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OpEdNews Op Eds    H2'ed 4/7/21

The Bad Economy of the United States of America

The economy of the United States is a mixed economy (A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, free markets with state interventionism (socialism), or private enterprise with public enterprise.). It has the world's fifth-highest (not first) per capita GDP (nominal) and the seventh-highest (not first) per capita GDP (PPP) in 2020. The U.S. is the world's largest importer and the second-largest exporter (we consume more than we produce).

Income inequality is a hotly debated topic globally. According to the CIA World Factbook, U.S. income inequality ranked 41st highest among 156 countries in 2017 (i.e., 74% of countries have a more equal income distribution, there we are, not being #1, again"). A number of economists and others have expressed growing concern about income inequality, calling it a sign of national decline. Yale professor Robert Shiller has said, "The most important problem that we are facing now today, I think, is rising inequality in the United States and elsewhere in the world." Thomas Piketty of the Paris School of Economics argues that the post-1980 increase in inequality played a role in the 2008 crisis by contributing to the nation's financial instability. In 2016, the economists Peter H. Lindert and Jeffrey G. Williamson claimed that inequality is the highest it has been since the nation's founding. In 2018, inequality was at the highest level ever recorded by the Census Bureau, with a Gini index of 0.485.

Over the past decade, the nation's highest earners (the 95th percentile) saw their wages grow at four times the rate of those whose earnings put them in the middle of the pack (the 50th percentile). Even more remarkably, the top 1 percent now hold 31 percent of the nation's wealth, or $30 trillion, while the entire bottom half hold only about 1 percent, or $1 trillion. That comes to $23 million per household for the top 1 percent and $18,000 in net worth per household for the bottom. And the Trump tax cut exacerbated these divisions, with a recent analysis by the Institute on Taxation and Economic Policy showing that in 2020, more than half of the tax cut will go to the top 5 percent of households, with only 14 percent going to the bottom 60 percent.

As of 2018, the number of U.S. citizens residing in their vehicles because they can't find affordable housing has "exploded", particularly in cities with steep increases in the cost of housing. An August 2017 survey by CareerBuilder found that eight out of ten U.S. workers live paycheck to paycheck. CareerBuilder spokesman Mike Erwin blamed "stagnant wages and the rising cost of everything from education to many consumer goods". According to a survey by the federal Consumer Financial Protection Bureau on the financial well-being of U.S. citizens, roughly half have trouble paying bills, and more than one third have faced hardships not being able to afford housing, running out of food, or not having enough money to pay for medical care.

The United States has one of the least extensive social safety nets in the developed world, reducing both relative poverty and absolute poverty by considerably less than the mean for wealthy nations. Some experts posit that those in poverty live in conditions rivaling the developing world. A May 2018 report by the U.N. Special Rapporteur on extreme poverty and human rights found that over five million people in the United States live "in 'Third World' conditions". Over the last three decades the poor of America have been incarcerated at a higher rate than their counterparts in other developed nations, with penal confinement being "commonplace for poor men of working age".

According to a 2018 study of 2016 data by the Institute for Health Metrics and Evaluation, the U.S. was ranked 27th in the world for healthcare and education, down from 6th in 1990.

In 2019, the United States was ranked 23rd on the Transparency International Corruption Perceptions Index with a score of 69 out of 100. This is a decrease from its score in 2018 which was 71 out of 100.

Though the US trade deficit has been stubborn, and tends to be the largest by dollar volume of any nation, even the most extreme months as measured by percent of GDP there are nations that are far more noteworthy. Case in point, post 2015 Nepal earthquake, Nepal's trade gap (in goods & services) was a shocking 33.3% of GDP although heavy remittances considerably offset that number. According to the US Department of Commerce Bureau of Economic Analysis (BEA), January 27, 2017 report, the GDP "increased 4.0 percent, or $185.5 billion, in the fourth quarter of 2016 to a level of $18,860.8 billion." In 2018, the year that a trade war with China was launched by U.S. President Donald Trump, the U.S. trade deficit in goods reached $891 billion, the largest on record. A tariff is a tax (paid by the one importing) imposed by a government of a country or of a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and policy that taxes foreign products to encourage or safeguard domestic industry. Tariffs are among the most widely used instruments of protectionism, along with import and export quotas. Tariffs are meant to reduce pressure from foreign competition and reduce the trade deficit. However, when no infrastructure is put in place before hand, tariffs have the opposite effect. They will raise the cost of living, making it even harder to survive.

There is near unanimous consensus among economists that tariffs have a negative effect on economic growth and economic welfare, while free trade and the reduction of trade barriers has a positive effect on economic growth.

The U.S. economy is the largest in the world, and nearly 70% of it is driven by consumer spending (again, we consume more than we produce). Billionaires are a fraction of the top 1%, and they literally can't spend all their money (but spending it none the less would help). There is so much money in so few hands at the very top that they simply can't spend enough of it to make a difference to an economy as large as America's. The problem is that the poor and middle class don't have enough money.

If your economy depends on consumer spending, the consumer needs money to spend. If a consumer economy is to increase, the consumers need to have more money to spend. The government's approach has created a surge in asset prices that has made rich people richer but hasn't done anything for the average American family.

The poor and middle class are the crux of the American economic dilemma, and until we are able to sustainably increase their lot, our economy will continue to suffer.

80% of Americans now live paycheck to paycheck, meaning they have no savings, according to Peter C. Earle, an economic researcher at the independent think tank the American Institute for Economic Research. Add to that, a third of those people living paycheck-to-paycheck are categorized as in the middle class based on their income levels, and about 75% of them are in debt. That means the vast majority of Americans have no savings to speak of to guard against a rainy day.

"Americans were treated to a sort of controlled experiment in the implications of this when the government shutdown caught hundreds of thousands of government employees -- many of whom are among those who live paycheck to paycheck -- flatfooted," Earle told ABC News via email. Sudden policy changes or other unexpected economic changes "could land all the harder on households with no emergency [financial] cushion," he added.

A lack of savings and living paycheck-to-paycheck is also an issue as Americans are currently living longer than ever, and may face outliving their retirement funds or "face additional shortfalls if their investment returns fall short," Earle said.

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Franz has been studying political science for 27 years and is very passionate about his nation. He bends no knee to party or personality (which means he infuriates both sides of the aisle). He is blunt, to the point, and will call out anyone, (more...)
 

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