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Why pessimism about the U.S. economy might overshadow a longer-term success story

David Brancaccio, Jarrett Dang, and Alex Schroeder Apr 28, 2023
Heard on:
Zanny Minton Beddoes, editor of The Economist, said that the U.S. economy has outperformed other rich economies despite economic pessimism among Americans. Spencer Platt/Getty Images

Why pessimism about the U.S. economy might overshadow a longer-term success story

David Brancaccio, Jarrett Dang, and Alex Schroeder Apr 28, 2023
Heard on:
Zanny Minton Beddoes, editor of The Economist, said that the U.S. economy has outperformed other rich economies despite economic pessimism among Americans. Spencer Platt/Getty Images

It’s hard to get Americans to agree on much nowadays, but there’s one thing most people across political persuasions can unite on: they think the economy is lousy. An NPR/PBS NewsHour poll released in March found that just 38% of Americans approve of President Joe Biden’s handling of the economy.

However, what today’s negative sentiment may be hiding is a surprising level of strength. The Economist magazine’s recent “Riding High” cover story delves into America’s economy over the long term and finds that it is a “stunning success story — one of enduring but underappreciated outperformance” relative to other advanced nations.

“Poll after poll tells you that people are feeling unhappy,” Economist Editor-in-Chief Zanny Minton Beddoes said during an interview with Marketplace’s David Brancaccio. “But if you go back and look at how the U.S. economy has been performing … it’s actually a remarkable story. And it’s a remarkable story of outperformance relative to other rich economies.”

The following is an edited transcript of their conversation.

David Brancaccio: So help us be happier about our economy. America has some key strengths, right?

Zanny Minton Beddoes: It absolutely has some key strengths. And first, let me start by saying I completely agree with you that one of the few things that both Democrats and Republicans agree on is that the economy is in a mess. And poll after poll tells you that people are feeling unhappy. But if you go back and look at how the U.S. economy has been performing, which is what we did in this cover story, it’s actually a remarkable story. And it’s a remarkable story of outperformance relative to other rich economies.

If you look at GDP, which is still the best measure we have — output of the overall economy — the U.S. in 1990 was 25% of world GDP. It’s now about the same despite the rise of China. And it’s a much bigger share of the rich world than it used to be. It’s also much wealthier than west European economies or Japan, the other big industrialized economies. If you adjust for purchasing power parity — you know, that phrase that economist’s jargon, which is kind of how far your dollars go, really, what they buy — only petro states and financial hubs, places like Qatar and Luxembourg, are actually richer than the U.S. It’s grown faster. And on all of the ingredients of growth, whether it’s productivity, whether it’s the education of its workforce, it is actually pulling ahead faster relative to Western Europe and Japan. And we looked at this, and it’s really striking, these figures. And there’s a kind of dissonance, right? People are feeling miserable. And yet the economy is doing so well. And that’s what caused us to really look into what the ingredients were of this outperformance and then to try and explain how that squares with what you see in polls.

Faster relative growth, even for the poor

Brancaccio: Yeah, I mean, some of it is that we have an inherent asset: we’re big. The consumer market is big, the capital markets are deep. And we’re pretty good at research and development, right?

Minton Beddoes: All of those things are right. But let me just start by kind of really focusing on the degree to which the U.S. has been outperforming and the wealth that is here. So average incomes in Mississippi, which is the poorest state in the United States, are higher than in France. A trucker in Oklahoma makes more than a doctor in Portugal. It is remarkable how wealthy this country is. Now, the country is also, of course, very unequal. And one of the things that has happened is that this wealth that has been created over the last few decades has been divided unequally. As we all know, the uber-wealthy have been doing uber well.

Actually, people at the very bottom — the very poorest Americans — have also seen their incomes rise. And they’ve seen them rise much more rapidly than the poorest people in Western Europe. The people in the middle have seen their incomes rise least fast. And I think that’s one of the reasons that the polls are telling you what they’re telling, because the middle class has been squeezed relative to the top and the bottom. But actually, in absolute terms, middle-class Americans are much wealthier than their peers in Western Europe or in Japan.

Brancaccio: Well, I get that, with the comparison to other countries. But I just saw the statistic: the median typical household income in America went up only 7% this century, so far. We’re 23 years into the century. I mean, if you’re in that middle class, it may not seem like much progress.

