If Spain is the world’s best economy, why are they so unhappy?

Summary

In 2024, Spain was crowned the best economy by The Economist, driven by rapid growth, low inflation, and a booming stock market. However, a significant portion of Spaniards disagrees, with over 63% rating the economy negatively. This paradox is explored through an in-depth analysis of economic indicators like GDP growth, unemployment, and inflation. The research questions whether the rankings are skewed by short-term improvements, and whether the long-term economic stagnation post-2008 contributes to the public's dissatisfaction. Ultimately, the video challenges traditional economic rankings and highlights the importance of considering both macroeconomic data and public sentiment.

Takeaways

• 😀 Spain's economy was ranked as the best in the rich world for 2024 by The Economist, thanks to rapid growth, low inflation, low unemployment, and strong stock market performance.
• 😀 Despite the positive economic indicators, 63% of Spaniards classified their economy as bad or very bad in late 2024, creating a significant discrepancy between the data and public perception.
• 😀 The approach to understanding this disconnect involved researching the data sources used by The Economist to crown Spain as the top economy and questioning the validity of this ranking.
• 😀 The Economist's ranking was based on five key factors: GDP growth, stock market performance, inflation, unemployment changes, and government fiscal balance.
• 😀 One concern with the ranking is that while GDP growth is a key factor, it doesn't account for income per person, meaning Spain's growth could be misleading due to high immigration boosting overall GDP but not individual prosperity.
• 😀 Stock market growth, included in the Economist's ranking, might be a positive indicator for economic optimism, but it didn't explain the negative sentiment among Spaniards.
• 😀 Inflation was considered, though it was already included in GDP and stock market calculations, to account for structural inflation versus volatility due to energy or food prices.
• 😀 Unemployment was included in the ranking as it addresses inequality concerns, but further research showed that Spain's unemployment situation hadn't fully recovered to pre-2008 levels, contributing to the negative perception.
• 😀 The Gini coefficient, a common measure of income inequality, suggested that Spain's inequality was not drastically worse than other countries, but rising inequality could still be a factor in the public's dissatisfaction.
• 😀 The government's fiscal balance, the difference between government spending and revenue, was included in the ranking, but the research concluded that both government and private debt sustainability were key to evaluating long-term economic stability.
• 😀 Long-term economic data, such as GDP per person, unemployment trends, and government debt levels, painted a more accurate picture of Spain's economy, revealing that while the economy showed growth in 2024, Spaniards had concerns based on longer-term stagnation and inequality.

Q & A

Why did The Economist crown Spain as the best economy in 2024?

The Economist ranked Spain as the best economy due to its rapid economic growth, low inflation, declining unemployment, and strong stock market performance in 2024.

Why do many Spaniards disagree with The Economist's ranking?

Despite Spain's positive macroeconomic indicators, over 63% of Spaniards classified their economy as bad or very bad in late 2024, suggesting a disconnect between macroeconomic data and public sentiment.

What was the approach taken to research the discrepancy between macroeconomic data and public opinion in Spain?

The approach was to break down the issue into simpler questions, such as examining the sources of The Economist's ranking, the data used, and whether it accurately reflects the lived experience of Spaniards.

What five factors did The Economist use to crown Spain the top economy in 2024?

The five factors were: 1) GDP growth in Q4 2024, 2) increase in share prices over a year, 3) change in consumer prices, 4) change in unemployment, and 5) change in the government's primary balance (spending vs. taxes).

Why was GDP growth considered a crucial factor by The Economist, and why was it questioned?

GDP growth was considered important as it reflects overall economic health. However, it was questioned because it doesn't account for GDP per person, which better reflects the individual economic experience, especially considering the impact of immigration on economic output.

How did the immigration boom in Spain affect GDP growth in 2024?

The immigration boom, particularly from Latin America, led to a larger population, which mechanically boosted GDP. However, it didn’t necessarily improve the economic experience for Spaniards, as GDP per person grew at a slower rate.

What was the role of stock market price growth in The Economist's ranking?

Stock market price growth was considered a positive indicator of future economic growth, as higher stock prices generally reflect optimism about future profits and economic performance. However, this did not directly address why Spaniards were dissatisfied with their economy.

Why did The Economist include core inflation in its ranking, and was this necessary?

Core inflation was included to account for structural inflation issues, excluding volatile energy and food prices. However, this redundancy in inflation measurement raised questions about its relevance, as inflation was already factored into GDP and stock market growth.

What role did unemployment play in The Economist’s ranking of Spain?

Unemployment was included as it provides a better sense of equality in the economy compared to GDP, which can be skewed by wealth disparities. However, unemployment alone is not a perfect measure of inequality.

How did the research uncover the role of inequality in explaining Spaniards' dissatisfaction with the economy?

Although inequality was considered as a potential factor, the Gini coefficient showed that income inequality in Spain was not drastically higher than in other countries, indicating that inequality alone could not fully explain the negative perception of Spain's economy.

What did the analysis reveal about the sustainability of Spain's economic growth?

The analysis revealed that Spain’s growth, while impressive in 2024, was not necessarily sustainable. Concerns were raised about private debt and the adequacy of government spending, although both appeared manageable compared to other countries.

How does the long-term perspective on economic indicators change the interpretation of Spain’s economy?

Looking at long-term economic indicators like GDP per person and unemployment provides a more accurate picture of the economic experience for Spaniards. This revealed that, although Spain’s economy showed recent growth, it has not yet fully recovered to pre-crisis levels, unlike countries like the Netherlands.

What key difference did the research highlight between Spain and the Netherlands regarding economic sentiment?

While the Netherlands had a stronger economy overall, Spaniards were more negative about their economy, even though the Dutch economy did not rank as highly in The Economist’s 2024 assessment. This contrast highlighted the importance of long-term economic stability versus short-term growth.

Why does the researcher argue that The Economist’s economic rankings might not be appropriate?

The researcher argues that The Economist’s ranking, which focuses on short-term improvements, overlooks the long-term structural issues that affect people’s daily lives. Economic rankings should consider total economic strength rather than just year-over-year changes.

What is the researcher’s opinion on the utility of The Economist’s subscription despite criticisms of its rankings?

Despite criticizing The Economist’s ranking methodology, the researcher recommends subscribing to The Economist because it provides valuable, well-researched insights into global economic trends and offers multiple perspectives on various issues.