Did the US economy grow in the 21st century? What would a 19th-century economist, who was not used to contemporary interpretations of numbers and lofty rhetoric, say? If conservatism comes in handy when analyzing the economy, what image would it draw?
For dozens of years, the world has been convinced that gold is nothing but an exchange traded commodity. Central banks have not paid much attention to it, at least in their public statements. Only the “sanction war” that the US, United Kingdom, EU and their allies waged against Russia has prompted the Bank of Russia to significantly increase the share of gold in its reserves. Gold has become something more than a commodity or something to invest money in during a market crisis.
Gold protects the national reserves if the country suffers from economic pressure by unfriendly governments. Iran is an example of how necessary this protection might be. A country’s gold reserve, if it has one, is what can help break any blockade. Gold can be used as a currency in contracts, to count expenses and assess economic growth. In the 19th century, economists used hard currency — metals and gold that were not just backed by gold bullions in bank cellar — to assess the company and personal income, as well as the condition of the economy in general.
The dollar has long replaced gold. However, what if we convert US GDP into ounces of gold? How will the government debt change and what will it be worth in ounces? One should keep in mind that in 2000-2001, gold cost some $290 per ounce; in the first half of 2021, it was already $1.9K per ounce. In 2007, on average, gold sold at some $720 per ounce on the global market. It was the last pre-crisis year, and this price should be remembered.
In 2000, the United States wowed neoliberal economists all over the world. Numerous articles and books were published praising the contemporary and strong American economy. US GDP in 2000 was $10.25 tln. In gold, it equaled 30.35 bln ounces. After experiencing certain hardships, the United States entered a mortgage boom and saw boosting sales in the real estate market. The year 2007 may not have been the best one in this regard. Hardly anyone was paying attention to this, as well as to relocation of the industry outside the US borders. The country’s GDP that year reached $14.5 tln, which equaled 20.07 bln ounces of gold.
Any Victorian era economist would be horrified by such numbers. In less than a decade of global economic prosperity, the gross domestic product of the major global power decreased by one third. However, if any economist of the 19th century would have a chance to express his opinion to the business community in 2007, he would not be allowed to say a word.
He would be told that all countries abandoned the gold equivalent and the gold standard long ago — not to mention the exchange of banknotes for gold, with the United States canceling the direct convertibility of the US dollar to gold in 1971 and the case closed. He would also be told that he is an inadequate conservative, as everyone knows that gold is solely an exchange commodity and a speculative instrument, and as the latter, it does not indicate any actual value of money and strength of the US economy but only shows the current condition of the market, where price movement may occur in the opposite direction. Another argument could be that gold is industrial raw material and is not intended to be stored in the form of bullion or for mintage; increasing global production leads to a growing demand for the precious metal.
Therefore, the Victorian era economist would be told that his calculations meant and showed nothing. However, the signs of a crisis were already becoming apparent, and the ghost economist unfamiliar with the murky appeal of modern financial reasoning passed off as science could answer: just wait until the end of 2020.
The United States was heavily impacted by the first wave of the global economic crisis in 2008-2009 as well as by its third wave, dubbed the coronacrisis. In 2014, then-President Barack Obama spoke about the final and complete victory over the economic problems in the United States; later, in the second half of 2020, Joe Biden made a somewhat similar statement. The US economy suffered a massive blow in the first half of 2020. In the second half of the year, it bounced off the bottom and started recovering. At the end of 2020, the country’s GDP was lower than a year earlier, yet its drop was relatively small. The economy seemed to have rolled back to where it stood in the first quarter of 2019, amounting to some $20.9 tln. In 2019, it stood at $21.3 tln.
In this situation, our ‘ghost’ economist should be concerned about the stance voiced his opponents, modern American neoliberal economists, who claimed that despite the global instability in 2008-2020, the US economy still showed a growth, with the GDP increasing 1.5-fold — which proves its strength and ability to cope with difficulties. Ultimately, they would point out that the economy grew during Obama’s presidency as well as during Donald Trump’s term — so it is expected to do so during Biden’s presidency as well. Shouldn’t the US government be expecting the GDP to increase to $22.68 tln by late 2021? They would conclude that the US economy has shown growth for the new century’s two decades, and no crisis have hindered the process.
However, everything looks different in terms of gold equivalent. Obviously, other countries’ currencies are undervalued against the dollar — but what is the outcome for the United States? In 2020, the country’s GDP equaled just 11 bln ounces of gold, dropping almost threefold since 2000-2001. In the 19th century, this would be considered a disaster. Back then, the concept of GDP was not used, but services were not taken into account either; things to consider included the annual volume of exports and the cost of manufactured industrial and agricultural products. This was a different and more transparent approach. However, even with today’s unfair calculations (the definition of GDP), it is obvious that the US economy has suffered immense losses in product value.
The total GDP fails to indicate any growth or even stagnation but shows huge losses, albeit loosely calculated. Upon saying that, the Victorian era economist would sadly take off his top hat and shake his head — given that he has yet to evaluate the US debt equaled in gold and calculate the debt-to-GDP ratio.
By Vasily Koltashov, Head, Center for Political and Economic Studies, New Society Institute