Economic Mythology & The Strength of the US Economy

Interesting article on Smartmoney.com on Friday:

Ahead of the Curve: Economic Mythology

I find this type of article interesting, even though I do not completely agree with the conclusion that there are no debt-related issues for the American consumer.  Right now, you could assign me to the camp that thinks the Federal Reserve has been playing this cycle fairly well.  However, it has been striking to me how the current economic cycle, which on paper has been unbelievably strong, has also been surrounded by an incredible amount of negativity.

The United States continues to deliver economic gains in gross domestic product (GDP), GDP per individual, productivity and wage gains that would be impressive for an economy one tenth the size.   In fact, the US went from a $9.76 trillion dollar economy in 2001 to a projected $13.23 trillion dollar economy in 2006.  That’s a 35.5% increase in just five years!  For all the fear and admiration of the growth of China, the US basically just added 133% of China’s 2006 economic output, in just the last five years!  (Actually, that number is bigger than the size of the GDP of even the #3 economy, Germany)

Don Dodge sometimes will remark about how hard it is for Microsoft to show the spectacular growth numbers that younger companies do.  When you have $40B in revenue, you have to grow a $4B business every year, just to deliver 10% growth.

Well, the United States has to basically grow in economic output the equivalent of the entire country of India every two years – just to deliver a 3% growth number.

All this, with almost negligible inflation. It’s almost unfair to say unprecedented, since an economy the size of the United States today is unprecedented itself.  But it was only three decades ago in the 1970s that a majority of sophisticated economists thought that it was impossible for an economy the size of the United States to show meaningful growth.

Given the struggles that Europe and Japan have had in the past 20 years to show meaningful growth, it’s obvious that there is something incredibly special about the US economy.  Something that is worth understanding thoroughly, before belittling it or complaining about it.

Given my respect for the US economy, I tend to enjoy articles like the one in SmartMoney.  The press tends to be sensationalist about economic trends, and the recent housing boom and resultant wealth effect is no exception.  There are so many interesting ways to look at the health of the economy, it’s always great to see an article like this one offer yet another.

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