The lessons from America’s astonishing
economic record
The world’s biggest economy is leaving its peers ever
further in the dust.
If there is one thing that Americans of all political stripes can agree on, it is
that the economy is broken. Donald Trump, who saw trade as a rip-off and
his country in decline, came into office promising to make America great
again. President Joe Biden is spending $2trn remaking the economy,
hoping to build it back better. Americans are worried. Nearly four-fifths tell
pollsters that their children will be worse off than they are, the most since
the survey began in 1990, when only about two-fifths were gloomy. The last
time so many thought the economy was in such terrible shape, it was in the
throes of the global financial crisis.
Yet the anxiety obscures a stunning success story—one of enduring but
underappreciated outperformance. America remains the world’s richest,
most productive and most innovative big economy. By an impressive
number of measures, it is leaving its peers ever further in the dust.
Start with the familiar measure of economic success: GDP. In 1990
America accounted for a quarter of the world’s output, at market exchange
rates. Thirty years on, that share is almost unchanged, even as China has
gained economic clout. America’s dominance of the rich world is startling.
Today it accounts for 58% of the g7’s GDP, compared with 40% in 1990.
Adjusted for purchasing power, only those in über-rich petrostates and
financial hubs enjoy a higher income per person. Average incomes have
grown much faster than in western Europe or Japan. Also adjusted for
purchasing power, they exceed $50,000 in Mississippi, America’s poorest
state—higher than in France.
The record is impressive for many of the ingredients of growth. America
has nearly a third more workers than in 1990, compared with a tenth in
western Europe and Japan. And, perhaps surprisingly, more of them have
graduate and postgraduate degrees. True, Americans work more hours on
average than Europeans and the Japanese. But they are significantly more
productive than both.
American firms own more than a fifth of patents registered abroad, more
than China and Germany put together. All the five biggest corporate
sources of research and development(R&D) are American; in the past year
they have spent $200bn. Consumers everywhere have benefited from their
innovations in everything from the laptop and the iPhone to artificial
intelligence chatbots. Investors who put $100 into the S&P 500 in 1990
would have more than $2,000 today, four times what they would have
earned had they invested elsewhere in the rich world.
One retort to this could be that Americans trade higher incomes for less
generous safety-nets. America’s spending on social benefits, as a share
of gdp, is indeed a great deal stingier than other countries’. But those
benefits have become more European and, as the economy has grown,
they have grown even faster. Tax credits for workers and children have
become more generous. Health insurance for the poorest has expanded,
notably under President Barack Obama. In 1979 means-tested benefits
amounted to a third of the poorest Americans’ pre-tax income; by 2019
these came to two-thirds. Thanks to this, incomes for America’s poorest
fifth have risen in real terms by 74% since 1990, much more than in Britain.
For the world as a whole, America’s outperformance says much about how
to grow. One lesson is that size matters. America has the benefit of a large
consumer market over which to spread the costs of r&d, and a deep capital
market from which to raise finance. Only China, and perhaps one day India,
can boast of purchasing power at such scale. Other countries have sought
to mimic it. But even those in Europe, which have got the closest, have
struggled to become a true single market. Differences in bankruptcy laws
and contractual terms, together with a variety of regulatory barriers, prevent
bankers, accountants, and architects from touting services across borders.
The size and the quality of the workforce matters, too. America was
blessed with a younger population and a higher fertility rate than other rich
countries. That may not be easily remedied elsewhere, but countries can at
least take inspiration from America’s high share of immigrants, who in 2021
made up 17% of its workforce, compared with less than 3% in ageing
Japan.
Another lesson is the value of dynamism. Starting a business is easy in
America, as restructuring it through bankruptcy. The flexibility of the labor
market helps employment adapt to shifting patterns of demand. Already
many of the workers in America who were laid off from Alphabet and other
tech firms at the start of the year are applying their sought-after skills
elsewhere or setting up their own businesses. In continental Europe, by
contrast, tech firms are still negotiating lay-offs, and may think twice about
hiring there in future.
Americans should find the economy’s performance reassuring. If history is
a guide, living standards will continue to go up for the next generation, even
as the country bears the costs of decarbonizing the economy. Yet, resilient
as the growth record has been, there are shadows. The middle class has
seen its post-tax incomes rise by less than those of both the poorest and
the richest. A group of people have fallen into hard times. The share of
prime-age American men who are not in work has been rising for years and
is higher than in Britain, France and Germany. And life expectancy in
America lags shamefully behind others in the rich world, mainly on account
of too many younger people dying from drug overdoses and gun violence.
Tackling such problems should be easier when the economy as a whole is
growing. But America’s poisonous politics are no help.
In addition, the more that Americans think their economy is a problem in
need of fixing, the more likely their politicians are to mess up the next 30
years. Although America’s openness brought prosperity for its firms and its
consumers, both Mr. Trump and Mr. Biden have turned to protectionism
and the politics of immigration have become toxic. Subsidies could boost
investment in deprived areas in the short term, but risk dulling market
incentives to innovate. In the long run they will also entrench wasteful and
distorting lobbying. The rise of China and the need to fight climate change
both confront America with fresh challenges. All the more reason, then, to
remember what has powered its long and successful run.
____________________________________________________
“In
addition, the more that Americans think their economy is a problem in
need of fixing, the more likely their politicians are to mess up the
next 30 years.”
Un altro fatto incontestabile è che senza una
distribuzione più equa dei redditi, i rappresentanti politici di quelli
che si sentono giustamente o ingiustamente ai margini continueranno a
“mess up the next 30 years” (debt ceiling coming up).
PLGori
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