What We Can Learn From the Economy During the COVID-19 Crisis
The economy, both at the scale of the United States and the world, is a complex thing. It’s shifting rapidly by the day — especially in the face of restrictions and shutdowns in response to the COVID-19 crisis. And while many individuals profit massively from the economy, others do not. Understanding what’s going on with the economy — including the basics — can help you better understand why our world is the way it is and what it may look like in the future.
Spending Never Ends
If you haven't looked lately, the national debt of the United States economy currently sits at...well, it actually doesn't sit anywhere. As of mid-2020, the American national debt is $23 trillion, but it is literally growing higher and higher with each second.
Government spending is largely to blame, and both sides of the aisle are guilty of supporting an ever-expanding national budget. As rich as you might think America is, lots of that spending is done with borrowed money. Thus, neverending spending leads to perpetually rising national debt.
$23 Trillion Is Hard to Visualize
When you start trying to conceive just how much national debt America has built up, you have to put things into perspective. Twenty-three trillion dollars is quite a bit of money, after all. It’s $68,400 owed for each citizen of the country. It's $183,000 per taxpayer living in the United States.
Here are some more figures putting the $23 trillion debt into perspective: It’s more than the combined gross domestic product (GDP) of Japan, China and India. And if you think that sounds a bit negative, that's because it’s really not a good thing. Only 10 nations have worse debt-to-GDP ratios than the U.S.
One President Added Lots of Spending
Some presidents spend more than others. The Trump administration is spending at massive rates, and that falls right in line with the previous administration. According to one metric, spending during the Obama administration totaled more than the previous 42 administrations combined.
That may seem difficult to fathom, but it speaks to how quickly debt can accumulate when you start throwing the T-word — trillion — around. The debt that accumulated resulted from money that was diverted to all sorts of different causes, from the military to social programs. It seems likely that the level of federal spending during the Obama years could become the new normal.
Total Debt Has Skyrocketed Since 1970
There’s federal spending debt, and then there’s the total debt held in America by both American citizens and the federal government. In 1970, the total combined debt was less than $2 trillion. That may seem like a lot, and it is even without accounting for inflation, but compared to today's outstanding debts it seems quaint.
Today, the total combined debt between Americans and the federal government is greater than $56 trillion. That might make your college loans and outstanding credit card balance look a little bit more manageable, right? Just searching for the silver lining here.
The American Economy Is Growing and Growing and Growing...
Despite all the debt, the U.S. economy is in the midst of the greatest expansion on record. This is why some believe that an inevitable burst is on the horizon, and that the bubble could pop in a major way when the time comes.
For now, the good times are a-rolling. The stock market often breaks records, and over the 10-plus years that the economy has been expanding, more than 20 million jobs have been created. Of course, the good times aren't going to last forever, and the recent stock market downturns that have occurred in the face of the spread of COVID-19 speak to how volatile economics can be.
The New Deal Is the Source of Most Spending
Of course, the military has become an increasingly large recipient of our national spending. And several other unavoidable costs come with building and maintaining any nation, such as building infrastructure and ensuring that it doesn’t start to crumble.
But when analyzing the catalyst for the massive spending that defines the American economy today, we can trace it back to FDR and the New Deal. At the time, the New Deal cost about $50 billion, which was spent between 1933 and 1940, to help alleviate the effects of the Great Depression. The future cost of the New Deal: more than $50 trillion.
Manufacturing Is Going Away Quickly
There’s been a lot of talk about bringing back manufacturing to the U.S. from overseas, but the numbers aren’t exactly promising. Cities such as Detroit serve as tangible, observable reminders of manufacturing's steady decline in the country, and the hard statistics only back up the image of outsourced manufacturing.
As a share of total employment in the country, manufacturing accounted for approximately 28% of jobs in 1960. By 2017, that figure had declined all the way to a little more than 8%. You simply cannot make up that kind of discrepancy through a renewed focus on manufacturing jobs.
California Has a Massive Economy
California is such a large, populous state that it has a GDP that rivals entire nations. Not developing nations, either, but prominent, world-power-level nations. Like, United Kingdom-type nations. Well actually, the United Kingdom is one group of countries that California has a larger GDP than.
In 2017, California produced approximately $2.75 trillion in economic output. The United Kingdom, which encompasses the nations of Scotland, Northern Ireland, Wales and England, produced an economic output of $2.62 trillion. In terms of economic activity, California is virtually a nation unto itself.
China Is Driving the World Economy
All countries have their own economies, and while the U.S. is an economic superpower, it has a worthy competitor in China. The economy in 2020 is thoroughly global, and while the United States is likely still the most important piece of the global economic balancing act, China is playing an increasingly prominent role in the equation.
Since the 2008 financial crisis, no nation's economy has grown as rapidly as China's. Some of that is due to inflated real estate figures, but the economy has grown nonetheless. With 6.4% growth over the previous year to round out 2018, China seems to be on economic steroids.
