The Doughnut hole of American Exceptionalism
America’s amazing and admirable success also comes with some inconvenient truths
American Exceptionalism in full view as measured by traditional metrics
American Exceptionalism is an unparalleled fact — American has defied the naysayers and all expectations over the decades and has emerged as an even stronger economic powerhouse.
In the period since the nadir of the Great Financial Crisis (GFC) to the current period, the U.S. has beaten most other economies and stock markets handily.
The U.S. today boasts the most innovative and amazing companies well set up for the future; the recent AI lead revolution resulting in spectacular gains for a select few companies (Nvidia being the poster child of this newest of eras)
The U.S stock Market (S&P index) has performed incredibly well over the last 32 years, beating the world stock market (MSCI World Index) with an annualized return of 10.37% vs. 7.95% with lower risk (as measured by the standard deviation). This is the equivalent of turning an initial $10k investment into $241k for the U.S. Vs. just $118k for the world index. This despite all the touting about all the promise of the emerging world, its demographics and GDP growth trajectory. The comparison over the last decade has been even more dramatic with the S&P beating the World index by over 3.5% annually. The gap in growth in other metrics such as GDP and per capita income has been equally staggering in favor of the U.S.
Why the traditional measures belie the true well-being of the average American?
- The 90/10 rule applies more vividly to the U.S. versus most of the other developed world. The spoils of unrestrained capitalism, freedom to innovate or fail, winner take all, survival of the fittest model go to the cream of the crop and the top 10th percentile.
- This is even evident in the S&P index performance — while the capitalization weight index is up 15% due to runaway success in AI related euphoria in a select few mega tech companies, the average stock as measured by the equal weighted S&P index is up less than 5% (1/3rd the index dominated by the big techs).
- Disparity of outcomes abound for the average American. Despite the riches of America and all the positives highlighted above, when it comes to what might reasonably be called basic Human Rights — Education, Healthcare, Nutrition, Childcare, and general Human Development, the U.S. lags the other developed economies.
- Most of this disparity is due to the perverse incentives driven by unrestrained capitalism, the convoluted tax code, uncompromising corporate lobbying — Health insurance is pervasively linked to employment, Healthcare cost is exorbitant, and effectiveness is compromised due to vested interest of intermediaries. Likewise, while America boasts some of the best universities in the world and welcomes foreign students from all over the world, its K-12 education is patchwork of chiefdoms with undue reliance on local tax revenues, teachers unions, and inexplicable narrow minded anti-science and polarizing and politicized mandates.
- Nearly 4 in 10 Americans cannot muster less than $1000 for an emergency. This is a sorry state and hardly smack of the American exceptionalism that seems to be headline news and the envy of the world.
- Averages mask the real truth when it comes to income and well-being- While the real mean per capita income has gone from just over $40k to just under 60k in the last 30 years, a 50% increase(1992–2023; based on Federal Reserve Bank statistics), the median (a more relevant metric that ignores tails and outliers that influence the mean) has gone up from around $29k to $40k, only a 38% increase.
Does it have to be this way?
Perhaps, the price to pay for such meteoric growth and increase in innovation and total wealth is widespread disparity and a large lower middle and poor class left in the dust.
Clearly, while perfect egalitarianism is not and should not be the goal or pursuit of any policy, so also we should not accept the reality of such a large portion of the population missing out on the fruits of all those gains and riches.
Indeed, what is needed a bit more of balance in the toggles of what drives the economy and how distributive it is.
Can America develop an appetite for Doughnut?
- First espoused by Kate Raworth in 2012, and later published in a 2017 book entitled “Doughnut Economics”, it engendered a new way of thinking about growth, development, and progress.
- Traditional measures of GDP and linear growth is not everything. Embrace an egalitarian approach with controlled growth, minimum and maximum constraints for social & human economic rights, and environmental & resource sustainability respectively.
- Markets should be embedded in the economy not the other way around.
- Forego linear thinking for a doughnut approach — making sure nobody falls into the hole due to lack of basic protections while also making sure we do not burn through the outer constraints imposed but environmental and resource considerations.
- Growth for growth’s sake with a hope of “trickle down” or hope that “a rising tide will lift all boats” is replaced by a distributive system that maximizes human well-being and development.
In Conclusion …
Clearly, the U.S. is the most successful, innovative, prosperous & dynamic country in all of history.
But let’s juxtapose this against the plight of many Americans:
- The insecurity of its middle and lower class.
- The lack of access at an affordable cost (what the rest of the developed world takes for granted) to:
- Decent k-12 education
- Worry free healthcare
- Stress free child daycare
- Affordability of good nutrition
It is an unflattering and stark reminder of the casualty of our winner take all system of unrestrained capitalism with embedded and pervasive incentives and vested interests.
America can do better for all its citizens by balancing the traditional levers of growth, development, and wealth creation (GDP, stock market gains) with the levers of social and human well-being, thus making sure its citizens don’t fall through the doughnut hole.
