Readers of a certain age may recall that 30 years ago there was a widespread feeling that America’s days as an economic powerhouse were numbered. The sense of decline was captured by two bestsellers, both published in 1992: Michael Crichton’s novel Rising Sun, which envisioned a future dominated by Japan, and Lester Thurow’s Head to Head, which depicted a struggle for supremacy among the United States Representing states of Japan and Europe that America would likely lose.
Obviously it didn’t turn out that way. Today, America faces a real geopolitical challenge from China, which has emerged as a real economic superpower. But the US economy has left other wealthy nations in the dust.
The Economist recently highlighted this divergence with a cover story entitled “America’s Astonishing Economic Record,” which was the starting point for a column by my colleague David Brooks (appears on the Opinion page of the Free Press). And the US economy has certainly defied those dire predictions of three decades ago.
Still, it’s important to understand some qualifications for this record. In a way, America’s economic achievements have been less impressive than they appear. And American society is not doing well at all.
I can imagine that some of my American readers have recently visited European countries or Japan; Some, like me, have revisited them over the years. Did these nations strike you as poor and backward? Did they feel they were further behind the US than, say, 15 or 20 years ago?
I would say no My personal feeling is more that a technological divide between the United States and Europe had opened up in the early 2000s because we were using the internet more widely at a faster rate, but that gap has all but disappeared since then.
How can this sense be reconciled with the enormous discrepancy in economic growth? Demographics is a big part of the answer. Thanks to a combination of higher birth rates and greater immigration, America’s population, particularly the working-age population — typically (albeit awkwardly) defined in international statistics as people aged 15 to 64 — has been growing much faster than that of many advanced-country rivals. If you look at growth per working-age adult, the United States still leads, but the gaps — particularly with Japan — are much smaller.
France still looks weak in this comparison, but much of it reflects the fact that, unlike Americans, the French generally take vacations and, unlike us, have taken some of the gains from economic growth in the form of more leisure time. Productivity — output per man-hour — has grown faster in the United States than anywhere else, but the gap isn’t huge.
So, when you factor in demographics and work-life balance decisions, while the US’s outperformance looks real, it looks far less impressive than gross domestic product alone would suggest.
But even with these qualifications, our economic growth has been good by the standards of advanced countries. Should we be feeling triumphant?
Well, I’m not one of those people who thinks that GDP is a horrible, horrible, useless measure and that governments have bad policies trying to maximize this erroneous number. For one thing, GDP tells us how much stuff an economy can produce, and that’s useful information. Second, if you believe that governments have a coherent strategy to maximize economic growth, or in fact maximize anything, you are hopelessly romantic about how policy decisions are made.
However, it is always important to remember that GDP tells us, at best, how much a society can afford. It doesn’t tell us if the money is well spent; A high GDP does not necessarily lead to a good quality of life. Individuals can be rich but miserable; countries can too.
And there’s good reason to think America is misusing its economic growth.
Most obviously, one important factor in the quality of life is, you know, not dying. And although America has progressed economically, we have seen a staggering drop in life expectancy compared to other advanced countries.
When an economy grows, there is always the question of who benefits. In recent decades, America has seen sharp increases in the income share of a few people at the top of the income distribution, leaving the middle class with much smaller income gains than overall economic growth suggests. According to the team compiling ‘distributional accounts’, increases in median income overestimate increases benefiting around 85% of the population.
Inequality has also increased in other countries, but not to the same extent as here. So impressive US economic performance may not translate into a comparably impressive increase in the standard of living for typical Americans. Do we care that the rich can afford more and bigger superyachts?
Again, the US economy has proven more vibrant and resilient than many people expected a few decades ago, and we have asserted our status as an economic superpower, belying predictions that we were doomed to relative decline. But curb your enthusiasm: the numbers aren’t really as good as they look, and there are shadows hanging over America that aren’t captured by GDP.
The New York Times
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