As 2022 unfolds, there’s much concern regarding the US economy and our geopolitical standing. According to the International Monetary Fund (IMF), the United States was once again the world’s largest economy in 2021, producing an estimated $22.94 trillion or 24.4 percent of global GDP. The number is especially impressive given the population of the US. at just over 333 million people, which is a per capita GDP of roughly $68,700, among the highest in the world.
However, we are concerned with the size, growth, and state of the US economy when comparing its transition from 1960 to date. In 1960, the US produced $543 billion in GDP, or just under 40 percent of the world’s $1.367 trillion global economy. When adding Canada and Mexico, North American GDP totaled $597.42 billion or 43.7 percent of the world’s GDP. In comparison, China in 1960 produced a GDP of $59.72 billion or 4.39 percent of global GDP.
Today, North America comprises only 27.9 percent of global GDP while China, now a country of 1.445 billion people, generates a GDP worth $16.86 trillion (17.8 percent). Including India, Japan, South Korea and all of Asia, total 2021 Asian GDP was 33.7 percent of the $94 trillion global economy. Clearly, North America has been outpaced by Asia since 1960.
While the reasons US competitiveness has declined since 1960 are many, we’ll focus on three of the issues that have been the most problematic, and if not remedied, will continue to be for decades to come.
1. Inflation Will Continue to be a Problem
The month of December saw US consumer price inflation at 7 percent on an annualized basis and the Producer Price Index up a record 9.7 percent on the year. As 2022 begins, many experts predict food inflation will increase 5 percent for the year. US holiday sales were partially fueled by stimulus checks and the child tax care credit that will no longer exist in 2022, thus presenting a potential major decline in retail sales in Q1 2022, but not necessarily accompanied by lower prices.
In addition to food inflation, we expect a high level of wage inflation across all labor markets in 2022. There is a clear shortage of labor in the United States, as evidenced by rising wages in 2021 for jobs from truck drivers to airline employees and $180,000 bonuses for many Apple employees. Perhaps the telltale sign of higher wages to come in 2022 is that the US unemployment rate has declined to 3.9 percent with 6.3 million Americans unemployed, according to the US Bureau of Labor Statistics, and roughly 11 million job openings available. We believe the US chip shortage will improve in 2022 but remain an economic factor through early 2023, continuing to put upward price pressure on automobiles and electronic devices.
Our preliminary estimate for inflation in 2022 is 8 percent as inflation indicators like the 10-year Treasury Bond Yield, gold and oil are up in January. We believe, as did Nobel laureate Milton Friedman, that inflation is caused by government monetary policy. The Federal Reserve, through its open-market operations, must eliminate its years of quantitative easing by tightening the US money supply to bring inflation under control before it becomes an even larger and more difficult problem.
2. Growing Antitrust Sentiment
The US federal government continues to threaten to break up America’s largest companies. Should it?
Simply stated, the top seven S&P 500 Stocks outperformed the remaining members of the S&P 500 by 33 percent in 2021 because American consumers and consumers around the world felt they had more to offer and purchased their goods, services, and stocks at record levels. Apple alone represented roughly 7 percent of the S&P 500 estimated market value of $42.5 trillion on Jan. 3, 2022. This market share was due to many factors, including the millions of devices, such as phones, watches, and iPads in use around the globe and the broad range of entertainment provided by Apple streaming services.
For the most part, we believe the “magnificent seven” are evidence of the best and brightest ideas and minds business has to offer. It would be counter to the short- and long-term best interest of the US to break these companies up. It is outdated for US antitrust laws to only regulate a company’s size, scope, and influence in the US rather than globally. As noted earlier, America no longer dominates the global economy as we once did.
Still, US companies should compete without government protections, favors or subsidies, to promote successful entrepreneurial activity, improve lives, and safeguard America’s position as an economic powerhouse.
3. Surging Debt Threatens Prosperity
As the US national debt has grown over the last 50 years, interest on the national debt is now among the top 10 items in the annual US federal budget.
The national debt recently eclipsed $30 trillion, which is almost $90,000 per US man, woman, and child, and roughly $239,000 per taxpayer.
Today, the US national debt is 127.55 percent of today’s roughly $23.4 trillion GDP, up from 53.33 percent in 1960 and even higher when compared to 34.5 percent in 1980. In addition, the current debt figures do not include the more than $3.25 trillion in state and local government debt.
Much of our current national debt is due to excessive government spending on unnecessary items. If the massive spending continues into 2022 and beyond, U.S. credit ratings will decline, while adding trillions of dollars to an already unsustainable budget deficit.
Conclusion
In 205 years, from 1776 to 1981, the total US national debt went from $0 to $998 billion. With an accumulated national debt of less than $1 trillion over the first 205 years of American history and a debilitating additional $29 trillion since 1982, perhaps there are lessons for Congress to learn related to a.) budgeting; b.) public policy; and c.) Consensus building in Congress prior to 1982 — lessons that will help restore the American competitive, free enterprise system and enhance opportunities for an ever wider range of Americans and investors from abroad.
Timothy G. Nash
Timothy G. Nash is the Director of the McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University.
This article was originally published on FEE.org. Read the original article.
The Foundation for Economic Education (FEE) is a 501(c)3 educational foundation and has been trusted by parents and teachers since 1946 to captivate and inspire tomorrow’s leaders with sound economic principles and the entrepreneurial spirit with free online courses, top-rated in-person seminars, free books for classrooms, as well as relevant and worldly daily online content.
