The news regarding the US economy has been very good lately. Our job market has recovered, and by and large, from the covid virus, defying predictions that predicted permanent “scars” from pandemic disruption. Inflation has fallen, and it has fallen faster than any other major developed economy. At the same time, economic problems seem to be spreading abroad, especially in China, where the end of the “genetic zero” policy has not led to the expected recovery in the economy.
Probably inevitably, lately I sensed a change of heart in the way the United States sees itself in the world. America’s Victory – We’re Number One! – He returns to the charge. As always, we must curb enthusiasm. Our place in the world is never as good or bad as popular wisdom claims at any time. The downside to bragging too much about our relative scores is that we may not learn from the things other countries do better.
I say this as someone who has seen us go through many ups and downs on this front. We have gone through the frenzy of “Dawn of America” in the mid-1980s, followed by the bleak mood of the early 1990s: “The Cold War is over, Japan wins.” Then came the wave of victory in the late 1980s, when the United States temporarily took the lead in making profits from the Internet, then it retreated as other countries entered the Internet as well, and the productivity gains brought by technology were dissipated, and we entered the global financial crisis, and China emerged as a strong economic competitor.
Now boasting has returned, with a particular focus on ruining Europe’s economic outcomes. For example, I’ve seen expectant media say more things like, “The US economy is roughly twice the size of the Eurozone. In 2008 it was about the same,” as can be read in a graph of The Wall Street Journal.
Not exactly a false claim, but very misleading. It is true that in 2008 the dollar value of GDP was only 4% higher than in the Eurozone – while in 2022 the US dollar value of GDP was 81% higher. But most of this growing disparity reflects the depreciation of the euro relative to the dollar in the currency markets, not actual differences in economic growth. And as any international economist can tell you, a strong currency is nowhere near as strong as a strong economy.
When measured in purchasing power parity, that is, after adjusting for differences in the cost of living, the US economy was 15% larger than that of the eurozone in 2008; Now the percentage has increased to 31%. The difference in growth is still significant, but the gap is not as large as the dollar numbers might imply. And roughly half of the performance gap that still exists if you look at the right numbers simply reflects demographics. (Demographics, by the way, is a very important factor when comparing the economic performance of the United States to that of Japan, whose working-age population is rapidly declining.) The working-age population in the United States has increased by nearly 6% since 2008, while the population in the eurozone has declined by more than 1%. Adjusting for differences in the growth rate of the respective populations still leaves Europe a relatively underperformer, enough to be significant and require an explanation, but not enough to justify the doomsday rhetoric some Americans have.
Put it this way: If we just compare the dollar value of GDP in the US and Europe, the actual difference in economic performance is likely to be overstated by as much as 10 times.
My conclusion is that all modern economies have roughly the same level of technology. They are also capable of doing extraordinary things when they set their minds to it. Have you noticed how quickly Pennsylvania was able to reopen I-95 after part of this essential highway collapsed? But our societies often make different decisions. Some of these decisions are just decisions for which there is not necessarily a right answer. For example, one of the reasons European countries tend to have a GDP per person Inferior to their workers is that their workers have many vacations. We have more things, they have more time. There is nothing written about tastes and all that.
However, there are other areas in which some countries are almost certainly at fault. Perhaps it reflects the lower growth rate in EuropeIn part, a lack of flexibility and resistance to innovation. On the other hand, Americans should be asking why we seem to be worse at building livable cities or, for one important aspect of life, not dying: life expectancy was much lower than in comparable countries even before coronavirus.
The point is that developed countries are, in important ways, laboratories of economic and social policy: no one is better at everything, and we can learn a lot by looking at the things other countries seem to do better than we do. However, Americans have always had a hard time learning from the experiences of other countries. A return to economic victory will reinforce this isolationist trend, especially if we get rid of the numbers that greatly inflate our relative results. The US economy has been doing well lately, but we must not let success go to our heads.
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