There’s a non-stop drumbeat of negative news in the media and that’s especially true during an election cycle where every politician says if you don’t vote for me the world’s gonna just be destroyed and no one’s gonna have a job and we’re all gonna be in misery.
So I think it’s important to have an idea of what’s really going on with the American economy which is really doing quite well. There is an economic magazine based in London called The Economist that just published a special report talking about how America’s economy is the envy of the world and I’m gonna do a little series of videos here going through what I think are the key charts and talk to you about why I think the American economy is doing great and it won’t really matter who gets elected. We’re all gonna be in a good position because of the great momentum we’ve all got right now.
The opinion polls show there’s a lot of negative sentiment in America right now, which is a normal consequence of going through an election cycle, because every politician says, if you don’t vote for me, the world’s going to come to an end and the economy is going to crash. And that’s really just not true in America. So a magazine called The Economist, which is based in the United Kingdom, recently published a whole series of articles titled, The American Economy, The Envy of the World and How America Has Left Behind All the Other Rich Countries.
So I want to take a couple of the highlights from this set of articles and share them with you so you can share my optimism about why it’s great to be in America and how well that we are doing. The U.S. share of the G7, so that’s the largest seven advanced economies, so that’s Canada, France, Germany, Italy, Japan, the U.K. and the U.S. If you take a look at this chart on the left, take a look at the pink line and you can see back in 1980 that the United States was just over 40% of the world GDP, gross domestic product, and now we’re about 60%. So overall, the American economy since 1980 has increased by about 50%.
So we’ve taken market share away from those other six countries. If you look on the lower right, you’ll see the real GDP growth. So that’s after inflation from just before COVID to current, the U.S. economy has grown by a little bit more than 10%, more than double the next closest economy, which is Canada.
It’s not even close. Why is America doing so well at growing its economy? Well, one of the biggest factors is productivity or the amount that any given worker can produce per hour is growing faster than the other industrialized economies. So we started from a pretty good base.
Back in 1990, Europe was a little bit ahead of us, but we’ve completely overtaken them. And now we’re quite a bit ahead of Europe and Japan is just sort of left behind in the dust. So that’s the big thing that’s powering our overall economic growth.
Another great advantage of being in America versus other countries is that we are primarily energy independent. The reality is we do export some energy products and we do import some products just to get a better blend of what we need to have. But the fact that we’re able to produce as many hydrocarbons in the form of natural gas and crude oil as we consume gives us a lot of robustness in the economy.
For those of you who are a little older like me, you may have recollections from the 70s when there was an Arab embargo on oil products and the economy in America really kind of ground to a halt. There was gigantic lines to get what little bit of gasoline was available and it’s very unlikely that’s going to happen again while we’re in a strong position like this. Another metric showing why the U.S. is so dominant relative to other countries is the value of all of our stock markets.
And if you take a look at the market cap of all those, you can see currently the U.S. represents about 60% of the market capitalization on the stock market of the largest economies combined. There’s all this talk about how China’s going to overtake us and how we’re going to be left behind, especially during this election cycle. If you take a look at what the market valuation is of China’s markets, you can see this on the right-hand side.
China is like 5% and we’re 60%. So the value of our companies is 12x the size of China’s despite the fact that they’ve got 4x the population that we’ve got. I think it’s also really noticeable to take a look at Europe, Britain, and Japan combined are less than half of the value of the U.S. firms.
Why are American companies so valuable? And I think the biggest answer is that they invest more in research and development for new products and new breakthroughs than all the rest of the world. So I want to just show you this absolutely amazing statistic from The Economist magazine. The annual research and development budget just for Amazon is 86 billion dollars a year.
And if you take every single company in the entire United Kingdom added up, the research and development spend is 65 billion. One company in America outspends all of the UK on research and development. And that money is really plowed into three things.
The human capital, the people who work here to make our workers more productive, which we talked about on a different slide. In great new factories, so you know that Amazon’s got an array, a constellation of warehouses that are extremely automated so we can get things delivered to our house in one or two days. And lastly into the software, both that we use as consumers plus internally at the companies themselves.
That’s driving more of our progress and why our companies are more valuable than pretty much anything else. Something that was not apparent from this election cycle is the fact that inflation has not been as big a factor for a lot of Americans as the politicians would tell you that it is. So if you take a look at just before COVID, February of 2020, through current information, wages are up just about 24 percent.
Inflation is up 21 percent. So despite all the things you hear in the media, most workers have had wage inflation that’s outpaced inflation and they’re better off today than they were pre-COVID. U.S. wealth has skyrocketed and that’s really really important.
So I want to take a look at this from the fourth quarter of 2019, so just before COVID, to current. Every single income cohort in America has had a wealth increase in this last four and a half, five years. But the recipients who did the best were the bottom 50 percent.
They even outperformed the guys at the very tippy top of the pyramid. If you take a look at the lower right, you can see the poverty rate in America is just about at the lowest that it’s been in the last 30 years, 40 years actually. Another way to examine how well America is doing is to take a look at the median income.
So for the overall U.S., it’s about $81,000. Some states like Colorado and Massachusetts do really well. Some states like Mississippi do not nearly as well.
Mississippi is our poorest state at $53,000 a year. What’s amazing to me is if you take a look at Germany, one of the most affluent countries in Europe, their median income is $54,000. Our poorest state is almost on par with almost the wealthiest country in Europe.
Did you know that? That’s some really good news the media will never tell you. Another great thing to examine about our economy is the amount of debt that we’ve got relative to disposable income. So if you’ve got a lot of income relative to your debt, you’ve got lots of ability to make your mortgage payment, your student loan payment, your car payment, or whatever other loan balance you’ve got.
So the bottom line on this chart is the United States, and you can see that currently about 90%. So if you have a household net worth of $100,000, let’s say that’s all in the value of the equity of your house. You don’t have any other debt.
You’ve got $90,000 of debt, or 90%. So you’d have that in a mortgage. So maybe the value of your house is $190,000, your equity is $100,000, and your debt is $90,000 on the mortgage.
That would be a typical person on that green line right now. Please compare and contrast that to the two lines on the top, Canada and Australia, where they carry just about twice as much debt relative to income as we do. Where would you rather live? I think one of the most useful ways to look at how the standard of living has improved in America is to take a look at what is the typical income for someone in a middle-income family, what is a typical basket of groceries cost for a family for an entire week, and how many hours did someone have to work to pay for a week’s worth of food to put on the table.
And you can see back in the 1980s and 90s, it took about four and a half hours of work to earn the money for that food, and currently we’re just about at three and a half hours. So just before COVID, it was ever so slightly better, but just by a hair. Overall though, if you take a look over the last 45 years, it’s easier for people to afford their groceries now than it has been.
Something that you’re not seeing in the news, it’s a really important story.
