The Mirage of a Booming US Economy: Why Many Americans Remain Dissatisfied

Introduction

As the 2024 U.S. presidential election approaches, the state of the U.S. economy is again taking center stage. On the surface, the economy appears vibrant, with nearly 3% growth sustained for nine consecutive quarters, attracting significant foreign investment and boosting America’s share in the global stock market index to a record 60%. However, despite these headline numbers, a significant portion of American voters remain pessimistic about their financial future. This paradox raises the question: why are so many Americans unhappy with an economy that looks strong from a distance?

The answer lies in the disparity in economic experiences across income levels. While this period of growth has benefited the wealthiest segments of the population, it has left many middle- and lower-income Americans feeling as though they’re being left behind. The richest Americans, whose wealth and spending habits drive the economy, enjoy most of the gains. The recent growth, therefore, isn’t distributed evenly; it’s an illusion of widespread prosperity in what is increasingly becoming a "gilded economy"—one where wealth is highly concentrated and economic power lies disproportionately with the richest corporations and individuals.

Overview 

• US boom fueled by government debt, not private growth.

• Deficit doubled, pushing public debt to historic highs.

• Corporate profits rise with government borrowing.

• Bond vigilantes are raising global interest rates.

• Future economic stability is at risk due to rising debt.

A Wealth Gap Widening Faster Than Ever

Much of the growth in consumer spending is driven by the wealthiest 20% of Americans, who now account for around 40% of all spending, a record-breaking divide according to Oxford Economics. In contrast, the bottom 40% of earners are struggling with rising costs of essentials like food, housing, and healthcare. This widening gap means that discretionary spending—on items such as dining out, entertainment, and travel—has become a luxury reserved for the wealthiest, while many Americans can barely cover basic expenses. This lopsided spending not only dampens broader economic optimism but also increases the resentment felt by those who are economically sidelined.

Additionally, the Covid-19 pandemic had a long-lasting impact on consumer confidence, and it has yet to rebound for lower- and middle-income Americans. While wealthier consumers have seen their financial positions stabilize or even improve post-pandemic, optimism remains scarce among those on the lower rungs of the economic ladder. Discretionary spending—an indicator of economic confidence—is significantly higher among wealthy households, highlighting a stark disparity in how different groups feel about their financial futures.

The Concentration of Corporate Power

The wealth disparity extends beyond individuals to corporations as well. In the stock market, the 10 largest U.S. companies now account for 36% of the market’s total value, an unparalleled level of concentration that hasn’t been seen since tracking began in the 1980s. This market dominance has reached an astonishing level, with the most valuable company in the U.S. valued 750 times higher than a company in the bottom quarterly, an indicator of how the stock market’s gains are concentrated at the top. This widening corporate chasm not only reflects but also exacerbates economic inequalities, as smaller businesses face increasing uncertainty and struggle to survive amid skyrocketing operational costs and competitive pressures from tech giants.

In fact, small business owners’ confidence has reached recession-like lows. These owners, the backbone of the American economy, are increasingly concerned about their future amid rising costs, unstable consumer demand, and competitive pressures from large corporations. The allure of tech giants as “engines of growth” that draw substantial foreign investments only deepens the divide, as these companies capture the bulk of both market share and attention from international investors.

The US Economic Boom: Fueled by Debt and On Borrowed Time

Typically, economic booms are driven by an expansion of private-sector borrowing, with households and businesses taking on more debt to fund growth and spending. In times of expansion, private sector investments flourish, and government borrowing is usually reserved as a counterbalance, ramping up later to help soften the blow when growth eventually slows. But this time around, the story is different. The U.S. government is leading the borrowing spree, pushing deficits to historic highs. Over the past decade, the federal deficit has doubled to exceed 6% of GDP, with projections showing it may expand even further in the coming years. Public debt has skyrocketed, adding a staggering $17 trillion in just the last ten years—equaling the cumulative rise in debt seen over the previous 240 years since the U.S. was founded.

Deficits and Corporate Profits: An Economic Tug-of-War

The impact of this government-led borrowing is multifaceted, particularly as it interplay with corporate profits. According to a key economic insight known as the “Kalecki-Levy equation,” U.S. corporate profits have a longstanding relationship with government deficits, a phenomenon observed as early as 1908. Simply put, when the government spends more than it takes in, the resulting deficit essentially mirrors private savings, which includes corporate profits. Over recent years, this effect has been particularly potent. The surge in public spending and borrowing has fueled an equally powerful rise in corporate profits, boosting major corporations while widening the gap between economic winners and losers.

Interestingly, both major political parties—the Democrats and the Republicans—seem largely indifferent to the rising deficit, focusing more on short-term wins than long-term financial stability. This bipartisan indifference has fostered an environment where there’s little resistance to continually increasing government borrowing. With so much cash flowing through the economy, fueled by government-backed dollars, it raises the question: why stop borrowing if it appears to keep the economy afloat?

The Arrival of the "Security Vigilantes" and Increasing Loan costs

However, the global economic landscape has changed. The days of near-zero interest rates are over, replaced by a period where so-called “bond vigilantes”—investors who react sharply to fiscal mismanagement—are reasserting their influence. This resurgence began two years ago, with vigilant investors holding countries accountable for fiscal irresponsibility. Starting with frontier markets like Sri Lanka and Ghana, these bond vigilantes moved to emerging markets such as Brazil and Turkey and have now targeted developed economies, first the UK and recently France. Although the U.S. dollar remains the world’s preferred reserve currency, offering some insulation against immediate pressures, history suggests no country is immune from consequences forever.

As the U.S. continues to run substantial deficits, signs are emerging that these forces are nudging interest rates upward. The cost of debt is rising, making it more expensive for the government and private sector alike to borrow. For a nation with swelling public debt, this shift in borrowing costs could spell trouble, potentially placing a significant strain on future economic growth. Throughout history, empires have faced steep declines when they could no longer finance their debts, and if current trends continue, the U.S. may find itself grappling with similar issues.

An Economic Balancing Act for the Next President

The stage is set for the next U.S. president to face a daunting economic challenge. Rising deficits, climbing interest rates, and increased pressure from global markets create a perfect storm, raising questions about the sustainability of current growth levels. While foreign demand for U.S. assets, particularly the dollar, has kept the economy afloat thus far, this dependency isn’t a fail-safe.

As history has shown, debt-fueled growth has its limits. The current economic expansion, supported heavily by government spending and borrowing, may appear robust but is fundamentally fragile. The next administration will have to make critical decisions to address these underlying weaknesses, balancing the need for economic reform with the realities of rising public debt.

Conclusion

In conclusion, while the U.S. economy may seem strong on the surface, deeper issues reveal an unsustainable reliance on government borrowing and widening inequalities. With the wealth gap growing, consumer optimism is skewed toward the richest, and corporate giants dominate the market, leaving small businesses and average Americans increasingly uncertain about their economic futures. As the U.S. deficit balloons, there’s a risk of higher interest rates and potential economic instability. The next administration will need to tackle these structural challenges to prevent the boom from becoming a burden.