7 Signs America’s Economy Is Nearing Collapse

America’s economy isn’t what it once was.

Don’t believe me?

Here are the facts.

1. Gross Domestic Product (GDP) Per Capita Growth Is Slowing

America’s economic growth is the slowest it’s been since the Great Depression—all we need are a few tumbleweeds to set the mood and Herbert Hoover would be right at home.

We know this by measuring changes in America’s gross domestic product (GDP), which is simply the monetary value of all the output (everything from cans of  tuna to the latest blockbuster movie) made within the country, during the fiscal year.

A bigger GDP means a bigger economy—the faster it grows, the better.

But there’s a little more to it than that.

GDP growth can be misleading, because it doesn’t account for population changes.

For example, if the population grows by 1%, then the GDP needs to grow by 1% just to break even.  Real economic growth occurs when GDP increases relative to the population.

Here’s where things get interesting.  When we account for population growth (which has been rising since the Immigration and Nationality Act of 1965 opened the borders), we find that the economy has been slowing since the 60’s, and it shows no sign of improving.

In fact, since 2010’s “recovery” from the Great Recession, GDP growth per person has averaged 0.15%.

Can you imagine getting a 0.15% raise every year?

That’s America.

The economy grew twice as fast (0.34% per person) during the Great Depression (1929-39).

America used to be the land of growth and prosperity—not anymore.

2. Income Inequality Is Rising

Income inequality has been growing since 1974, and it’s currently as bad as it was during the 1920s.  Now, unless you’re the Great Gatsby himself and have money to burn, this smells like trouble.

Inequality is encapsulated in a number called the Gini Coefficient (GC): “0” is perfect equality, where everyone earns the same income, while “1” is perfect inequality, where one individual earns everything (leaving none for anyone else.  All you need to know is that a higher GC means more inequality.

Don’t get me wrong, inequality is not necessarily bad, but too much (or too little) is.  Too much inequality, leads to corruption, crime, and political instability (think Brazil or Russia), too little inequality leads to onerous and odious governments (think USSR or Sweden).  Both extremes are bad—a healthy balance must be struck.

Historically, most Western democracies have had GCs somewhere between 0.25 and 0.45, and only very rarely has this range been violated.

America long obeyed this rule.

From 1950 to 1974 the GC dropped from 0.421 to a low of 0.394—America was becoming more equal as the economy grew at record pace.  But something changed.  For the last four decades the GC has increased relentlessly, smashing through the “stability range” in the mid-1990s.

America now tops the charts among Western democracies, with an income GC of 0.48.  But don’t worry, we’re in good company with the likes of Russia, Mexico, and China.

Hola political instability.

3. Real Wages Haven’t Grown Since 1973

Median wages have been going down since their peak in 1973.

In 1973 the median hourly wage was $4.14, while in 2014 it was $20.74.  Looks good right?  Wrong.  Although it went up in nominal terms (the number got bigger), in real terms (what you can buy with it), it went down.

If we convert 1973’s median hourly wage into 2014 dollars, it works out to $22.07— which is 6.4% higher than 2014’s median wage ($20.73).  That may not sound like a lot, but it is; over a year it’s almost three grand.

That’s huge.

That being said, not all wages went down.  Since 1974 most of the economic gains have gone to the top 20% of earners, which is why inequality has been increasing.

If today’s income was dispersed like it was in 1973 (before our manufacturing sector was hollowed out), then the average middle class household would earn a whopping $90,943 per year, as opposed to $74,434—an eye-popping difference of $16,509 per household.

You could buy a new car every year with that kind of money.

4. The Middle Class Is Shrinking

When wage stagnation meets the real world, the consequences are ugly.

Between 1901 and 1985 the portion of their income that the mean American household spent on wants, as opposed to needs (food, clothing, shelter), increased from 20.2% to 48.6%.

In other words, people could spend more money on things that made them happy, on things they like.  Living standards improved.

Since then it’s stagnated, which is nothing to brag about.

But it’s worse than that.  If we look at median household spending (which is less skewed by rising inequality), we find that spending on wants has actually been declining since the 1980s. 

In fact, it’s now down at 36.7%—a level not seen since the 60s.

This means that people today are relatively poorer than they were thirty years ago.  This is not to say that our quality of life hasn’t improved—it has.

However, this improvement is mostly because of technological improvements.

For example, there are many new products on the market today (like laptops) that didn’t exist back then.  But this is apples to oranges.

When comparing apples to apples, we find that a normal household had greater discretionary spending in 1985 than in 2015.

Discretionary spending (free consumption) is the fruits of our labor, it’s the joie-de-vivre, the spice of life.  It’s how you want to spend your money, not how you must.

Our economic goal is to maximize our discretionary spending as a proportion of our income (while also increasing our income), because this results in improvements in our quality of life.

We’ve failed to do this, unlike places like China.

