The US Council on Competitiveness recently asked Gallup to conduct a pro-bono comprehensive study of US growth and productivity; a request to which Gallup enthusiastically agreed.
And while Gallup may have been enthusiastic about conducting the study, the results of the study aren’t likely to fill anyone with enthusiasm; instead they point towards a sobering reality: while the Great Recession may be over, the mainstream economic recovery narrative has been grossly overstated. Real GDP growth has in fact averaged 1% since 2007.
As Gallup Chairman and CEO Jim Clifton put it, “America is dangerously running on empty”. It could be added: ”with no recovery drink”
And what’s more, the study points that America’s problems cannot be pinpointed to the Great Recession, the study concludes that the nation’s income on a per capita has remained stagnant for decades, with median household income peaking in 1999. Here are some of the most pertinent conclusions from the report.
The Problem is Severe
While optimists may say that 1% growth is still growth, here’s how the numbers would play out. If the same 1% growth rate was maintained for the next 35 years, then the United States’ GDP per capita would go from $56,000 in 2015 to only a mere $79,000 in 2050. By contrast, if we assume a GDP growth figure of 1.7%, which is the average from 1980 to 2015, then GDP per capita would reach $101,000 in 2050.
Healthcare, Housing, and Education Are Dragging Down Economic Growth
In 1980, these 3 sectors combined accounted for 25% of national spending; in 2015, this figure has increased to 36%. Furthermore, inflation in these sectors were the main drivers of total inflation over this period; Gallup estimates that discounting the effects of inflation from these 3 sectors, the real annual GDP per capita growth from 1980 to 2015 would have averaged 3.9% instead of 1.7%. To illustrate the scope of this inflation in multiplier values, education is 8.9x more expensive in 2015 compared to 1980, with higher education specifically being 11.1x more expensive. Over the same period, healthcare costs 4.8x more, medical insurance costs 8.7x more and housing costs 3.5x more. By contrast the price of all items as a whole only cost 2.5x more.
Even so, out of this 2.5x figure, housing, healthcare, and education comprised 62% of the total! The charts and tables below provide a concise picture of the scale of the problem.
Housing Costs Have Increased but Housing Quality Has Remained Stagnant
Since 1980, American families have been devoting an ever increasing share of their income to paying housing costs, which reduces discretionary spending power. Despite the increase in housing costs, there is no evidence that housing quality has increased proportionally with people now living in smaller and older homes that are also farther away from their places of employment.
Regulations Have Increased the Cost of Doing Business
The White House’s Office of Management and Budget has estimated that major federal regulations enacted over the past several decades have cumulatively generated $250 billion in annual regulatory costs. And while these costs are hypothetically outweighed by benefits in terms of public health and others, these benefits may not show up in the GDP accounts. These regulations have a particularly large effect on small businesses, with a poll suggesting that 83% of small business owners consider the tax code and regulations as being very or extremely important to their business.
Gallup concludes at the end that in order for the United States to obtain long-term productivity growth, it would require bi-partisan efforts and solutions to make the markets work better. To quote from the study “Political forces, not technical or scientific ones, are now the chief restraints on growth.”
Gallup says that it will be recommending potential policy solutions in upcoming articles based on this study. You can access the full study here.
Of course, one only needs to look at the current news cycle to see how well America is doing when it comes to bi-partisan efforts. The divide is now greater than ever and many people are more skeptical than ever as to whether it will ever be able to be solved. That is why it is important that forward-thinking investors look to leverage assets that can function as a hedge against the economy as a whole. Gold and/or silver are one such asset – particularly in today’s fiat currency system.
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