On February 28, the U.S. Economic Survey (BEA) released the second estimate of GDP in the fourth quarter of 2023 and 2023. The data showed that the rough estimate of U.S. real GDP in 2023 increased by 2.5% year-on-year, 0.6 percentage points higher than that in 2022. Judging from the data, the US economy is "in good shape", which is the confidence of the US and the West to wantonly empty China's economy recently.

Breaking the "illusion" of American economic indicators and restoring the real America may be our winning strategy to win the "economic public opinion war".

01. The basic logic of American economic accounting: inflated consumption by extreme marketization means

Following the accounting revenue and expenditure system, the US Economic Survey has constructed two complementary GDP accounting methods: income method and expenditure method. Among them, the income method is used to calculate the productive income of households, enterprises and the government (hereinafter referred to as the "three sectors"), which is prepared with reference to the enterprise income statement; The expenditure method accounts for the expenditure of the three sectors, namely the so-called troika of consumption, investment and net export. The GDP of the two accounting methods is roughly the same.

Source: pixabay

The expenditure method increased household consumption by more than 30% by means of inflated consumption and price effect. The expenditure method follows the accounting principle of "no free lunch", that is, all activities of daily life generate consumption expenditure, which includes actual paid consumption and non paid consumption converted by market price, the latter constitutes a false increase in consumption.

The inflated consumption includes four major parts: the market rent of self owned housing, government paid medical expenses, medical services provided by public welfare hospitals and other services provided by public welfare organizations. The inflated consumption shows an increasing trend year by year, with the inflated consumption of US $2.45 trillion in 2007 and US $3.09 trillion in 2022.

In addition, there are 2.68 trillion dollars of price effect expenditure in the expenditure method accounting, including the price difference of second-hand car transactions, medicine and various medical expenditures, software expenditures, etc. In 2021, the medical and medical expenditure of the US household sector will be $4.25 trillion, accounting for 25.4% of the household consumption in 2022. In contrast, the domestic medical expenditure (household payment and government transfer payment) will account for 11.7% of the consumption expenditure.

In the US household consumption increase from 2007 to 2022, the false consumption increased by $641.2 billion and the price effect increased by $1.055 trillion, accounting for 33.42% of the household consumption increase.

Beautiful consumption data masks the increasingly fragile income and expenditure of American households. From the perspective of the two accounting methods, enterprises and government subsidized the consumption deficit of the household sector in the form of a large proportion of dividends and fiscal deficits, which shows the strong consumption data of the US household sector. However, the income and expenditure data of the US household sector does not support the above conclusions, but reflects the fragile income and expenditure situation of middle and lower class residents.

After World War II, the government transfer payment and the continuous growth of property income (interest and dividend) are the two pillars of the growth of American family income. The low interest policy implemented since 1989 has eliminated the pillar of property income. The government transfer payment has become a lame duck supporting the growth of American family income. The economic growth after the epidemic is even the "monster" that the federal government promoted by issuing national debt 。

Taking data as an example, in 1947, property income and government transfer payments accounted for 7.99% and 6.62% of American household income respectively. Among them, the proportion of property income reached its peak of 20.9% in 1989, and then declined sharply, reaching 15.68% in the third quarter of 2023. The proportion of government transfer payments has soared, reaching a new high of 21.96% in 2020.

The actual data shows that the US government's "sending money" relief measures have not improved the income and expenditure situation of American families, but exacerbated the deterioration of the situation. Since 2021, the annual savings of the US household sector (the total income of that year minus the inflated rent) has plummeted. Since 2022, the annual savings of the household sector has continued to be negative, of which the income and expenditure deficit of the household sector in 2022 was $280.5 billion.

Since World War II, the annual savings of the US household sector has been negative only briefly in 2005, with a deficit of US $46.4 billion. Two years later, the US entered the subprime crisis. This time, the deficit of the US household sector is even bigger, with a cumulative deficit of US $439 billion since 2022. This indicator is the real situation of the US economy. It can be predicted that in 2025, the deficit of income and expenditure of the US household sector will exceed trillion US dollars.

Based on all data, this round of economic growth in the United States is a growth illusion driven by the federal government's deficit. It is not only unsustainable, but also highly destructive.

