President Barack Obama opened his State of the Union Address last night with a statement on the increasing strength of the American economy. He made a sound case by citing positive progress over the past year in a number of areas including job creation, American car sales, domestic oil production, the housing market and the stock market.
There is only one problem. That is, in spite of the evidence, a number of American citizens may not share the president's perspective or assessment.
In an NBC News/Wall Street Journal poll conducted in December, 64 percent of those surveyed said they felt things in the nation were "off on the wrong track." A total of 70 percent of the respondents felt that 2013 was not a good year for the U.S. -- with 44 percent describing it as a "below average year" and 26 percent calling it "one of the worst years."
So, the United States is in the toilet right? Wrong! Contrary to popular opinion when one looks at a variety of data sources, the United States appears to be doing well in relative terms both economically and competitively.
That's the conclusion we came to in a chapter in our recent book, Working the Pivot Points: To Make America Work Again, focused on the United States' performance against the BRIC (Brazil, Russia, India and China) wall countries. We provide the rationale for that assessment a bit later in this article. Before we do so, let's review the findings from a new study by Harvard economists, Kenneth S. Rogoff and Carmen M. Reinhardt released at the annual meeting of the American Economic Association in January 2014.
Professor Rogoff and Reinhardt argue that comparing the United States' recovery after this recession to other post-war recoveries is the wrong frame of reference because this recession is not similar in nature to those. Instead, they contend the appropriate frame is 100 major or "systemic" recessions that have occurred over the past two centuries both in the United States and around the world.
Based upon their analysis using this framework, as reported by the New York Times, the professors found that "relative to previous American financial crises, the current economy is doing substantially better." They also discovered that out of eleven other countries that experienced systemic crises at around the same time the United States did -- only the United States and Germany "have recovered to their previous peak in real income."
The Times points out that not all economists agree with Rogoff and Reinhardt's perspective. John Taylor, Stanford economist at the Hoover Institute asserts that a comparison to postwar recoveries is fair and that the "tepid recovery" is due to factors such as "economic uncertainty and regulations" and "a departure from rules-based predictable monetary policy." Lawrence H. Summers, Harvard professor and former economic adviser to President Obama, blames the slowness of the recovery on "austerity" and calls for "government spending, particularly on infrastructure, while borrowing costs are so cheap."
We don't want to and won't get into a speculative and/or philosophical debate among economists on this -- although we do have our own opinion.
Could the recovery have been better? Possibly! Could it have been worse? Absolutely! The United States could have been one of the 10 nations that didn't recover completely after their recent "systemic" crisis instead of being one of the two mature economies that did.
For us, the most compelling aspect of the Rogoff-Reinhardt study is its positioning of the United States recovery in comparison to that of those nations in somewhat similar conditions. In sports terminology, that's what might be considered our competitive set in terms of recovery and within that set we've done well economically.
The United States has also been doing well over the past few years against the new set of emerging competitors -- Brazil, Russia, India, and China -- who for a period of time seemed to be outperforming us substantially in economic development terms.
That's what we discovered by doing a detailed competitive assessment of the United States as a nation and each of the countries in the BRIC wall for our book, Pivot Points, using the World Economic Forum (WEF), Global Competitiveness Report: 2012-2013 (that report covered performance through 2011 using the most recent data available). In that report, the WEF evaluated and ranked 144 economies on a Global Competitiveness Index based upon an extensive quantitative analysis on "12 pillars of competitiveness" consolidated into three sub-indexes: Basic Requirements, Efficiency Enhancer and Innovation and Sophistication.
The overall competitiveness assessment rankings for 2012-2013 were: United States - 7, China - 29, Brazil - 48, India - 59, and Russia - 67. The U.S. ranking stayed the same as in the prior year. China dropped three places. Brazil jumped up five places. India dropped only three places but has fallen 10 places from its peak in 2009. Russia fell one place.
The overall competitiveness assessment rankings by the WEF in its report for 2013-2014 (using performance data for 2012) were: United States - 5, a gain of two places; China - 29, stayed the same; Brazil - 56, fell eight places; India - 60, fell one place; and Russia - 64, gained three places.
These rankings along with the reasons provide substantial evidence that the United States is faring well against the "new kids" on the block and suggests it may continue to do so. That's the point Ruchir Sharma, head of Emerging Markets and Global Macro at Morgan Stanley makes in an article for the November/December 2012 issue of Foreign Affairs where he writes:
The last decade was unusual in terms of the wide scope and rapid pace of global growth, and anyone who counts on that happy situation returning soon is likely to be disappointed.
Combine that with the fact that the four top-ranking economies (Switzerland, Singapore, Finland and Germany) and the four following it (Sweden, Hong Kong, Netherlands and Japan) in the GEF's 2013-2014 report are much smaller than ours, and there are certainly substantial "grounds for optimism." The question becomes why is the American public in general so pessimistic?
Part of it may be due to our natural skepticism as Americans. The Economist highlighted that orientation in a May 2012 article in which it observes, "America is prone to bouts of 'declinism'." Some of it can certainly be attributed to an erosion of trust in our core institutions such as Congress, banking and large corporations. Another explanation is undoubtedly the fact that while the United States has done well (relatively) as a nation over the past few years -- in both economic and competitive terms -- there are still undeniable opportunities for improvement (e.g., continuing high un- and underemployment, wage stagnation, and increased and increasing incoming inequality.)
There is no guarantee of a return on the "grounds for optimism" or the progress made by the country in doing well economically or competitively. As public opinion has shown, those results and that performance is "relative."
It is evaluated through one's own experience and a personal prism. The true payoff for a vital democracy comes from correcting those current conditions that constrain public opinion thus creating positive voices from the crowd and removing relativity from the American success equation.
In his address, the president pledged to begin this process through executive orders and with the assistance of civic, business and local and state government leaders. The theory of economic relativity will not be fully solved, however, until Congress and the president can collaborate in creating a national agenda that benefits Americans at all rungs on the economic ladder.
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