Straightforward Facts About the American Economy

By Donald J. Boudreaux

The multitude of today’s means of instant communication and online interaction is routinely blamed for making us more polarized as a nation and even as a species. The allegation is that the ease of finding and never leaving a comfortable echo chamber makes each of us worse off than was even the boxer of Paul Simon’s “The Boxer.” Each man and woman today does hear what he or she wants to hear, but, unlike Simon’s disillusioned boxer, he or she doesn’t need to disregard the rest, because he or she never even encounters the rest.

I’m agnostic about this now-familiar narrative. Perhaps it conveys an accurate diagnosis of a serious 21st-century social disease, although perhaps it doesn’t. After all, many of the people who offer this diagnosis imprison themselves in their own favorite echo chambers. But whether or not this diagnosis is accurate, at least one feature of modern communications is indisputable: it puts at our fingertips, 24/7/365, an amount of information that was available to no one even just a few years ago.

Yes, some of this information is faulty or fraudulent. And yes, all of this information, including the most incontrovertible, only begins to make sense to us by our interpreting it according to some theory — some formal or informal interpretive framework. If the theories that we use to interpret information are defective, so too will the conclusions that we draw be defective.

Yet surely today’s wide, ready, and still-expanding access to information is at least a potential boon. It’s up to us to make this potential a reality.

FRED

One of my favorite sources of information today is the St. Louis Fed’s FRED database. A brief visit there can go a long way toward exposing as dubious — and in many cases as flat-out wrong — many commonplace assertions about the modern economy.

Take, for example, the frequent assertion that globalization or other economic changes in recent decades have caused the United States to deindustrialize. Not so.

Industrial capacity in the U.S. is today at an all-time high. Today it’s 15 percent higher than it was when China joined the World Trade Organization (WTO) in 2001, and 66 percent higher than when NAFTA was launched in 1994. Unsurprisingly, therefore, real U.S. manufacturing output is today near the all-time high that it hit in 2007, just before the Great Recession, and it continues to rise. Despite the fact that America continues to more and more become a service economy, manufacturers in America today produce 11 percent more output than they produced when China joined the WTO 18 years ago and 45 percent more than when NAFTA took effect.

A somewhat broader measure of non-service-sector output is the Industrial Production Index, which tracks the output not only of the manufacturing sector, but also of mining and of electric and gas utilities. Today this output is higher than it has ever been. (Just FYI: the U.S. is the world’s 4thlargest exporter of coal, the 6thlargest exporter of natural gas, and the 16thlargest exporter of electricity.)

While there would be nothing at all wrong with U.S. output of goods and energy falling — service-sector output is no less economically meaningful, real, or valuable than is non-service-sector output — the plain fact is that U.S. production of goods and energy today is, contrary to popular myth, high and rising.

Also high and rising is the real net worth of nonfinancial incorporated businesses in the U.S. Adjusted for inflation using the Consumer Price Index (which likely overstates inflation), these corporations are today worth on net 62 percent more than they were worth in 2001, and 200 percent more than when America, in 1975, last ran an annual trade surplus.

Here’s something else that’s high and rising: U.S. exports. Today these are 85 percent higher than when China joined the WTO, 200 percent higher than when NAFTA commenced, and nearly 800 percent higher than in 1975.

Jobs and Pay

The facts are similar for employment, despite protectionists’ incessant bellowing about how larger amounts of imports or high U.S. trade deficits shrink Americans’ employment opportunities. Compared to when China joined the WTO, there are today in the U.S. 16 percent more jobs. And over the 40-plus years that America has run an unending string of annual trade deficits, the net number of new jobs created is 70 million. The result is that nonfarm employment in the U.S. today is 87 percent higher than it was in 1975. Oh, and the unemployment rate of each of the past few months — below 4 percent for all but one month since March — is near a half-century low.

What about inflation-adjusted employee compensation? It too — and, again, contrary to popular mythology — recently reached an all-time high as it continues its generally upward trend. This compensation is today 10 percent higher than it was when China joined the WTO, 28 percent higher than it was at NAFTA’s birth, and 50 percent higher than it was in 1975.

Or how about American households’ net wealth? FRED combines data on households’ nominal net wealth with the nominal net wealth of nonprofit organizations. That wealth is rising. When adjusted for inflation, the net wealth of American households and nonprofits is revealed to be today an impressive 70 percent higher than it was when China joined the WTO, and a whopping 300 percent higher than when America ran its last annual trade surplus.

Information as an Antidote to Demagoguery

Nothing above should be interpreted as suggesting that the American economy is without problems, some very serious. Even less should anyone believe that further improvement of this economy is foreordained. Emphatically it is not.

The American economy will continue to improve only if markets are left sufficiently free to overwhelm the innumerable obstructions, diktats, and other burdens that governments, at all levels, inflict on us as we attempt to peacefully pursue our commercial and household affairs.

Ironically, among the most likely sources of public support for government-imposed obstructions and diktats is the false information constantly fed to the general public about the current state of the American economy and about how today’s economy compares to that of the past. Spending a few minutes each day visiting reliable sources of economic data, such as are available at FRED — and also right here at AIER — is an excellent means of becoming better informed.

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Donald J. Boudreaux

Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalization, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.