The United States Will Be Just Fine

There is probably something in humans and in every generation that makes us
think that the problems we face are uniquely difficult. Much has been written
about the economy and, if you accept certain assumptions from what you read,
you might think that we are in the midst of a global depression. Yet, it is
important to put the current economy in perspective. We might even try reviewing
and analyzing some objective data.

Last quarter, GDP fell at a rate of 0.5%, which means that the total value
of goods and services produced in the US fell by a half of one percentage point
last quarter over the previous quarter . For the first two quarters of this
year, GDP grew by 0.9% and 2.8%, indicating that economic growth is relatively
flat this year, but that it is not falling off a cliff. This isn’t the
first time GDP has fallen and it won’t be the last. A decrease in GDP
after almost 6 years of increases is not positive, but almost predictable. No
economy grows indefinitely and consistently; there are always temporary lapses.
In fact, if you consider the media coverage of the economy over the past year
and the consequent way people have been scared, it is remarkable that anyone
is buying anything.

Some would say that we cannot only look at GDP, so let’s look at other
factors. Interest rates remain at historically low levels . This means that
if you want to borrow money, you can borrow money inexpensively as a business
or as a person. Loan volume in the country, according to the FDIC and contrary
to what you read about the credit crisis, actually increased last quarter compared
to the same quarter last year. Someone is getting loans and they are not paying
excessive interest rates for them.

How about employment? According to the Bureau of Labor Statistics, unemployment
sits at 6.7%. At this time last year, unemployment was 4.7%. The decrease in
employment is not favorable, but historically an unemployment rate of 6.7% is
not close to devastating. The 50-year historical rate of unemployment is 5.97%
. Most economists agree that the natural rate of unemployment, which is the
lowest rate due to the fact that people change jobs or are between jobs, is
around 4%. So, today we sit at 2.7% above that rate. Once again, the very recent
trend is not good but it is certainly not horrifying. I have noticed many recent
media references to the Great Depression (the period of time between late 1929
and around 1938 or so, depending upon the definitions used and personal inclinations).

It might be illuminating to note that by 1933, during the height of the Depression,
the unemployment rate was 24.9%. During that same time period, GDP was falling
dramatically, which created a devastating impact on the country. Americans have
good hearts and empathize (as they should) with those who are unemployed, yet
it would be easy to go too far in our assumptions on how the working population
is currently affected in aggregate. If 6% of the people are unemployed, approximately
94% of the people are working. We should always shoot for full employment, but
why would we view our efforts as poor when we don’t quite make that mark?
A good student might try to get straight A’s, but getting an occasional
“B” or “C” won’t end the world.

Look at personal income today. Personal income is income received by individuals
from all sources, including employers and the government. Personal income rose
last quarter compared to a year ago according to the Bureau of Economic Analysis.
Compared to five years ago, personal income has risen by 32.1% . Even considering
that inflation was 18.13% over this period, people are generally making more
money than they used to. This is another one of those statistics that can easily
get bent to fit a story. You often hear things like “personal income fell
last month by 23%”, but writers tend to leave larger and more important
statistics out. In this case, wouldn’t you be more interested in trends
over a quarter or a year? Using isolated statistics to fit your view is something
that has become accepted and rarely challenged.

Next, there is inflation. The inflation rate measures the strength of the dollar
you hold today as compared to a year ago. The inflation rate is currently 3.66%.
Over the past 50 years, the inflation rate has averaged about 4.2% . Inflation
remains well within control. Yet, would you be surprised to read a story next
month citing an X% jump in inflation over the last day, month? I wouldn’t
be. (Ironically, the one thing about the economy that is alarming from a historical
standpoint is our national debt, which gets some but not enough media coverage.
We now owe $10.6 trillion and have become a debtor nation over the past several
decades. We now depend on the goodwill and investments of outside countries,
while we continue to spend more than we make).

Now, the skeptics reading this will undoudebtly point to other (I believe,
far lesser) statistics that validate their gloomy view of the economy and the
direction of the country. I ask the reader: if people are employed, are making
good wages, can borrow inexpensively, hold a dollar that is worth largely what
it was worth a year or five years ago, and live in a country where the value
of goods and services is rising, tell me exactly where the crisis is? There
is no doubt that the economy has slowed, but slowness does not equal death.

It is true that the financial markets are a mess (and the depreciation of the
value of equities is both scary and bad), but analysts typically go too far
in ascribing the fall of the financial markets with the fall of a whole economy.
The markets are an important component of the economy, but the markets are not
the totality of the economy. No one can say whether conditions will worsen in
the future. However, we have learned that the United States economy has been
tremendously resilient over the past 200 years and will probably remain so,
as long as the structural philosophies that it has been built upon are left
intact. Americans are hard-working and innovative people and the country will
be just fine.
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