An urban myth claims that when economist and Nobel Laureate Milton Friedman was asked how his wife was doing, he responded by asking, “Relative to what?” The jarring answer was not intended to be sarcastic, but rather to make a scientific point for which he was famous: Judging wellbeing or performance requires a measuring rod and something to compare the measurement to.
Which raises the question: As 2017 is closing, how is the U.S. doing?
There are many measuring rods to consider, but I will focus on just two: growth in real GDP and gains in broad stock market averages. I pick them for simple reasons. They are readily available and most people consider them to be important indicators of economic prosperity.
As for the “relative to what?” piece of the problem, I suggest we see how the U.S. is doing relative to a sample of other industrialized countries.
Each week the Economist publishes data on the two measures I like for a large sample of countries. Using the Dec. 16 issue, I focused on the Organization for Economic Co-operation and Development countries included in the report. There are 23 in the sample, and of course, the U.S. is one of them.
First, let’s look at the U.S. record. Over the previous 12 months America had recorded a hefty 24.4 percent gain in the Dow Jones Industrial Average and showed 2.2 percent 2017 real GDP growth as of Dec. 16. Many people have celebrated the red-hot DJIA growth, and rightfully so, but not many are dancing in the street over our GDP growth.
But how about the other OECD countries? Can another country match Wall Street’s performance?
It turns out that the average growth in stock market indicators for the 23 OECD countries, measured in U.S. dollars, is 24.03 percent, and average GDP growth is 2.53 percent. So America is just a tiny bit better than average on stock market performance and well below average on GDP growth.
Despite record portfolio gains, we’re in the middle of the heap — not even close to the top.
Poland holds the top spot in GDP growth, with 4.6 percent. Poland and Austria enjoyed identical 40.7 percent market gains, tied for first place for stock market performance. The Czech Republic, Germany, the Netherlands, South Korea, Sweden, and Turkey are real winners, too. Each has higher GDP growth and higher growth in stock market averages than does the U.S. Denmark has higher stock market growth, 28.0 percent, and the same GDP growth.
In the losing column, Belgium, Britain, France, Japan, Mexico, Norway, and Switzerland have lower GDP and stock market growth than the United States.
Eight countries in the sample fall into the mixed-bag category: Australia, Canada, Israel, Spain, and Sweden beat us in GDP growth but have lower gains in stock market averages. Chile, Italy, and Greece are stronger in stock market gains but lower in GDP growth.
Switzerland takes the booby prize for lowest GDP growth: 0.9 percent. Canada’s 10.1 percent growth sits at the bottom for stock market growth.
So how’s America doing? Considering the path we traveled to get here, we have a lot to celebrate. But even with record stock market gains, relative to a cross-section of the industrialized world, we are about average.
The road to making America great again is steep and long.