This idea about why America won’t be great again has been floating around in my head for several years now – long before it became a political slogan – and it’s been wanting to get out. I won’t pretend it’s a great insight. It should be common knowledge but apparently it’s not given what the voters of this country are looking for from their politicians. It has nothing to do with real estate but, given the macroeconomic forces, it probably does mean that, on average, we will be living in smaller houses in the future.
Going back at least 10 years, and probably much longer, if you watched a TV show about the decline of some industry or a small town or some sector of the economy they always ended the program with a quote from some very miserable person that goes something like this: “I just want things to go back to the way they were.” This was just another version of “Make America Great Again”.
But what exactly does it mean to make America great again? When was it great? What does it mean to be great? It’s not exactly clear but as far as I can tell “great” means an economic environment where most people can achieve a fairly high standard of living – high relative to the rest of the world and close to the average for the US. Like in the 50s.
Well, the problem is that we aren’t going back to those days because we can’t. There are forces at work here that no politician or government can do anything about and it can be explained in just two charts.
Chart #1: The US is less than 5% of the world’s population
Here is the best chart I could find that demonstrates the fact that most estimates put the US at about 4.5% of the world population. You can click on the chart below for a bigger version but the US portion is in a light yellow color around 4:00 on the dial.
Chart#2: The US is about 20 – 24% of world GDP
Depending on how you measure GDP you get various estimates on the US share that range from 17 – 28%. I picked the graph below because it was the nicest but it does show the US at 19%.
It doesn’t really matter whether it’s 17% or 28% because the point is that with less than 5% of the world’s population we produce somewhere between 17 – 28% of the world’s output. And for every dollar of output we are consuming roughly one dollar of global resources – technically some of this is called business investment or government spending but at the end of the day those components still end up consuming global resources in some form.
So basically 4.5% of the world’s population is consuming 17 – 28% of the world’s resources and that’s not sustainable – and not in the moralistic, environmental impact sense of the word “sustainable”. I mean it’s not sustainable because the universe tends toward equilibrium and an imbalance like this is not an equilibrium state and therefore will not be sustained. Eventually production shifts to lower cost countries and their output rises, along with their wages, their standard of living, and their consumption of global resources. All of that translates into higher demand for global resources and higher prices for labor and commodities. And that translates to higher costs for Americans after an extended period of job losses to lower cost countries which then translates to a lower share of global GDP.
Eventually our GDP share should end up just about equal to our population share of 4.5%, which is a lot lower than it is today (there is actually a scenario under which this doesn’t happen but I don’t believe it will materialize). That means that our average standard of living falls while the rest of the world’s rises.
Here is bonus chart #3 which shows that this is exactly what’s been happening since the 50s – our share of global GDP has been declining. The US is the recently declining green line and you can clearly see that China and India, dark and light blue respectively, are taking off at our expense – and at the expense of Europe.
This is just the way the universe works and politicians and governments are basically powerless to do anything about it. So I wouldn’t hold my breath waiting for America to be great again because it ain’t happening.
Gary Lucido is the President of Lucid Realty, the Chicago area’s full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate ‘market, get an insider’s view of the seamy underbelly of the real estate industry, or you just think he’s the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.