5. Nothing Is Made In America Anymore

American manufacturing has been decimated.

We used to be the world’s leading industrial power, not anymore.

In 1979, 19,553,000 Americans worked in good paying manufacturing jobs; last year, only 12,300,000 did.  In a few decades we shed over 7 million jobs.  That’s huge.

So what happened to those people?  Two things.  Many got new jobs, although most of them took a hefty wage cut in the process.

In fact, the average pay cut for displaced factory workers was 17.5% (I guess it pays better to build cars than wait tables).  The rest dropped out of the labor force altogether, and therefore no longer show up in the unemployment rate.

How did this impact the economy?  Just look at the “rustbelt” (the hardest-hit area in the Mid-West and North-East): in many places, it’s become synonymous with urban decay and post-industrial rot.

Look at Detroit.

Look at Cleveland.

Look at Camden—the list goes on and on.

But it’s not just jobs we lose; we lose capital equipment (factories, machines) and labor skills.  We lose the ability to build things.

For example, America no longer manufactures laptops (aside from one small, ironically, Chinese-owned factory), mobile phones, televisions, nor stuff as essential as light-bulbs, shoes, dress shirts (many come from Canada), and spoons and forks.

This would be comical were it not reality.

Even our most advanced industries, like aeronautics , IT, and pharmaceuticals, are hurting.  This is dangerous because together they produce 17% of our GDP, employ 80% of our engineers, and file 85% of our patents.

They’re our inventors and innovators.  They build the future.  We can’t afford to lose them, but it’s happening.

This is because we’re importing ever-more advanced products: last year alone we ran a $632 billion trade deficit in advanced goods.  What’s worse is that 56% of the increase to our trade deficit over the last decade has been in advanced products.  We’re offshoring our most lucrative, high-growth industries.

Bad idea.

We’re literally giving away the crown jewels to China and Mexico.

6. America’s Trade Deficit Is Giant

Although America’s run a trade deficit ever since 1974, it’s never been this big.

In 2015 the deficit was $736,018,617,300—$4,845 per employed person.  That’s as big as the Netherlands or South Africa, or the Philippines.  And it gets worse: if we include remittances, foreign aid or UN payments, and the value of stolen intellectual property (estimated at $300 billion), then we lost $1.16 trillion dollars in 2015.

That’s mind-blowing, and it happens every single year—you could build a country for that kind of money.

All told, over the last two decades the cumulative deficit is $11,386,010,210,000.  That’s $81,725 per employed person— double what someone earning the median hourly wage makes per year.

We’re not out of the woods yet.

The deficits are growing.  Look at China: from 1986-2000 the average deficit was $29 billion dollars, while from 2001-2015 it was nearly $240 billion.  That’s a big increase (23.63% per year to be precise).

Long story short, we’re buying tons of stuff from abroad, and it’s costing us investment and jobs.

But what do we get out of this Faustian bargain?  Cheap goods?

No.

According to the consumer price index, the cost of living grew at the same rate as earnings, which means that goods are no cheaper now than they used to be.

We’re running insane deficits and we’re not even getting cheap stuff.

7. The National Debt Is Growing

Nothing comes for free.  To pay for the  deficit, we have to sell either assets or debt.  In effect, we’re literally selling off America to pay for our cheap bobble-heads and Transformer toys.

Foreign investors now own 20% of all US equities, up from 12% in 2007.  They’re also buying up our property: in 2015 alone foreign investors bought over $100 billion worth of US properties.

You wonder why house prices and rent keeps going up?

That’s why.

We’re also selling huge amounts of debt.  This is especially pernicious: not only do we have to pay back the principle, but we owe interest too.  Right now, foreigners own 43% of all US corporate bonds, and 47% of our national public debt, which is 13.5 trillion dollars— the largest it’s ever been.

This means we owe over $6 trillion dollars to foreigners.

Just thinking of the interest payments makes me wince.  In 2015 the US government paid $105 billion to foreign entities in interest.  This will only get worse, since the debt we are owed will mature before the debt we owe.

Needless to say, $105 billion is a lot of money.  To put it in perspective, the federal government only spent $70 billion on higher education, and $17.5 billion on NASA—we could fund five NASAs with our interest payments.

America’s Economy Is Collapsing

The data couldn’t be uglier.

While the GDP grows slower and slower, inequality grows faster and faster, and more and more Americans are seeing their quality of life decay.

On top of that, our most advanced industries are lambs at the slaughter, and our trade deficit and national debt are smothering any chance we have left at rekindling prosperity’s flame.

And that’s only the half of it—there are more signs of America’s economic collapse.

It’s time we realized that our economic policies are built on faulty assumptions, and if we don’t do something now, the next generation will inherit a much poorer country than did the last.

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—“Trade in Goods, 1985-2016.” Accessed May 20, 2016. https://www.census.gov/foreign-trade/balance/c5700.html

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