By the end of fiscal year 2023, the total debt of the US governments at all levels was US $33.16 trillion. Compared with the end of 2018, the short-term debt increased by 242% year on year, and the medium and long-term debt increased by 157% year on year. The US government is increasingly dependent on short-term debt. Taking fiscal year 2023 as the base, the short-term debt of the U.S. government is $5.67 trillion, and the superimposed debt interest is $905.7 billion. In the next 5-10 years, the annual debt repayment pressure of the U.S. government will not be less than $6.5 trillion, and is expected to exceed $10 trillion.

The US government not only borrows external debt, but also owes government employee pensions internally. By the end of the second quarter of 2023, the US federal government employee pension plan had a deficit of $1.44 trillion, and the pension deficit of government employees at and below the state level was $417.6 billion. It can be predicted that the US debt crisis is inevitable. Once the US debt crisis breaks out, it will be a tragedy for 90% of American families.

In 2020, the US government saved the family sector and itself by issuing bonds in a sudden attack, which not only covered up the essence of the US economy, but also created a beautiful "counter trend growth". However, with the deficit of income and expenditure of the US household sector exceeding one trillion dollars in the coming years, and the issuance trend of the US government dominated by medium and short-term debt, the US may not survive the next crisis.

02. Structural contradictions and "systematic poverty" in the US economy

In the past 30 years, the US GDP accounting system has been constantly revised, attempting to cover up the structural contradictions within the sectors with the total balance of the three sectors, which has created the "illusion" of consumption supporting economic development. With this indicator system, the United States peddles the development idea of consumerism around the world, that is, to simply drive economic growth with consumption.

The basic layer of structural imbalance: false prosperity. The false increase in income is another algorithm for the United States to cover up structural contradictions. In GDP accounting, the expenditure method and the income method are the two ends of the accounting revenue and expenditure. The false increase of consumption under the expenditure method corresponds to the false increase of income under the income method. Under the income method, the inflated income is mainly realized through the market rent of self owned housing and the operating surplus of public welfare organizations. The former is included in the depreciation of the household sector, and the latter is included in the operating surplus of the enterprise sector.

In 2022, the accumulated depreciation of the U.S. family sector will be $800.3 billion (actually, it is the market rent income), and the operating surplus of public welfare organizations will be $2.43 trillion, totaling $3.23 trillion. After deducting the real rent and the actual surplus of public welfare organizations, it is equivalent to the inflated consumption under the expenditure method. After the balance of income and expenditure, US $3.09 trillion can be deducted from the US GDP, so the US effective GDP will be $22.654 trillion in 2022.

The distribution layer of structural imbalance: upward flow. The price effect under the expenditure method becomes the real GDP in the form of corporate profits, and the distribution of this part of GDP is the essence of the American economy. Under the expenditure method, the value-added part of second-hand car transactions is included in the profits of trading platform enterprises, and the growth part of pharmaceutical and medical expenses is included in the profits of pharmaceutical and medical insurance enterprises, both of which are included in GDP. From the perspective of the accounting structure of the expenditure method and the income method, the corporate sector returned this part of profits to the household sector in the form of dividends, with a total return of 1.83 trillion dollars in 2022.

According to the data released by the Federal Reserve, in 2022, the proportion of equity assets held by 10% of Americans with income will be 88.75%, which means that out of the $1.83 trillion, $1.62 trillion will go to the rich, and the other 90% will only get $205.8 billion.

Excluding the rich holding high priced stocks with high dividends and the poor holding low priced stocks with low dividends, the other 90% of the population may receive less than $150 billion in dividends. The distribution of this part of GDP has seen through the essence of the American economy, that is, the upward flow of income.

The innovative layer of structural imbalance: cycle circling. The essence of American financial innovation is to continuously increase asset prices and increase the proportion of financial assets in household assets in disguised form. But this innovation is a game for the rich, and the financial assets of middle and lower class families only return to the origin periodically.

According to the household sector data released by the Federal Reserve, the total assets of the US household sector in 2022 will be US $156.3 trillion, and the net assets will be US $137.6 trillion. According to the data, the American family sector is very solid, which is also the iron evidence that most people yearn for the United States, but it is only the United States on the surface. The real America is hidden in the 156 trillion yuan structure.

Of the 156 trillion yuan, equity assets accounted for 80.7 trillion yuan and property accounted for 42.3 trillion yuan, accounting for 78.8% of the total. It can be said that the wealth of the United States is based on the rise of asset prices.

