America's economy is the envy of the world. Will it stay that way?

0:01NPR

0:11This is The Indicator from Planet Money. I'm Adrian Ma. And I'm Darian Woods. A big part of Donald Trump's victory in the presidential election came down to the economy. A vast majority of Americans think that the economy is not working in their interests. Simon Rabinovich is U.S. economics editor for the weekly magazine The Economist. The thing, though, is that when you look at America relative to other rich world countries, to other developed, advanced economies, America is doing and has done remarkably well. There's a disconnect there, right? Millions of Americans' personal economies are not feeling good, which is partly why Donald Trump made huge gains with voters across the country.

0:54But as Simon points out, the US economy as a whole is doing really well. Today on the show, Simon lays out his argument for why the US economy has been and continues to be the envy of the world, but also why, with the election of Donald Trump, America's economic exceptionalism could be at risk.

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2:26You've heard the expression keeping up with the Joneses. Well, on a global level, the United States of America is the Joneses. And believe it or not, despite the turmoil of pandemic and inflation, that economic dominance has actually accelerated. Consider that in the past few years, U.S. economic output has increased three times faster than countries in the Eurozone. Or consider this. Among the G20 group of nations, which includes countries like Canada, Germany, China, and Japan, the U.S. is the only one whose employment and GDP has actually exceeded pre-pandemic expectations. These stats and more appear in a recent report in The Economist titled Envy of the World.

3:09In it, Simon Rabinovich and his co-author Henry Kerr argue the U.S. economy has way outperformed both its allies and its rivals. And when I reached out to Simon to understand why, he said this economic exceptionalism is driven by four big structural factors. The first is productivity. So productivity is absolutely key to understanding any economy's growth potential. Ultimately, what dictates an economic size over a matter of years and decades is how many people are working and how productive they are. So if you just look at per worker productivity in the US since 1990, it's increased by about 70%, whereas in other rich world economies, it's closer to 40 or 50%.

3:56So what drives that? One, business dynamism. It's a lot easier for businesses to go bust, but also for new ones to be founded in the U.S. It's easier for workers to move around to where they're actually needed. Number two, a lot of investment in capital. It's higher in the U.S. than elsewhere. That's not just in physical structures, but also critically in software, research and development. America is very strong in that. And then number three is tech dominance. American companies tend to be faster at adopting new technology, something that we're seeing now with artificial intelligence. So all of these things feed through together to make the U.S.

4:34a more productive economy. Okay, so productivity is one wind at the U.S. economy's back. The next one that you go into is energy as a key economic driver. Yeah. So, I mean, this one is fairly straightforward in that there was the Great Shale Revolution of the early 2000s. Obviously, environmentalists are not terribly happy with the outcomes of that. But economically, it's quite profound, its impact. It has made America the world's biggest producer of both oil and natural gas. First of all, it's good for the U.S. terms of trade. Energy is one of the few sectors in which the U.S. is actually a net exporter.

5:13But more crucially, it insulates America from global volatility, from global price spikes. U.S. consumers might complain a little bit about the price of gas at the pumps, but the fact is, compared to heating prices in Europe, in Asia, they're incredibly well-off, incredibly well-insulated. A third thing that you spotlight as driving U.S. outperformance is the stock market. So how is this playing a role? It's amazing when you look at the numbers. The U.S. economy is roughly 20 % of the global economy, but the U.S. stock market is about 60 % of the global stock market by capitalization. So there really is outsized power there.

5:54You have a lot of faith in U.S. markets because of the rule of law, which is something that attracts investors globally into America. If you're a tech startup anywhere in the world, you'll look to get listed in the U.S. you look to set up operations in America as well. It's one of these things that is really a virtuous cycle for the U.S. economy. If investment capital is sort of like radio waves washing over the planet, the U.S. stock market is like a giant satellite dish, which is very good at bringing these waves of capital in. That's a great analogy, Adrian. Yeah, I don't think I could do better than that.

6:29I suppose you might say that because the radio waves are coming here, there's then interest in building kind of yet more satellite dishes. So it's, you know, once again, strength begetting strength. Finally, in your report, you talk about the U.S. dollar as a source of strength. And we've talked before on this show about how the dollar is the world's reserve currency and it gives the U.S. all these sorts of advantages. How do you see it figuring into your picture? Because the U.S. dollar is the reserve currency, foreign investors, foreign central banks, they want to hold the dollar. They want to hold dollar-based assets.

7:06That means that if the U.S. government issues debt, it is always going to have customers for it, which then means that if there's a financial crisis in the U.S., like we saw with COVID, the U.S. government, more than almost any other government in the world, is able to rack up a very big deficit, finance that quite effectively, and then propel the economy back to growth. So it really is kind of a get-out-of-jail-free card for the U.S. government and the U.S. economy. Okay, so just a quick recap. Productivity, energy, the stock market, and the U.S. dollar are all driving the U.S. economy to, as you wrote, be the envy of the world right now.

7:49And this sort of paints a very rosy picture of our economy. At the same time, you also write there are potential downsides to this sort of American economic exceptionalism. Yeah, that's right. So I guess the first point is not so much necessarily a downside, but a caveat is that economic exceptionalism does not necessarily translate into sunshine and roses across the board. So I think the most concrete example there is longevity. Today, a newborn in the U.S. can expect to live to about 79. In Western Europe, it's closer to 82 years. So that's a pretty big gap. Another point to make is that the U.S.

8:30does have a lot higher inequality than most other economies. And you might argue that this is partly the result of an economic model that puts so much primacy on delivering profits, on driving growth. So, Simon, we're at an interesting pivot point, right, with the election just happening. Do you think that with all of the things that are going on that this sort of U.S. outperformance can continue? Well, so I think if you looked at it in a political vacuum, yeah, it will continue. The problem, as we're acutely aware today, is that we're not in a political vacuum. And there's really, really extreme risks that are emanating, in particular, from the Trumpist end of the spectrum.

9:19And, you know, whether he or somebody who subscribes to his agenda is able to put things into place such as cracking down on immigration, mass deportations, things that would really undermine the rule of law. They would also undermine faith in American markets, faith in the American dollar. And they would ultimately begin to pull apart the roots of America's long term economic outperformance. So I guess maybe there's a little asterisk that could go with the headline, America's economy, envy of the world, see fine print. Yeah, well, I mean, I suppose you might say it's not a little asterisk, but a big asterisk.

10:04This episode was produced by Cooper Katz McKim with engineering by Kweisi Lee. It was fact-checked by Sierra Juarez. Patty Hirsch edited this episode. Cake and Cannon is our editor and the indicators of production of NPR.

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