All Financial Wisdom
The US Economy Isn’t Doing as Well as We May Think
Recent headlines, the White House, and various columnists have been touting the success of the US economy.
But the truth is that economics is one of the most complex systems known to man, and its measurement, diagnosis and direction has been the object of economic science for decades.
The indicators are just that – simple indicators. They depend on the reliability and on the quality of the data they are fed.
We have heard that our economy has already recovered from the last crisis and is in good health. Well, what we should make clear is that the traditional indicators point to the fact that the crisis has been left behind. But the economic reality, like the world itself, is always changing, and we must therefore change the way we measure.
These new indicators should be on the radar of our leaders who dictate US economic policy. Indicators that have so far not been considered as relevant that show a parallel economic much less buoyant than the one that’s usually focused on.
The indicators of discord
These indicators of discord are not few, nor are they unimportant. We’re the leading economy on the planet and as the old saying goes, “When the United States sneezes, Europe catches a cold.” A series of these indicators were recently published by the Washington Post, and do not focus so much on high-profile macroeconomic figures, but rather on what the day-to-day economy of ordinary citizens is like.
The reliability of these alternative indicators is out of the question, since they come precisely from the Federal Reserve itself, which has opted to analyze new data, aware for some time (like us) that the current way of measuring the performance of the economy is becoming obsolete. The data is based on surveys that the institution has conducted among more than 12,000 Americans, and the questions try to put their finger on the economic wounds of the era of low unemployment with citizens who cannot make ends meet.
The first of the apocryphal data is that 40% of adult Americans do not have enough economic cushion to be able to afford an unexpected cost of only $400, such as an emergency medical bill, a breakdown of the car, or a repair at home. The truth is that being able to attend to this type of unforeseen and urgent need does not seem like a luxury, but rather a basic need that many citizens of this country can not cover. And what is especially striking is that the amount included in the survey is not at all exorbitant, but quite the opposite.
The second fact is that a shocking 43% of American households can not afford a basic way of life. That is to say, almost half of our citizens can not jointly face the costs of housing, food, children’s expenses, health, transport and telecommunications, and that the data were appropriately adjusted to the different costs in each county.
We follow revelations that make light with a third apocryphal data: last year, more than one in four adults stopped going to receive health care that they needed because they could not afford it.
And we end with a final trail of death (socioeconomic). 22% of adults are not able to pay all their bills at the end of the month. Only 38% of active workers think that their retirement savings are in line with what they need to have saved. And to add fuel to the fire in a country whose racial tensions have always been an Achilles heel: only 65% of African Americans and 66% of Hispanics say they are in good economic health, compared to 77% of whites .
The reality behind this data
As you can see, it seems quite evident that our economy is not exactly in good health (at least not as good as advertised by most members of the media). Or should we say that it is our citizens who do not enjoy good economic health? Because, paradoxically, the macroeconomic figures, such as minimum unemployment and buoyant growth, show a diametrically opposed national economic reality. Main Street and Wall Street are no longer streets separated by a big block, but streets worlds apart – one in a depressed neighborhood and another in an elite residential neighborhood.
US economic leaders should look a little less at the current macroeconomic indicators, and much more so at the economies of street-level citizens. In addition to measuring more accurately the economic beat of the country, we must bear in mind that it is the citizens who in their desperation vote for anyone who promises them the impossible and makes them see a way out (regardless of whether they are directed to it or not).
The situation should not take us by surprise: we were warned
The truth is that the conclusion should be that half the United States is going through serious economic difficulties, while the other half of the country is living comfortably. It would be a matter of paying more attention to medians and less to medias.
We already wrote about the digital future of a labor market divided by the precariousness of jobs without added value, and the jobs that are still in demand and enjoying good rewards in the new economy. Well, that future seems to be already beginning to arrive, and like everything in this technical society of exponential progress, it arrives sooner than what was expected. This economic reality also reflects the growing wage gap existing in developed societies between the ruling classes and the average citizen.
The Economist noted how, unlike executives, the middle class has suffered a significant decline in their purchasing power. It turns out that average real wages in most developed countries have grown a squalid 1% since the year 2000 (at best).
Even the International Monetary Fund (IMF) has expressed its concern over the fact that growing inequality is hurting economic growth. Other international organizations have also spoken about inequality in the US, and the United Nations Special Rapporteur on poverty and human rights has highlighted that US economic policies benefit the richest, while punishing the most disadvantaged.
Even worse, the perception of this inequality also contributes to the clear rise of populisms and nationalistic philosophies that sell easy solutions, risking socio-economic destabilization in many countries.
The Blind Optimists
There are many players in the system, public and private, who are confident (I would say almost desperately) that the low unemployment, in conjunction with the great number of companies complaining that they can not find enough workers, can only lead to a rebound of average salaries.
It is not the first time that we have noted how the labor market has changed (like almost everything), and that the rapid technological progress has meant that, in this change, the demand for workers has changed at a much faster rate than the labor force , which can not keep up and adapt to the new profiles demanded. In fact, there are markets such as Artificial Intelligence that are red hot for lack of professionals.
And while the lucky ones who know (or have learned to see the importance of) programming synthetic intelligence swim in abundance, much of the rest of the country cannot make ends meet. It is not a matter of not recognizing the vision or the capacity of professionals of worlds such as Artificial Intelligence, but of recognizing also that, when half of the citizens of the richest country on the planet can’t afford to pay the basic bills, we have a problem.