Authored by Daniel Lacalle,

I frequently receive comments about the strength of the United States economy and the unfairness of perceiving things as less than stellar. Is it really the “strongest economy ever”?

It’s evident that it’s far from being the “strongest economy ever.”

The United States unemployment rate has risen to 4.1%, the highest in three years, which is also significantly higher than the level seen in 2019. In June, a 70,000 increase in government jobs boosted payroll employment by 206,000. One-third of job creation is public sector jobs paid with more debt. Both the employment-to-population ratio and the labour force participation ratio are below the pre-pandemic level and immigrants account for all the labour force growth since the pandemic, according to the Bureau of Labor Statistics and Ned Davis Research.

Inflation remains persistent and citizens have lost more than 24% of their purchasing power since 2019, with a 0.6% negative real wage growth in the January 2021–June 2024 period.

Real wage growth in 2024 is rising only 0.8% year-on-year.

This shows why the United States Misery Index is rising to 7.4% in June from 6.8% in January. The Misery Index, which measures unemployment and inflation, bottomed out in 2023 and has been worsening since then. Furthermore, the index is far away from the pre-pandemic level of 5.4%.

All these measures allow us to understand why Americans are negative about the economy. Despite messages of redistribution, social policies, and equality, the average citizen is poorer, and only the wealthy have been able to improve their position and navigate high rates and inflation thanks to investments in the stock market. While this shouldn’t come as a surprise, it’s important to remember. There is nothing social about increasing debt, deficit spending, and taxes.

The problem for most Americans is that it is increasingly difficult to make ends meet despite record government spending, or because of its negative impact on inflation and taxes.

There is a reason why we should be worried about rising discontent and impoverishment. The placebo effect of government spending on GDP is declining. Real gross domestic income (GDI) increased 1.3 percent in the first quarter, a downward revision of 0.2 percentage points from the previous estimate and a market slowdown. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 1.4 percent in the first quarter, according to the Bureau of Economic Analysis.

If we look forward, Americans are going to have to choose between two options:

further impoverishment with Keynesian policies;

or making a dramatic pro-growth turn where policy is targeted at improving disposable income, increasing investment, and strengthening productivity and real economic growth.

We know that it will be impossible to cut the current deficit with tax hikes. There is no revenue measure that will generate two trillion US dollars per year, and it is impossible to increase taxes further without punishing investment. The problem in the United States is mandatory spending, as the CBO expects outlays to reach 24.9% of GDP in 2036, while revenues will reach a record but insufficient 18%. If the Federal Reserve continues to monetize debt, Americans will suffer from the inflation impact as well as the rising cost of housing. The US dollar’s purchasing power will continue to decline. However, it is easier to create two trillion US dollars of productive GDI than to tax two additional trillion dollars per year out of the existing fiscal base.

Yes, the only solution for the United States is pro-growth, pro-business policies that defend the purchasing power of the US dollar. So-called social policies have only made everyone poorer and hurt the middle class.