Minton Beddoes: That’s true. That’s a heck of a lot better than the typical middle-class person in Britain, let me tell you. But yes, and that’s the reason why I think people are not feeling as good as the economy is actually doing. So then the question is, what do you do to ensure that middle-class incomes rise faster? But in order for that to happen, you have to have the economy do well, first. And I think that’s the one element that tends to be forgotten in the U.S. debate, that actually growth itself — what is causing this great wealth to be created — and that, as you say, the U.S. economy is a huge market, but it also has a very highly-educated workforce. That was a real surprise to me, because we hear a lot about how poor the U.S. education system is. In fact, just over a third of America’s working-age population has a tertiary education, a college degree. That’s much, much higher than in other rich economies. So the U.S. is kind of relatively educated, people work hard here — we know that — they’re also very productive, and their productivity has been increasing. And that’s because it’s a country where businesses are dynamic, where there’s high levels of research and development, there’s high levels of investment. These are all things that drive the economy and create the wealth. And the question then is, “How do you divide that wealth?”

A steadily growing safety net

Brancaccio: Another piece, I think, that is connected to that though, is insecurity. I mean, right now we’re talking about very low unemployment, Black unemployment is the lowest on record in America right now. But if you’re not persuaded that this is going to stay with you — that if you lose your job, there’s not the social safety net that say Europe has — that makes you anxious.

Minton Beddoes: Absolutely. And now let’s think about if we agree that the U.S. has had an extraordinarily outperforming economy, but that it makes a set of decisions about how to structure its economy and structure its society which means that people have greater insecurity — which means that people have much more precarious access to health care relative to Europe. There’s a question there of tradeoffs. And I think it’s certainly true that America spends much less on its social safety net than Europe does. But actually, America spends much more than it did.

So, in fact, you know, EITC, the earned income tax credit, has been expanded. Health care access for the poor has been expanded. So I don’t disagree with you, there could be more done to broaden the safety net. But part of the challenge that I think the U.S. has right now is that both parties are reacting to what they see as an economy that’s not working, and the conclusions that are being drawn, I think, risk undermining the actual sort of wealth creation that is this economy. And if you look at what is being proposed now, it’s a greater sense of we need to protect American workers against unfair competition from abroad, we need more industrial policy, we need to worry about national security, we need to worry about the hollowed-out American workforce. And these are, I think, turning to policies that are more skeptical of immigration, they’re more inclined to have subsidies and money being pushed, whether it’s in the Inflation Reduction Act to particular industries. And the risk is that that kind of statist, interventionist policy actually undermines the engine of growth that we’ve been talking about. I know I sound like a kind of rabid free marketeer here. I agree with you that the U.S. could make different choices about how big its social safety net is. But the risk that I see right now is that the way the debate about the economy is framed here is that, actually, the kinds of policies that are being pursued will, in fact, weaken that prosperity engine that has been the U.S. economy.

Brancaccio: Right. And right now, there are some people listening to us sputtering, saying, “OK, Zanny mentioned gross domestic product. And she mentioned a lot of measures of prosperity, but she didn’t mention life expectancy in America,” which The Economist article acknowledges is going the wrong way.

Minton Beddoes: Absolutely. And the U.S. has a terrible opioid crisis, you know, awful. But I don’t think industrial policy is the way to address the opioid crisis. The U.S. has serious social challenges. Don’t misunderstand me, I lived here for most of my adult life. What we were doing in this article was not to be kind of Panglossian about it. We were saying that just it’s worth looking at how well this economy has performed. And it’s worth understanding why it’s performed so well. And then I think it’s worth concluding from that, “What are the kinds of policies that perhaps shape the social safety net, but which don’t kill the goose that lays the golden egg, which don’t undermine the strengths that are this economy?” And what worries me is that the more right now Americans think their economy is a problem, the more politicians are being pushed to the kinds of policies that over the next 20 to 30 years may actually mess it up.

The politics of bad economic vibes

Brancaccio: Yeah. And, if economists could help us, maybe we’d stand a chance, but it’s politicians who have to do that. And we have, I think many would agree, a broken system for politics in this country now.

Minton Beddoes: You could say that — that is true, or at least it looks like it. But the narrower conclusion I drew was that the debate, political debate, around how to fix the U.S. economy is to some degree based on a faulty premise. And that, for me, is a real problem.

Brancaccio: And you see that among conservatives and liberals on things like trade policy.

Minton Beddoes: Absolutely. And if it had no consequences, then it wouldn’t matter so much. But the kinds of policies that both sides are talking about like tariffs, like more protectionism, that really risks undercutting the engine that has been the U.S. economy.

Brancaccio: And how are people going to be feeling if our central bankers tip us, with their policies to fight inflation, into a recession? Some of the perceptions that we’re talking about will be magnified.

Minton Beddoes: Absolutely. And that’s certainly possible. And our prism was the last 30 years, not the next nine months. But what was quite funny when we put this on the cover, and we had on the cover a picture of a very, very tall horse with a cowboy on it, and the title of the cover story was called “Riding High.” There’s a whole kind of mini-industry about the contrarian indicator that is The Economist cover. So I noticed on social media a lot of people saying, “The recession must be around the corner the minute The Economist puts ‘Riding High’ on the cover.”

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