America’s Gross Domestic Income Indicates a State of Stagnation
In a recent CNN poll, it was found that nearly half of respondents believed that the economy of the United States remains in a downturn, with only 35 percent stating that things in the country today are going well. This stark contrast between somber economic sentiment and seemingly positive indicators such as the headline unemployment rate and gross domestic product (GDP) can be explained by a closer examination of the numbers.
The divergence between GDP and gross domestic income (GDI) is quite staggering. While GDP suggests a strong economy, GDI reveals a stagnant one. Historically, both measures followed a similar pattern, but this drastically changed in 2023. While GDP rose 2.5 percent that year, GDI only experienced a mere 0.5 percent increase, effectively signaling economic stagnation.
According to the Bureau of Economic Analysis (BEA), real GDI increased by only 0.5 percent in 2023, compared to a 2.1 percent increase in the previous year. When we consider the average of real GDP and real GDI, we find that it only increased by 1.5 percent in 2023, compared to a 2.0 percent increase in 2022. While this may not indicate a recession, it certainly points to a weak economy.
The weakness is also evident in the unemployment figures. Real wage growth over the past four years has been negligible, with an annual increase of only 0.7 percent, which is four times weaker than the previous four years. Additionally, the labor force participation rate remains below pre-pandemic levels at 62.5 percent, as does the employment-population ratio at 60.1 percent. Poor real average hourly earnings combined with a decrease in the average workweek resulted in a lackluster 0.5 percent increase in real average weekly earnings in the year leading up to February 2024.
Another area of concern is the weak trend in profits. According to the BEA, profits from current production increased by $49.3 billion in 2023, compared to an increase of $285.9 billion in 2022. Similarly, profits of domestic nonfinancial corporations increased by $66.6 billion in 2023, compared to an increase of $247.6 billion in 2022. These figures indicate a very weak trend in profits.
While the U.S. economy may be performing better than the eurozone, it is still falling far below expectations. The policies of Keynesianism, which advocate for increased government spending and intervention to stimulate economic growth, are working against the potential of the U.S. economy. The accumulated $6.3 trillion deficit over the past four years is having a negative impact, as rising taxes and persistent inflation erode the average American’s quality of life. Many citizens now find themselves needing multiple jobs just to make ends meet, with the number of multiple jobholders reaching a multi-decade record.
When we examine GDP and GDI without the accumulation of debt, we find that they show the worst year since the 1930s. This begs the question: how can an economy be stagnant with 2.5 percent GDP growth? The answer lies in the failure of Keynesianism. Headline figures may appear strong due to the accumulation of debt, and employment figures may be inflated by government jobs, but this disguises a struggling private sector and a weakening purchasing power of the currency.
The consequences of cheap money, which is a result of low-interest rates and easy access to credit, are becoming apparent in the long run. Discontent among Americans is rising as Keynesian policies focus on increasing the public sector while burdening the productive economy with higher taxes and challenges in meeting financial obligations.
Inflation is another consequence of misguided government spending and debt monetization during the post-pandemic recovery. This has led to an overall loss of purchasing power of the currency, which stands at approximately 24 percent over the past four years. The government is essentially taking away in inflation what it promises through entitlement spending, leaving the average American poorer.
It is important not to blame Americans’ discontent on a lack of information. The truth is that they are suffering from a prohibitive tax burden and the hidden tax of inflation, all because the government decided to employ the oldest trick in the book: promise “free stuff” and finance it through deficit spending, which ultimately makes these allegedly free programs more expensive than ever.
The failure of Keynesianism is evident, yet politicians continue to promise more of the same policies and present themselves as the solution to the problems they have created. As Americans grapple with a stagnant economy, it becomes increasingly clear that a change in economic approach is necessary to ensure sustainable growth and prosperity for all.