The United States Is Not the Freest Economy in the World
Although it prides itself on its wholeheartedly capitalist values, the United States is not quite as free economically as you might suspect. For a nation that asserts itself as being "land of the free" in its national anthem, you may be surprised to find that the United States does not have the freest economy.
In fact, it doesn't have the second. Or third. Or the fourth freest economy. According to the Heritage Foundation's 2020 Index of Economic Freedom, the United States has the 17th freest economy in the world.
We Could Be in for More Spending, Depending on the 2020 Election
Some people believe that a high amount of spending is the only way to fundamentally improve some of the downsides of our society. That’s the mentality that spurred the New Deal, and it’s a line of thinking among some of the more left-leaning candidates in the 2020 election.
Bernie Sanders' plan for a democratic socialist-style economy could significantly increase spending. According to an older article from NPR, the taxation and spending plans put forth by the senator from Vermont could add $18 trillion to America's national debt over 10 years.
You Think Military Spending Is High? Well...
Discussions regarding America's national debt and related budgetary decisions almost always involve military spending. The military allotment for 2019 was roughly $617 billion, and that seems like quite a lot of money. Americans justify this spending by weighing the potential cost of going cheap on defense spending, which could have potentially dire consequences.
In the grand scheme of America's debt, $617 billion isn't a make-or-break number, but it's a lot. But consider that, in the not-so-distant future (2025), America will be spending more just servicing its national debt — paying interest, essentially — than it does on the military.
A Dollar a Second Wouldn’t Be Enough
Here's another way of imagining our national debt, or more specifically, how we’re constantly running behind a national debt that continues to spiral further out of control. If America paid a dollar towards the national debt every second, then it would take 713,470 years to pay down the debt.
In other words, the debt is not going to get paid. Not only because no nation will ever exist for 713,000 years (barring some intergalactic superspecies taking over), but because America isn't paying that dollar a second (it's spending it).
Hong Kong Is the Freest Economy in the World
Hong Kong has stood as a bastion of commerce in the South Pacific for decades, as it adopted Western views towards the economy and took them a step further. Though Hong Kong is arguably under fire from the more restrictive, still semi-communist system embraced by China, Hong Kong remains the freest economy on the planet.
This is according to The Heritage Foundation, which points to efficient and unrestrictive regulations, high trade freedom, a ripe environment for businesses to incorporate and a low tax burden as reasons why it’s easy to do business in Hong Kong.
India Shows the Real Cost of Corruption and Violence
India is one of the fastest-growing economies in the world, and at last count ranked around seventh in the world in terms of total GDP. The nation has nearly 1.4 billion people. With that many people and their increasing access to modern technology and the global market, India is bustling with economic activity.
However, India also has deep-seated problems that directly plague the economy — namely corruption and inter-populational violence. These two issues cost India big-time, as it has been estimated that they take away as much as $1 trillion from the Indian economy each year.
The Modern Presidents Are Big Spenders
It’s not just Obama or Trump who have spent big while in the White House. Doubling the national debt has become something of a trend, if not a prerequisite, for modern presidents. This isn’t how it always was.
The first presidents in American history took the national debt seriously, taking care to balance the budget to whatever extent possible (shoutout to George Washington, James Madison and their contemporaries). Since roughly John F. Kennedy’s era, modern presidents have done nothing but spend, spend, spend — to the extent that not doubling the debt would be an outlier.
Bill Gates Is One Rich, Rich Guy
It's no secret that certain people have figured out how to make the best of economic freedom. The number of wildly successful entrepreneurs in America, and the world for that matter, is not small, and Bill Gates is one of the richest men walking the earth.
Bill Gates' net worth is reportedly over $100 billion. He creates a massive amount of economic activity and jobs for the economies that he impacts, and his philanthropy is prolific. Gates has made more than $100,000 for each hour that he's been alive.
You Shouldn’t Expect to Have Much When You Die
Want to hear a depressing stat about the American economy? Well, fair warning, here goes: According to Harvard’s David Wise and Dartmouth’s Steven Venti, about 46% of Americans die with less than $10,000 in assets. Now, there’s a number of ways that you can take this stat.
You could use it as motivation to work your tail off so that you end up in the percentile of Americans with more than $10,000 in assets at the time of their passing. Or, you could use it as motivation to stop stressing over dough.
The Stock Market Is Steady
While the stock market is defined in most peoples' minds by its seemingly massive crashes and gains, the reality is that, over time, stock prices and the overall market remain pretty steady. Since 1928 (the year before the Great Depression), the Dow Jones Industrial Average has only leaped massively upward or downward a handful of times.
The market has increased more than 10% in a single day only eight times, has declined more than 10% in a single day only four times, and has done either by 5% in a single day only 136 times. Even in the face of the COVID-19 pandemic, the stock market has shown signs of rallying.
Oil Isn’t Quite a Fossil
Oil takes a beating each year, as environmentalists aim to end the era of fossil fuels in favor of renewable energy sources. It's a noble goal, but oil is still as popular as ever. And, despite the increasing prevalence of electric vehicles, we still need oil.
