations.

My current standard for determining my objectivity is: How would I feel about these numbers if Hillary were in office? Would these numbers look different to me then?

-Tunsa

 

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