The biggest issue in this year’s election is the economy.So the question members of both political teams keep asking Americans is, “Are you better off than you were four years ago?”
Many Americans certainly aren’t better off than they were four years ago, because they don’t have jobs.
But are average Americans better off than they were four years ago?
And are things getting better or worse?
Let’s leave politics aside for a moment, and…
Let's start with GDP, the country's total economic output. Four years ago, GDP was in freefall. For the past three years, it has been growing steadily. It's now considerably higher than it was four years ago.
Of course, GDP growth has also been frustratingly slow. This is better than four years ago, though, when GDP was tanking. The real GDP growth rate for the past three years, moreover, is similar to the most of the growth years of the Bush administration.
And how about GDP per capita? (After all, the country's population is growing, so, it's no surprise that GDP is growing.). This, too, is heading in the right direction, though it has not yet completely recovered to the pre-recession highs.
And now to the jobs situation, which is frustrating no matter how you look at it. The chart below shows the unemployment rate. Four years ago, it was skyrocketing as the economy collapsed. Now it's coming down. But it's still higher than it was four years ago, and it's higher than the Obama administration thought it would be.
Viewed as a percentage of the population, the jobs situation looks even worse. Fewer Americans (as a per cent of the population) are working than at any time since the early 1980s. And the ratio is considerably worse than four years ago.
But, on the bright side, the number of jobs in the country is growing again. We're still a long way from the peak employment of 2007, but we're almost back to the level of four years ago.
Private sector jobs are also growing. They, too, are below the peak, but they're almost back to where they were four years ago.
And how about government jobs? Everyone seems to hate the government and think it should shrink. So it might be viewed as good news that the government employs far fewer people than four years ago. (From the overall jobs perspective, of course, it's bad news).
Manufacturing jobs have also dropped sharply, thanks to the economic freefall of four years ago. And they're only now beginning to recover.
But... the job creation rate is VASTLY better than it was four years ago. Four years ago, we were losing nearly 800,000 jobs a month. Now, we're gaining about 100,000. Our current rate of gain, moreover, is similar to the average of the growth years in the Bush administration.
In the private sector, the situation is similar. We've gone from losing hundreds of thousands of jobs each month, to steadily gaining them. And the growth rate isn't much different from the growth years of the Bush boom.
But what about government spending? Hasn't all this improvement come at the expense of massive increases in government spending and debt? Yes, government spending has increased (below). But it has actually not increased as fast as it did in the Bush administration. It has also recently flattened.
Government deficits have certainly increased a lot from four years ago. And, if left unaddressed, this will ultimately become a major problem.
Thanks to the deficits, debt is ballooning as a percentage of GDP. It's much higher than it was four years ago.
Importantly, however, this debt growth has not triggered the hyper-inflation that debt hawks thought that it would. On the contrary, inflation is tame. And it's lower than it was four years ago.
Gas prices are up a bit from four years ago (before adjusting for inflation). But they're actually not as high as they were in mid-2008.
Importantly, the deficit has ballooned in part because of a decline in tax revenue, not just an increase in spending. Tax revenue as a per cent of GDP is about where it was four years ago--and far lower than in the 1990s.
And how about households and assets? Stock prices, for example. Stocks were also in freefall four years ago. They've since recovered all of their losses and are crawling toward a new high.
House prices are down modestly from four years ago, but, as this chart from Calculated Risk shows, they've begun to stabilise. They're also now, finally, back to their long-term trend-line.
Very importantly, household debt has decreased significantly from the peak. We're working off the massive debts that led to the economic crisis.
The household savings rate has declined from where it was four years ago, but it's significantly above the levels of the past decade. This is good news. Consumers need to save more.
And disposable income per capita is gradually trending higher, even after adjusting for inflation. So, overall, households are getting stronger, even though there's obviously still a long way to go.
One trend that has not improved is the growing number of Americans who are poor or near-poor. Despite the recovery, the number of Americans using food stamps just hit a record high (47 million). The inequality that has developed over the past 30 years is a huge problem for the country.
So, what's the bottom line? Four years ago, the economy was in freefall. Now, it is steadily recovering. The unemployment rate is still way too high, but it's declining. Households have begun to reduce their debts and save more--with the exception of the poor and lower-middle class, who are suffering. The federal deficit is huge, but so far, it has not caused an increase in inflation. In other words, things are getting better, albeit not as fast as everyone would like.
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