Energy is a massive part of the global economy, and oil hit its century growth peak only a few years ago. In 2012, oil production grew more than it had since 1859, the year that domestic oil production began.
Education Is a Shrinking Part of the American Economy
Though the number of young people continues to rise, the number of educators is heading in the opposite direction. There were more local education jobs in 2005 than there were in 2012. It doesn't quite stand up to logic, however, that there was an approximate increase of 600,000 school-age kids during that period.
Now, there’s no indication of whether the education sector is growing as a whole, but local education is typically where young minds are first cultivated. It seems as if tax dollars that make up the public economy are going less and less towards education.
The Buff-Man Is a Rich Man
Speaking of people who have made the most out of America's economic climate, Warren Buffett certainly earned his nickname, The Oracle Of Omaha. His stock-picking ability is legendary, and shares of his Berkshire Hathaway stock-holding company are worth hundreds of thousands of dollars each.
Buffett did not follow the traditional path to wealth, either. He did not struggle in his 20s, ascend in his 30s and 40s and then finally strike it rich in his later years. Instead, when accounting for inflation, Buffett was a millionaire by the time he was 25. That's stock-market rich.
Over Time, Economies Could Shrink With Populations
As much as you may hear about the explosion of the population, a closer examination reveals that, over time, the world population is heading towards shrinking. Birth rates in most modern countries are declining, and, given enough time, those declining birth rates will equate to shrinking populations in most developed nations.
According to author Jonathan Last, 97% of the world's population lives in nations where the fertility rate is declining. Lower fertility presumably means a lower rate of childbirth, and eventually fewer people to power economies. As birth rates decline and populations shrink, so do the sizes of economies.
The U.S. Economy Could Be in for a Shrink
If immigration doesn’t pick up substantially and birth rates continue their current trend, the United States population could shrink significantly and the economy could downsize right along with it. If you think that birth rates are remaining the same or are not declining in any significant way, think again.
More babies were born in the United States in 1956 than in 2018. The trend in declining birth rates in America has only continued, even if this doesn't fit with what you've heard about the overall growth of the population.
Philanthropy Is Alive and Well in the U.S.
The United States is, for most people, the face of unabashed capitalism. The narrative goes that if you have a good idea that brings value to lots of people — and you can deliver on that idea — then you have a very real chance of striking it rich.
Nowadays wealth isn’t always looked upon as a positive, but closer examination shows that Americans are actually pretty darn generous. In 2016, Americans gave $390 billion to charity. That's not just a lot of money; it’s more than the GDPs of many countries.
Photography Is a Diluted Field
Those who want to be professional photographers are finding it increasingly difficult to break into the industry, and it's no secret as to why. Cameras were once rare, expensive commodities, and portraits were, by extension, rare. Nowadays, it seems that anyone can take a gorgeous photograph. Because of the ubiquity of high-quality cameras, an entire professional field is becoming outdated.
To put things in perspective, as much as 10% of the entire number of photographs ever taken were taken in a single year around 2010. Each year, more and more photographs are taken, and fewer photographers are able to stand out.
Americans Are Trying to Pay Down the Debt
There’s plenty of information detailing how insurmountable the United States' national debt is. Even if there was an earnest effort by the real decisionmakers in the United States to pay back the debt, the momentum towards spending and borrowing would be nearly impossible to turn around.
But some people are trying. Between 2008 and approximately 2013, private citizens donated roughly $19.1 million to pay down the national debt. It's a very principled thing to do, and it says a lot about those who donated. It's also like throwing money down a well.
Student Loans Are an Economy Unto Themselves
Student loan debt may be one of the most prominent issues of the 2020 election season, and it's no wonder why. Student loan debt is at almost $1.6 trillion spread across about 45 million borrowers.
College is only getting more expensive, and there’s no indication that the value of a degree is keeping up with that expense. In fact, it’s increasingly difficult for college graduates to pay down the cost of their degrees. And who issues a majority of those loans? You guessed it: the U.S. government!
Bad News Is No News
If you didn't already know (you probably already knew), humans are more likely to engage with positive news than negative news. When we've spent the weekend spending money in a drunken stupor, checking our bank accounts is far less appealing than it is when we know that fresh, unspent paychecks are awaiting us.
The same goes for economic activity. Investors are less likely to check on their accounts after a market decline rather than a market upsurge. Hey, it's only human, right?
Is There Really a Wealth Gap?
Let's get one thing clear: the wealth gap is real. It’s true that the rich do, in fact, get richer while the poor do, in fact, get poorer. Statistics prove this year after year, and it’s important that we make the choice to look at things honestly.
Another thing proves the reality of the wealth gap. It's not the word of politicians or statistics about median income. It’s a pair of headlines published not too long ago: "U.S. Median Income Lowest Since 1995" and "Ferrari sales surge to record highs." The tale of two economies continues, even though we don’t know what the future holds.