The Booming US Economy

You might not know it because no one is talking about it.

It is normal for politicians to use rhetoric to embellish their accomplishments and minimize their failures. It is also common to use spin to attack political opponents and challenge their record.

What shouldn’t be normal, but has become so in recent times, is the level of purely intentional misinformation being used to mislead the public.

With the next Presidential election less than one year away, it is important to correct the misinformation and bring the facts to the forefront.

We begin with the US economy.

Misinformation #1:
Joe Biden Caused High Inflation

Inflation slowly began its upward trend in December 2020, before Joe Biden took office, and the large spike upwards happened in April of 2021.

It takes anywhere from 1 to 2 years for economic policy to have an impact on the nation’s economy making it impossible for Joe Biden to have caused the inflation.

Inflation happened the world over as it was caused by the Covid pandemic which in turn led to government spending in order to counteract the reduction in work and spending that stemmed from isolation. 

That spending was done during the Trump presidency and that spending was the right thing to do in the early days of the pandemic when severe medical issues/death rates were high and the true nature of the virus was still being researched.

Biden inherited high inflation. How well did he do in combating it?

This chart shows a comparison between the G7 nations which are often compared economically as they are seven of the world’s most advanced economies.

In the US, inflation peaked sooner, peaked lower than many other nations, and reduced faster and to a lower level than the other G7 nations.

The current annual US inflation rate as of the writing of this article is 3.2% which is a healthy rate and below the long term annual average for the United States.

This was achieved without an increase in unemployment or a recession, which was touted as the only ways to reduce inflation by investment bankers, billionaires, Republicans, and even The Federal Reserve.

That leads us into topic number two.

Misinformation #2:
Inflation Is Bad

Inflation is a constant in a strong economy. An inflation rate under 4% is considered healthy, which is why there was such concern when inflation spiked all the way up to 9%. The opposite of inflation is deflation, which destroys economies.

There are a lot of ways to look at inflation data, but the simplest way to see how inflation is affecting Americans is to look at the inflation rate vs the rise in wages. Here’s why:

There are two main ways that inflation affects people.

The first is by reducing the value of the money that someone already has. Inflation reduces the value of a currency, such as the dollar. That is why candy bars don’t cost a nickel today. If someone is rich and has millions of dollars in a bank or in investments then they want a low inflation rate to keep their money valuable, or even more desirable, to help it grow.

If someone has $1 million invested in stocks, and the value of those stocks increases by 7% over a year, then that person only truly increases their wealth if the rate of inflation is below 7%. 

The vast majority of Americans are neither millionaires nor do they have a large sum of money invested. For these working class people, the danger of inflation is if the price of goods increases faster than their wages do.

If someone is living paycheck to paycheck and the price of goods increases by 10% but their wages only increase by 5%, then they simply can’t afford as many goods as they could before.

And that is why we want to compare the rate of inflation to the rate of wage increases. 

During the peak, inflation was rising faster than wages were. People were struggling. Since then, and for almost all of 2023, wages have soared above the inflation rate. The US currently sits at a 5.2% wage growth vs a 3.2% inflation rate.

Misinformation #3:
US Debt Is Worse Under Biden

Depending on who you listen to about the national debt, it is either climbing uncontrollably and will doom our future generations, or it is under control and has actually been reduced.

How can the conversation be at two fully opposite extremes? Because there is the total amount of debt and there is how the debt compares to America’s GDP.

When a nation spends more in a year than it brings in through revenue (revenue being mainly taxes in the US) then it has a deficit. That deficit adds to any debt the nation already has causing the debt to increase.

The US has had debt since it was founded as a nation. And the last time the US had a surplus was all the way back in 2001. This has led to the US debt growing to $33.8 trillion. A large number to be sure.

But much like how when you go to get a loan for a car, or a mortgage, banks look at your income to debt ratio to determine if it is a risky loan, nations are viewed by their debt to GDP ratio, not their total debt.

One trillion is an almost unfathomable number to an average person who makes $70,000 a year. And even for most nations, one trillion dollars would be a crushing amount of debt. Lithuania for example has a GDP of $66.45 billion and would therefore never be able to pay off $1 trillion worth of debt. The US on the other hand had a GDP of $22.46 trillion in 2022.

US GDP grew at 5.2% in the last quarter, exceeding expectations and growing at a much greater increase than the rough average of 2.5% growth under Trump for the three years prior to the pandemic.

The current GDP growth has led to a reduction in the US debt to GDP ratio. Which is where the statement that the debt has decreased is coming from even as the pure dollar value of the debt is increasing.

During the Trump Presidency, the national debt increased from $19.944 trillion to $27.752 trillion, an increase of $7.8 trillion or 39.7%. 

During Biden’s Presidency so far, the debt has risen $6.05 trillion or 22%. So even when only looking at the debt itself and ignoring the ratio to GDP, Trump added far more debt than Biden has. 

The pandemic can only be blamed for part of Trump’s debt. Before the pandemic hit, Trump had amassed so much debt that even his own staff was concerned. This was in large part due to his tax cuts for the wealthy.

Undoing the Trump tax cuts and ensuring corporations pay their actual tax rates would switch the US from having an annual deficit to having a surplus.

When looking at debt to GDP ratios for 2022, the US sits at #18 in the world with a rate of 110.15, which means our national debt was 110.15% of our 2022 GDP. Japan tops the list at 214.27.

Misinformation #4:
Mortgage Rates Are The President’s Fault

The US has an independent central bank known as The Federal Reserve System, or simply The Fed. The Fed determines policies and decisions without Presidential or Congressional approval.

The Fed is who determines federal interest rates. Those interest rates are used to determine the interest rates on mortgages, which in turn influences the cost of monthly mortgage payments.

During the global inflation The Fed continually raised interest rates in their attempts to bring inflation back down. In their view, the only thing that was going to bring inflation back down was to increase hardship and unemployment for Americans. Their concern was that if this didn’t happen, then a recession would hit the US which would cause an even worse economic situation for the nation.

During these rate increases, experts, investors, and politicians all criticized The Fed for misreading the economic situation and making life harder for working class Americans through those rate increases.

In the end, unemployment never increased and has remained at historic lows of under 4%, a recession never happened, the labor market is still extremely tight thanks to 14 million new jobs created, manufacturing is booming in the US, particularly high tech manufacturing, and wages are growing at a strong rate.

However, Americans still have to deal with the high interest rates that The Fed enacted, which is causing those mortgage payments to be so large. The Fed has signaled that they could begin to reduce rates in Spring of 2024 if inflation continues to lower. In recent decades the Fed has sought an inflation rate under 2% as their ideal target.

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It shouldn’t be necessary for every voter in America to have an in-depth knowledge of economies, interest rates, inflation, labor markets, and unemployment rates, but with the current level of misinformation and outright lies, it is helpful for everyone to know the basics in order to see through the rhetoric.

Be informed when you cast your ballot in 2024.