Since the introduction of the 401K plan (a pension account jointly shared by employers and individuals promoted by the U.S. government, editor's note), more than 60% of the middle and lower class pensions in the United States have been allocated with stock assets. Every time a financial crisis occurs, the wealth of the bottom class families in the United States has shrunk by about 20%.

In 2000, the Internet bubble burst, and the pension losses of the bottom families were 12.6%, and the total losses of pension and financial assets were 19.76%; After the subprime crisis in 2007, the pension loss of the bottom families was 14.6%, and the total loss of pension and financial assets was 18.6%. After each round of slump, it will take at least five years for the pension of the bottom families to recover to the starting point before the slump. In 2005, it recovered to the level of 2000, and in 2013, it recovered to the level of 2007.

After two cycles, the distribution of wealth in the United States has become increasingly unbalanced. In 2022, the assets of the top 10% will account for 63.4%, 8.72 and 5.69 percentage points higher than that in 1998 and 2008, respectively. In 2022, the assets of the bottom 50% of households will account for only 6.03%.

The above three levels of structural contradictions have created the current United States: on the one hand, the medical service industry has increased service prices in disguised form by increasing the supply of innovative drugs, while creating a "consumption boom" under the expenditure law and rising profits under the income law, supporting the "American illusion" of consumption driving the economy; On the other hand, the endless product innovation in the financial industry has promoted the expansion and concentration of household sector assets and accelerated the upward flow of wealth.

The superposition of the two trends has formed the following fact: the U.S. economy is increasingly dependent on innovation in high priced service industries and financial industries, resulting in "systematic poverty" of middle and lower class residents.

03. Institutional repair of "systematic poverty": the government with high debt and the shrinking middle class

As a remedy for "systematic poverty", the scale of transfer payments by the US government is increasing. Without a corresponding increase in the income account, the unilateral growth of government expenditure to repair institutional loopholes is not only unsustainable, but also more likely to consume reasonable elements of economic growth, resulting in a more deformed economic and social structure.

On the expenditure side, all attempts by the US government to repair "systematic poverty" are essentially to deliver benefits to high priced service industries. Since 1981, the federal government's expenditure on medical care has increased by 24.8 times, and the fiscal revenue and expenditure in the same period have increased by 7.4 times and 9.1 times respectively.

Corresponding to this is the rapid growth of profits in the US medical industry. In 2022, the pre tax profits of companies in the US medical industry will be 11.5 times that of 1998, and the industry average in the same period will be 4.7 times, while the household consumption expenditure and medical expenditure in the same period will be 2.9 times and 3.5 times that of 1998 respectively.

In fiscal year 2023, the total expenditure of governments at all levels in the United States on medical transfer payments is $2.59 trillion, accounting for 27.8% of the fiscal expenditure of the year. Under the current medical system, all the efforts of the US government to repair "systematic poverty" are doomed to be useless.

In addition to medical insurance transfer payment, income transfer payment is the second largest expenditure of the US government, with an expenditure of $2.26 trillion in fiscal year 2023, accounting for 24.3% of the fiscal expenditure of the year. Medical care and transfer payments accounted for more than half of the total, but the debt ratio of the bottom 50% of households in the United States rose year after year, reaching 64.8% in 2022, nine points higher than that in 1998. In contrast, the debt ratio of the rich has declined.

The reverse change of the debt ratio is an overall negation of the US government's efforts to repair "systematic poverty".

On the income side, the US tax system has caused the objective fact that the middle class is shrinking. The United States pursues a direct tax system, that is, it mainly collects income tax. In the 2023 fiscal year, the United States federal tax includes 2.5 trillion yuan of personal income tax, 1.5 trillion yuan of social security tax and 475 billion yuan of corporate income tax.

Individual income tax is the main source of transfer payment of the US government. Taking the individual income tax rate at the federal level as an example, the comprehensive tax rate for individuals with an annual salary of $120000 is about 10%, and the comprehensive tax burden for low - and middle-income families in the United States is not less than 10%, including California income tax and government income tax below the state level. In contrast, the rich mainly hold stocks and options. As long as there is no asset trading activity, there will be no income tax. At the same time, they can hire professional accounting firms to fabricate various deductions to avoid personal income tax. Therefore, the middle and low income groups, especially the middle class, are the main contributors to American tax revenue.

