The world is starting 2024 on an optimistic economic note, as inflation fades globally and growth remains more resilient than many forecasters had expected. Yet one country stands out for its surprising strength: the United States.
After a sharp pop in prices rocked the world in 2021 and 2022 — fueled by supply chain breakdowns tied to the pandemic, then oil and food price spikes related to Russia’s invasion of Ukraine — many nations are now watching inflation recede. And that is happening without the painful recessions that many economists had expected as central banks raised interest rates to bring inflation under control.
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Part of the reason that economic growth has been so surprisingly strong in the United States is simple: The American government has continued to spend a lot of money.
Government expenditures as a share of overall output hovered around 35 percent in America in the years leading up to the pandemic, based on I.M.F. data. But in 2020 and 2021, they jumped above 40 percent as the government responded to the coronavirus with about $5 trillion in relief and stimulus to people, businesses, institutions, and state and local governments.
Both states and households have only slowly spent down the savings they amassed during those pandemic years, so the money has continued to trickle through the economy like a slow-release booster shot. On top of that, government spending has remained elevated as the Biden administration has begun to make sweeping infrastructure and climate investments.
Every year is a year where costs of food and costs of living have never been higher because they never go down.