American economic exceptionalism
We all like to believe that we're the best because we're better at being better, but are we?
The U.S. is the world leader in selling myth, and often its own. U.S. companies dominate the realm of media, and Hollywood shapes our imaginations. Today, in the economic sphere, we continually hear about American exceptionalism because the U.S. economy has kept its head above water while most other developed nations are struggling as a result of the tight monetary policy of the last 3 years.
American exceptionalism is often attributed to things like having better systems, better management, and better government. In reality, America is exceptional for the same reason it has always been a great nation: it is a land of opportunity where people can start new lives, moving away from difficult and harsh environments. When people first started moving to that vast continent it was referred to as “The New World”.
This is where I confess that my assumption was wrong. It is also where I say - despite denying it for years - that an economic soft-landing is possible.
Working age population growth is the only thing that is more powerful than monetary policy and capable of offsetting a tightening cycle (other than fiscal responsibility … like that’s gonna happen without interest rates being 3 times their current level).
I had based my calculations off birth rate data and excluded trying to project immigration because it has historically been a relatively small factor (and it’s near impossible to forecast), with only a couple of brief exceptions. But the U.S. has been experiencing massive migration across its Southern border for several years now.
In the the U.S., this is considered a massive problem and become a political platform. It’s certainly not seen as a cause for American exceptionalism.
But the U.S. are not the only ones experiencing this phenomenon.
Last year, Spain’s GDP grew 3.2 per cent, according to preliminary official date for 2024. This was almost five times the eurozone average, and more than the USA.
One of the main reason’s for this? Immigration.
Writing for the Guardian, Spanish journalist María Ramírez said the population flows from Latin America and Morocco, along with other nations, have “boosted domestic demand and rejuvenated the workforce.”
Almost 90 per cent of new jobs were filled by workers of foreign origin or dual nationality, and unemployment is at its lowest level since 2007.
Ramírez explained that although there are other factors for Spain’s economic growth, it is migrations which is “still the most frequently cited reason for Spain’s strong performance and perhaps its most distinctive advantage compared with other countries.”
“Boosted domestic demand and rejuvenated the workforce” is a completely different interpretation of the situation. There’s not a hint of ‘Spanish exceptionalism’ doing the rounds where they claim to be doing better because they’re better. Interesting.
If a U.S. soft-landing does occur, the Fed will claim it as being due to their management of the situation. Similarly, in asset management land, passive managers are putting the big gains of recent years down to their low-cost investment strategy. In both cases it has simply been dumb luck. And both sets get to retain their respective illusions (which they can keep marketing in good conscience). Their institutional myth remains intact.
This new surge in the working age population data once again raises similarities between the current environment and that of 2000.
Looking at U.S. recessions of recent decades, the one in 2001 was the only one where Real GDP growth didn’t go negative. They still had a recession, but the economic downturn was relatively mild (unemployment only rose from 4% to 6%) …. it was more of a market event. The recession lasted only 9 months while the market sell-off lasted almost 3 years. I think we’re facing similar dynamics, which we’ll look at below.
Does my acceptance of the potential for a soft-landing in the U.S. change things? No, not at all.
Got context?
The work I do here has been to identify cycles and points with cycles. I do this to give context, so that I can determine asymmetry of outcomes. Whether an economic soft-landing happens or not does not change the point in the cycle that we’re at, nor does it alter the asymmetry of that point. It may impact the scale of the potential outcome, but little else.
Context is what makes interpretation of data and information accurate. Without it, we end up interpreting based on all sorts of stuff that floats around inside of us, like sentiment, social conditioning, emotions, biases, prejudice, beliefs etc.
To that end, let’s examine a recent mistake on my part that caused me to lose context and make a bad interpretation.