From both ends of the income and expenditure perspective, the main measure taken by the US government to repair "systematic poverty" is to redistribute within the low-income groups, that is, tax the middle class to improve the welfare of low-income groups. This repair method has led to the loss of collective welfare of low - and middle-income groups in the United States. Judging from the distribution of the existing assets of the United States, this repair method failed, and it destroyed the foundation of the economic growth of the United States after World War II.

The "systematic poverty" of the United States began with the Reagan Administration's New Deal, which weakened the ability of the federal government to regulate the income gap through secondary distribution. According to the data released by the World Bank, the Gini coefficient of the United States soared during the Reagan and Bush administrations. This change reveals the essence of the American economic system: naked capitalism.

Reagan and Bush Sr

In the eyes of liberals, Reagan's New Deal is a "good policy" that "hides wealth in the people", but its essence is a "bad policy" that hides wealth in "companies" and "the rich" and strangles the poor to share the growth of economic aggregate.

04. Enlightenment from American economic problems

Since the Reagan Administration, the essence of American economic growth can be summarized as: the "price escalation" of consumption and the "top inflation" of income, the former delivering continuous dividends and equity appreciation to the latter. This abnormal growth structure provides a negative case for Chinese modernization. We should "take beauty as a warning".

Enlightenment 1: We need to expand the quantity and upgrade the quality of consumption, rather than simply "price upgrade"

The United States has created the "American model" of single consumption driving economic growth with its unique indicator "innovation". Most mainstream economists take the United States as the standard and propose that China's economic growth should also be driven by consumption. Compared with the aggregate effect of consumption driving growth, we should pay more attention to the structural effect of consumption.

Take medical consumption as an example. Its upstream is only hospitals, pharmaceutical manufacturing and chemical synthesis. The result of expanding medical consumption is inevitably the "price upgrade" of consumption. The concentration of consumption continues to increase, and the total expenditure increases, but the people's happiness index is very low. Therefore, we should do the opposite, reduce the concentration of consumption, and promote consumption upgrading through supply side reform by increasing consumption types and improving consumption quality, while driving employment expansion and the proportion of labor income in the initial distribution.

The core of American consumption upgrading is price rise, and our core is supply expansion. There is a basic premise here: structural growth based on consumption classification, consumption classification is the premise, and structural growth is the long-term strategy.

The Big Rush During the Black Five

Enlightenment 2: We need financial innovation with downward compatible income, rather than "interest capture" with upward flow

The core of American financial innovation is multi-level financial nesting, which is the inevitable result of the shrinking supply of real assets. With the expansion of the depreciation of stock assets, the rights and interests and dividends are increasingly concentrated in the hands of minority shareholders, forming a de facto monopoly of rights and interests and "interest collection".

We should focus on expanding the scale of real assets, increasing the supply of equity, lowering the threshold for equity dividends, and forming a de facto inclusive financial system.

In terms of indicators, the core of American financial innovation is to improve the price to book ratio (PB), while our core is to reduce PB. Two social systems, one positive and one negative, will inevitably lead to financial manipulation under supply shortage by improving PB, and reducing PB is actually inclusive finance with abundant equity supply.

Inspiration 3: We need an indicator system that gives consideration to both name and reality and focuses on seeking truth from facts, rather than whitewashing the number game of Taiping

The premise of GDP indicator is the monetization of real economy, and its accounting is still at the level of fetishism. Simply calculating GDP will inevitably fall into the "GDP only" digital game, thus ignoring the structural problem, which is neither in line with the basic principles of Marxism nor in line with the historical tradition of dialectics.

When carrying out international comparison, we should not only use PPP indicators for total amount comparison, but also use the newly established indicator system to carry out structural comparison. Taking consumption as an example, create a "consumer happiness index", which is calculated based on the proportion of non-medical, accommodation and medical consumption. Thus, the "consumer happiness index" of Chinese and American household sectors in 2022 will be 7.8 and 2.9 respectively. Considering the impact of income on medical consumption, we can compare it according to different income groups to reduce the deviation caused by high indicators in low-income countries.

In addition, the financial inclusion index can also be set by aggregating the per capita equity share, average equity price, equity availability and other indicators.

Editor: Qi Yue