The miracle economy of the US

30 December 2023

Source

This essay is based on There’s a reason the U.S. economy soared and others were mediocre by Heather Long of the Washington Post:

There’s only one appropriate word to describe the U.S. economy in 2023: “miracle.” Many experts said a recession was inevitable. They said there was no way inflation would ease without massive job losses. They were wrong. Not only was there no recession in 2023, but growth accelerated as the year progressed. Inflation cooled sharply (from 6.4 percent to 3.1 percent), and the economy added more than 2.5 million jobs. This doesn’t mean everything was perfect, but it’s important to celebrate the economic equivalent of an underdog athlete winning gold. And to ask: How did it happen?

The massive U.S. government stimulus clearly worked. It boosted savings and kept millions out of poverty during the worst of the pandemic. It also fueled rapid rehiring, which gave people bigger incomes to spend. Other countries had strong fiscal responses as well, but the United States’ was one of the biggest.

All these factors played a role. But the United States got a miracle while most other nations had a “meh” year because the United States had a bigger stimulus and outsize housing gains.

While spending will likely slow in 2024, be careful betting against the U.S. consumer. As for Biden, he deserves more credit than he’s getting.

The complete article is here.

In The Secret of America’s Economic Success, Paul Krugman of the New York Times had similar thoughts:

But not the United States. Not only have we had the strongest recovery in the advanced world, but the International Monetary Fund’s latest World Economic Outlook also points out that American growth since 2019 has actually exceeded pre-Covid projections.

There’s a lot of terrible noneconomic news out there right now. But let’s take a moment to celebrate this good economic news — and try to figure out what went right with the U.S. economy.

It’s true that one recent poll found that a majority of Americans and 60 percent of Republicans say that unemployment is near a 50-year high. But it’s actually near its lowest level since the 1960s.

Meanwhile, retail sales are strong, and the rate at which workers are voluntarily quitting their jobs is high, which normally indicates a good labor market in which people are confident of finding new jobs.

What about inflation? When you use comparable measures, America also has the lowest inflation rate among major economies.

A second, probably more important factor was that the United States pursued aggressively expansionary fiscal policy. In early 2021 the Biden administration enacted a very large spending bill. Many economists were extremely critical, warning that this spending would fuel inflation, which it probably did for a while. But inflation has subsided, while “Big Fiscal” helped the economy get to full employment — arguably the first time we’ve had truly full employment in decades.

A strong job market may in turn have had major long-term benefits, by drawing previously marginalized Americans into the work force. Remember the so-called great resignation? In reality, the percentage of U.S. adults in their prime working years participating in the labor force is now at its highest level in 20 years. One number I find especially striking is labor force participation by Americans with a disability, which has soared.

No doubt there were other factors behind America’s remarkable economic success story. But one thing is clear: We have been remarkably successful, even if nobody will believe it.

The rest of the article is here.

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