The Economist has a Special Report on the US economy titled “The envy of the world” (subscription required). It makes a very compelling case that, although things aren’t perfect, the US economy is doing much better than rich world peers and mostly better than emerging economies like China and India.
The first piece of the puzzle is productivity. Overall labor productivity in the US is much higher than in Europe and increasing at a faster rate even adjusted for the greater number of hours US workers tend to put in over their peers. The high productivity and dynamism doesn’t necessary make for an easy life, but it does give more opportunities and wealth.
The flip side of that can be higher inequality. The jury is still out on how pervasive and destructive that is. Rich people certainly get richer in a good economy which isn’t necessarily a bad thing. Progressive taxation (especially on inheritance) would lead to better outcomes, but those at the bottom of the heap and in the middle benefit from family friendly policies. Obamacare and Social Security do help to make most people’s lives better.
One of the most overlooked elements to this economic success is well covered in the Special Report: the boost provided by fracking to the US economy. This has been a huge driver over the past 15 years or so. The US is now an energy exporter which allows a great deal of insulation from political instability abroad. If you are building an energy intensive business, the US is a great place to do it. Longer term, this might slow the transition to clean energy but in the short term supplanting coal with gas is helpful in reducing greenhouse gas emissions and allows the opportunity to subsidize new energy sources if we choose policies to do so.
In terms of financial markets, the US remains well ahead of the pack. Although current high valuations point to lower returns moving forward, you will still likely be better off with money invested in the US economy than not. We might be at a high water mark in terms of US dominance of global finance so diversification is important, but you don’t want to short the US.
Similarly, USD is still the leading currency which gives the US quite a lot of benefits. There are cracks in this regime and things like the rise of the Chinese yuan and overuse of sanctions based on excluding rivals from the dollar system might erode the position as global reserve currency over time. Cryptocurrency might also play a role in diluting the importance of USD but that remains to be seen. Even cryptocurrency is priced in terms of dollars.
The Report concludes that the biggest short term risks to the US economy are within. Politics are very unsettled, but the chief driver of the economy are the potential, population and rule of law. One election is not likely to entirely change that, but policy does matter. Choose wisely.