FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
June 13, 2023

American Exceptionalism Is Still Alive & Well

IN THIS ISSUE:

1. Sometimes I Feel Like I’m A Broken Record

2. Yes, America Remains The Envy of the World

3. America’s Workers Are Highly Skilled On Average

4. Other Productive Advantages America Enjoys

Editor’s Note: Sometimes I Feel Like I’m A Broken Record

I have been writing this newsletter in one form or another continuously for over 45 years (1977). Thankfully, I still very much enjoy writing it and doing all the reading and research required to do so. My sincere thanks go out to everyone who reads it, and especially those of you who occasionally give me feedback (positive or negative).

Yet once in a while over those 40+ years, I come to view myself as a broken record – saying the same thing over and over again. This is one of those times.

All year, the mainstream media and those on the left have been predicting a recession for the US economy in 2023. Many have all but promised it. All this negativity has surprised me, frankly, since the left has its guy in the White House and until recently, control of both Houses of Congress. Why are they so negative, I’ve asked myself over and over.

My feeling like a broken record is because I have repeatedly written in these pages this year that I do NOT believe a recession is the most likely scenario. I still don’t. But the left keeps beating the drum, so I feel I have to respond.

On another note, I’ve always said I like to write about the things that interest me the most, and with that said, my thanks go out to the editors at The Economist who recently wrote a great article on American exceptionalism which has been on my mind ever since. The article appeared in April and was entitled “America’s Outperformance is a Marvel to Behold.” The article goes through a laundry list of reasons why America remains the most dominant and successful country in the world and why that’s not likely to change anytime soon.

It's a rather long article and I can only hit the highlights today, so I highly encourage you to read it for yourself. If you’re a proud American, you will love this piece! The link is in SPECIAL ARTICLES below.

Yes, America Remains The Envy of the World

Let’s begin with the economy. America’s $25.5 trillion in Gross Domestic Product last year represented nearly 25% of the world’s total growth. By that same measure China’s share is now 18%, making it the world’s second largest economy.

America’s outperformance has translated into wealth for its people. Income per person in America was 24% higher than in western Europe in 1990 in purchasing power (ppp) terms; today it is about 30% higher. It was 17% higher than in Japan in 1990; today it is 54% higher. In ppp terms, the only countries with higher per-person income figures are small petrostates like Qatar and financial hubs such as Luxembourg.

Speaking of wealth, $100 invested in the S&P 500, a stock index of America’s biggest companies, in 1990 would have grown to be worth about $2,300 today. By contrast, if someone had invested the same amount at the same time in an index of the biggest rich-world stocks which excluded American equities, they would now have just about $510, according to The Economist.

There are two things that matter most to an economy in the long-term: the size of its workforce and the productivity of its workers. America’s working-age population – those between 25 and 64 – rose from 127 million in 1990 to 175 million in 2022, an increase of 38%. Contrast that with western Europe, where the working-age population rose just 9% during that period, from 94m to 102m.

That said, a higher proportion of those Europeans actually work. America’s labor-force participation rate has been falling this century, largely because of men dropping out of the workforce. But this American oddity is not large enough to make up for the country’s advantage in raw numbers. Even with lower participation, the past three decades have seen America’s labor force grow by 30%. In Europe the number was 13%; in Japan, just 7%.

And this growing workforce is also becoming increasingly more productive. The Conference Board, a think-tank backed by American business, has found that between 1990 and 2022 American labor productivity (what workers produce in an hour) increased by 67%, compared with 55% in Europe and 51% in Japan.

Add to that the fact that Americans work a lot. An American worker puts in on average 1,800 hours per year (based on a 36-hour work week with four weeks of holiday), roughly 200 hours more than in Europe, although less than in China.

How do we account for this significant increase in productivity? Studies consistently show that the greatest increases in productivity occurred in the flourishing information and communications technology industries and saw that they shone brightest from the mid-1990s to the mid-2000s.

But the rapid growth of the sector of the economy making and connecting computers was only part of the story. The rest of the economy busied itself in using the new technology productively. Productivity growth of American businesses doubled to more than 3% annually during that magical decade, whereas their European counterparts managed less than 2%. 

America’s Workers Are Highly Skilled On Average

The subtitle just above may take some of my readers by surprise. There is a growing feeling in the US that our workforce is not as skilled as it once was, due in large part by the growing perception among many that our public school system has largely failed us.

Yet while it’s easy to feel this way, America spends roughly 37% more per pupil on education than the average member of the Organization for Economic Cooperation and Development (OECD), a club of mostly rich countries. When it comes to post-secondary students (beyond high school), we spend twice the global average.

There are good reasons to question the efficiency of some of this spending, of course. National test results in science and math for 15-year-olds could definitely be better, but we are well above average.

As a share of its working-age population, roughly 34% of Americans have completed tertiary education (universities, colleges), according to data compiled by Harvard and Korea universities. Only Singapore has a higher rate. The Penn World Table’s human-capital index, which is based on years of schooling, currently has South Korea in the lead; but America has, on average, been first among major economies since 1990.

America is home to 11 of the world’s 15 top-ranked universities in the most recent Times Higher Education publication. Along with educating many of the brightest Americans, they have long served as conduits which deliver the world’s smartest young people to the country.

America’s economy makes good use of its highly educated workforce. Spending on research and development across the public and private sectors – a useful, though not infallible, token of future growth – has risen over the past decade to 3.5% of GDP, well ahead of most other countries.

Evidence of America’s innovative prowess is also provided by the number of its patents in force abroad, an indicator of international recognition. America’s share of such patents globally increased from 19% in 2004 (the first year for which data is available) to 22% in 2021, more than any other country.

Other Productive Advantages America Enjoys

While there are many advantages a very large economy benefits from, I’ll just name a few here. One is the fact that a large country like the US often has an array of natural resources. In the case of the US, one of those increasingly is energy.

In the first decade of the 2000s, America imported more than 10 million barrels of oil per day in net terms. But around the same time, a revolution was underway as energy firms perfected the techniques of hydraulic fracturing and horizontal drilling to release the mineral riches in shale formations that dot the country from North Dakota to Texas.

Gas and oil production soared, and America now meets most of its energy needs from domestic production. In 2020 it became a net exporter of oil under President Trump. While President Biden has rolled back some of those Trump policies, the US still relies on foreign energy much less than in recent decades.

Another advantage to a large economy and geographic mass such as the US is worker mobility. The ability and willingness of Americans to get up and go when opportunity calls may not be what it once was, but it is still impressive in international terms. A 2013 Gallup survey found that about one in four adult Americans had moved from one city or area within the country to another over the previous five years, compared with only one in ten in other developed countries.

America also has far and away the world’s deepest and most liquid financial markets, providing usually efficient channels for financing businesses and sorting the winners from the losers. Stock market capitalization runs to about 170% of GDP; in most other countries it comes in below 100%. Funding for potentially high-growth startups is particularly bountiful: about half of the world’s venture capital goes to firms in America. Wow!

The bottom line is, for the reasons cited above and many others I could name if space permitted, American exceptionalism is still alive and well. Do we have our problems? Of course we do! And maybe I’ll write about those in an upcoming issue.

Be sure and read the full article on this subject from The Economist in the links below. If you are a proud American, you will definitely enjoy it.

I have to leave it there today. Hope you are having a great week!

Wishing you all the best,

Gary D. Halbert

SPECIAL ARTICLES

America’s Economic Outperformance is a Marvel to Behold (great read!)

Understanding America’s Labor Shortage

Gary's Between the Lines column:
U.S. Factories Booming, But Worker Shortage Persists

 

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