The American economy? A fairy tale. Word of the Economist
Although Americans of all political spectrum agree that the US economy is in crisis, according to the Economist, anxiety overshadows an extraordinary success story, making the country the wealthiest, most productive and innovative large economy in the world. world
If there's one thing Americans of every political spectrum can agree on, it's that the economy is in trouble. Donald Trump, who saw trade as a rip-off and his country in decline, took office promising to make America great again. President Joe Biden is spending $2 trillion to remake the economy, hoping to rebuild it better. Americans are worried. Nearly four-fifths tell pollsters their children will be worse off than they are, the highest figure since the poll began in 1990, when only two-fifths were so morose. The last time that many people thought the economy was in such terrible shape, it was in the midst of the global financial crisis.
However, anxiety overshadows a remarkable success story – an enduring but unappreciated performance. America remains the wealthiest, most productive and most innovative large economy in the world. By a staggering number of measures, it is leaving its counterparts increasingly in the dust – writes The Economist .
Let's start with the familiar measure of economic success: GDP. In 1990 America accounted for a quarter of world output, at market exchange rates. Thirty years later, this share has remained almost unchanged, even as China has gained economic weight. America's dominance of the rich world is astounding. Today it accounts for 58% of the G7's GDP, up from 40% in 1990. When purchasing power is taken into account, only the richest oil countries and financial centers have higher per capita incomes. Average incomes have grown much faster than in Western Europe or Japan. Always adjusted for purchasing power, they exceed $50,000 in Mississippi, America's poorest state, higher than in France.
The record is equally impressive for many of the growth ingredients. 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 undergraduate and postgraduate degrees. True, Americans work longer hours on average than Europeans and Japanese. But they are much more productive than both.
American companies own more than a fifth of patents registered abroad, more than China and Germany combined. All of the top five corporate sources of research and development (R&D) are American; in the last year they spent 200 billion dollars. Consumers around the world have benefited from their innovations, from laptops to iPhones to AI-powered chatbots. Investors who invested $100 in the S&P 500 in 1990 would today have more than $2,000, four times as much as they would have earned had they invested elsewhere in the rich world.
One retort might be that Americans trade higher incomes for less generous safety nets. US spending on welfare benefits, as a percentage of GDP, is in fact much tighter than that of other countries. But these benefits have become more European and, as the economy has grown, have grown even faster. Tax credits for workers and children have become more generous. Health insurance for the poorest has expanded, particularly under President Barack Obama. In 1979, economic benefits amounted to a third of the pre-tax income of the poorest Americans; in 2019 they reached two-thirds. As a result, the incomes of the poorest fifth of Americans have risen in real terms by 74% since 1990, far more than in Britain.
For the world as a whole, America's superior performance tells us a lot about how to grow. One lesson is that size matters. America has the advantage of a large consumer market across which to spread R&D costs and a deep capital market from which to raise finance. Only China, and perhaps one day India, can claim purchasing power of this magnitude. Other countries have tried to imitate him. But even the European ones, which have come closest, have struggled to become a true single market. Differences in bankruptcy laws and contract terms, coupled with a range of regulatory barriers, prevent bankers, accountants and architects from offering services across borders.
The size and quality of the workforce also matters. America has been blessed with a younger population and a higher fertility rate than other wealthy countries. It is not easy to remedy this situation elsewhere, but countries can at least draw inspiration from the high proportion of immigrants who will make up 17% of the workforce in 2021, compared to less than 3% in aging Japan.
Another lesson is the value of dynamism. Starting a business is easy in America, as is restructuring through bankruptcy. Labor market flexibility helps employment adapt to changing patterns of demand. In America, many of the workers laid off by Alphabet and other tech companies earlier this year are applying their sought-after skills elsewhere or setting up their own businesses. In continental Europe, however, tech companies are still negotiating layoffs and may reconsider in the future.
Americans should find the performance of the economy reassuring. If history is any guide, living standards will continue to rise for the next generation, even as the country bears the costs of decarbonizing the economy. However, while growth has been solid, there are shadows. The middle class has seen its after-tax income increase less than that of the poorest and richest. A group of people has fallen on hard times. The percentage of older American men out of work has been on the rise for years and is higher than in Britain, France and Germany. And life expectancy in America lags shamefully behind other rich countries, largely due to too many young people dying from drug overdoses and gun violence. Addressing these issues should be easier when the economy as a whole is growing. But America's poisonous politics won't help.
Plus, the more Americans think their economy is a problem to fix, the more likely their politicians are to screw up the next 30 years. While America's openness has brought prosperity to its businesses and consumers, both Trump and Biden have shifted to protectionism, and immigration policy has become toxic. Subsidies could stimulate investment in disadvantaged areas in the short run, but risk dampening market incentives for innovation. In the long run, they will also reinforce wasteful and distortive lobbying. The rise of China and the need to combat climate change present America with new challenges. All the more reason, then, to remember what fueled his long and successful run.
(Excerpt from the foreign press review by eprcomunicazione )
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/economia-americana-una-favola-parola-economist/ on Sun, 23 Apr 2023 06:11:07 +0000.