“The reports of my death are greatly exaggerated.”
-Mark Twain
In last month’s article, we explored the mystery of “The Bear that Doesn’t Growl.” This month, in honor of the upcoming Independence Day holiday, we take a moment to marvel at the greatness of the American Economy.
The Rumors of Our Demise
As the popular legend goes, around the turn of the last Century, several newspapers in the United States mistakenly published an obituary for writer Mark Twain when he was still, in fact, alive. Twain decided to have a little fun with this interesting situation, so he sent a cable from London back to the press in the U.S., informing them that the reports of his death had been “greatly exaggerated.”
In a similar way, in recent years, the financial media has been filled with reports of the decline and death of the American Economy and predictions that we will soon be overtaken economically by the rest of the world. Just as the reports of Twain’s death, these reports are also “greatly exaggerated.”
The fact is that the U.S. economy is a remarkable, stupendous, world-beating success story. Over the last quarter century, during which it has become quite popular to bemoan our economic fortunes, the United States has surged ahead of the rest of the world by virtually every economic measure one can name.
The Persistent Myth of American Decline
We have no idea how or why this myth started, but we highly recommend this article, which appeared in the Economist magazine on April 13th, debunking this myth in far more detail than we could ever offer here. As the July 4th holiday approaches, it is worth a read to remind yourself just how lucky we all are to enjoy our share of American prosperity. Here is a short excerpt we found particularly interesting:
“On a whole range of measures, American dominance remains striking. And relative to its rich-world peers, its lead is increasing … more astonishing and less appreciated than its ability to hold its place in the world as a whole is the extent to which America has extended its dominance over its developed peers. In 1990 America accounted for 40% of the nominal GDP of the G7, a group of the world’s seven biggest advanced economies, including Japan and Germany. Today it accounts for 58%. In [Purchasing Power Parity] terms, the increase was smaller but still significant: from 43% of the G7’s GDP in 1990 to 51% now. So much for declining power.
America’s outperformance has translated into wealth for its people. Income per person in America was 24% higher than in Western Europe in 1990 in PPP terms; today, it is about 30% higher. It was 17% higher than in Japan in 1990; today, it is 54% higher … a trucker in Oklahoma can earn more than a doctor in Portugal. The consumption gap is even starker. Britons, some of Europe’s best-off inhabitants, spent 80% as much as Americans in 1990. By 2021 that was down to 69%.
America also has by far the world’s deepest and most liquid financial markets, providing efficient, if occasionally unstable, channels for financing businesses and sorting the winners from the losers. Stock market capitalization runs to about 170% of GDP; in most countries, it comes in below 100%. Funding for potentially high-growth startups is particularly bountiful: about half the world’s venture capital goes to firms in America.”
—The Economist, April 13
Having a Plan
The very best investors have a disciplined approach to making portfolio decisions and always stick to their plans, no matter what the rest of the world is doing. They are able to live through the peaks of euphoria, as well as the depths of terror, with a healthy understanding that a well-designed written investment and financial plan will get them through both.