In a recent poll, 80% of the respondents regarded economic issues as the determining factor in terms of how they will vote in the upcoming elections1. As I mentioned before, this means that the candidate who convinces the electorate that his policies offer the best route to America’s prosperity will win the 2012 general election. But before we examine the policies of individual candidates, perhaps we can come to some sort of consensus on how we will evaluate America’s prosperity. In other words, what are the indicators that will cause us to proclaim, “America is the most prosperous nation in the world”? And upon determining what those indicators are, perhaps we can use the same criteria to answer a more fundamental question – How effective has our model of capitalism been in helping us achieve the prosperity we seek? How effective is it likely to be in the future? (I will leave this topic for future posts).
At the peak of the recent recession in March 2009, the S&P 500, which is an index of 500 different stocks capturing 75% coverage of US equities, closed at 676.53 points2, a 13-year low. This number is even more striking considering that in October 2007, the S&P had recorded its highest ever close, at 1565.15 points2. Observing that the index had shed more than 56% of its value in less than 18 months, everyone agreed that the economy was in a woeful state. This morning, I noticed that the S&P opened at 1316.16 points, which is just 16% shy of the record high it posted in 2007. Given that the stock market has recovered most of its losses, should we conclude that the state of the economy is healthy again? Let us consider another example. The most commonly used indicator of the economic progress of a nation is the Gross Domestic Product (GDP), which is the market value of all the goods and services produced in a given country. In 2010, US GDP was valued at about $14.6 trillion, the largest in the world (by comparison, China’s GDP, which is the second largest, was $5.9 trillion)3. More importantly, the GDP of the United States in 2010 grew by 3% compared to 2009, which is similar to its annual growth rate in 2005, when the economy was supposedly humming3, 4. Are these numbers persuasive enough to nullify the economy as a deciding factor in the upcoming elections?
If the answer in both cases is “NO” (which, I assume, it is), we should ask ourselves why this is. Perhaps it is because we are satisfied not by economic growth alone, but when this economic growth correlates with an increase in our standard of living. In other words, it is not sufficient for our economic system to be successful by itself; it should also be a success socially (at least to some extent). For instance, our assessment of the economy is more likely to be favorable when growth is coupled with a significant reduction in unemployment, which today stands at an abysmal 8.5%, or with a reduction in the number of people living below the poverty line, which was 15.1% of our population in 20105. Likewise, we are more likely to be satisfied if our economic system enhances our ability to get a better education, makes health care more affordable, and improves the quality of our living conditions and our natural environment.
Writing in the dawn of a new social order, Adam Smith remarked that the wealth of a nation consists not of gold, silver or its hoard of treasures, but of the goods that all the people of a nation consume6. Wouldn’t our ability to consume increase if we were less poor, and more educated, healthy, and employed? Everyone who thinks so should use these criteria as yardsticks to measure the strength of the economic policies of our candidates in the upcoming elections.
6. Heilbroner, R. L. (1999). The Wordly Philosophers: The lives, Times and Ideas of the Great Economic Thinkers.