Skip to comments.America's economic hegemony is safe
Posted on 04/25/2006 12:51:15 AM PDT by MadIvan
BARRING some wholly unexpected statistical oddity, we will get another spectacular signal of the health of the American economy this Friday.
The gross domestic product figures for the first quarter are expected to show that America’s output expanded at an annual rate of about 5 per cent in real terms in the three months to the end of March. In this age of exaggerated gloom about the condition of the world, with all its imbalances, inequalities and uncertainties, it is worth pausing for a moment simply to reflect on the scale of US economic success.
Given that the United States is a $12 trillion ($6,700 billion) economy, the new data mean that in the first quarter the US added to global output an amount that, if sustained at that pace for a year, would be about $600 billion — roughly the equivalent of adding one whole new Brazil or Australia to global economic activity every year, just from the incremental extra sweat and heave and click of 300 million Americans.
Think of it another way. In an era in which China embodies the hopes and fears of much of the developed world, the US, with a growth rate of half that of China’s, is adding roughly twice as much in absolute terms to global output as is the Middle Kingdom, with its GDP (depending on how you measure it) of between $2 trillion and $4 trillion and its growth of about 10 per cent.
Even when you account for the fact that US growth is not going to continue at 5 per cent, but will revert to its trend of more like 3.5 per cent per year, you are still talking about an economy adding more than $400 billion in inflation-adjusted terms every year (not quite Brazil or Australia, but significantly bigger than Switzerland or Belgium) .
That means that, on current trends, for at least the next decade the US will actually keep growing in total dollar or yuan numbers by a larger amount than will China (even if the yuan is substantially revalued, by the way). And beyond that ten-year horizon, can anybody really be confident that China will maintain its current rate of growth? (We haven’t even talked here about per capita GDP, where the US advantage will remain unapproachable for decades.) Think of it yet another way: at current economic and population growth rates, the United States — now about 30 per cent larger than the eurozone in GDP — will be twice the size of Europe’s economy in less than 15 years.
I give you this little statistical litany not just for its own intrinsic appeal, but as a healthful antidote to some of the wishful thinking about America’s inevitable decline you can read in the rest of the media.
Historically speaking, indeed, America’s economic hegemony has never been greater. However messy Iraq and Afghanistan get, it would be unwise to bet that the US will not continue to be Top Nation for quite a while yet.
What could undermine long-term US dominance? Some fret that the precarious American fiscal position could do it. However, this is mostly hyperventilation. The fiscal deficit, at a cyclically adjusted 2.5 per cent of GDP, is on the large side, but American public debt as a proportion of GDP — at less than 70 per cent — still puts the United States comfortably among the more frugal of the world’s big nations.
The inevitable unravelling of global financial imbalances could certainly harm US demand growth in the short term, as both public and private sectors increase savings, but, assuming these extra savings are efficiently allocated by America’s highly flexible capital markets, they might even end up improving long-run potential.
The ageing population will surely crimp American economic activity. Most economists expect trend growth to slip a bit in the early part of the next decade as the proportion of the population in work begins to drop. Yet relative to the rest of the world this may not matter that much. America’s demographics — a reasonable birth rate and strong immigration flows — are actually rather better than for most other industrialised countries. A century ago, China’s population was almost six times that of the US. In 50 years’ time, on current trends, it will be less than three times the size.
The only real threat to American economic hegemony, I suspect, is the willingness of its people to continue to tolerate the pains associated with its success. Income and wealth inequalities have grown rapidly in the past ten years — even as the long-term growth rate has accelerated — and, given the continuing direction associated with globalisation, they may get even worse over the next 20 years.
That could tempt Americans to turn their backs on the very free markets that have been the foundations of their continuing prosperity.
Thanks for posting this, Ivan. FR needs a morning dose of positive news.
I'd love to see the history on the formula for how that number is calculted. I guess hamburger-flipping is now considered part of the "manufacturing sector"(?)
It's Bush's fault.
"I'd love to see the history on the formula for how that number is calculted. I guess hamburger-flipping is now considered part of the "manufacturing sector"(?)"
Uh, no. The idea that the administration even _toyed_ with the idea of reclassifying fast-food jobs as manufacturing was born of some of the worst economic reporting I have ever seen - terrible reporting that is unfortunately all too common.
Great news; however, the vast majority of the American populace will NEVER see/hear about it and the doom&gloomers on FR will continue to NOT believe a word of it.
Few economists would argue with this article. The decline of America, America inevitably overtaken by China, has become a meme that is well-fed by poor reporting -- and biased reporting -- around the globe. The hard, almost basic, economic figures are indisuptable, and usually ignored. (Much in the same way that the relationship between American spending and Chinese savings -- "China as America's banker" -- is always reported ONLY from the vantage of what would happen should China ever 'withdraw' its money somehow.)
You're not only being silly, but regurgitating DNC talking points.
Even as obese as many of us are, turning hamburgers isn't going to contribute much of the $600 billion in growth.
I've reading stories by delirious lefties about the so-called decline for the past thirty years or more. Japan was supposed to supercede us, then it was the European Union, and then the Chinese. If I had to put my money on any org or country rivaling us, I would bet on the Chinese. They're very intelligent, aggressive, and hard-working. But they have to open up their markets and get rid of their authoritarian rulers.
However all the stories about the decline of the U.S economy is just wishful thinking. We work harder and have a freer economy than most other countries or unions. The Euros are too indebted to their socialist policies and have declining birth rates to boot to overtake us.
This is no lie!! I don't have to get up at 12:30-1:00 am my time to play the European, British, Swiss markets for they are nada/zip/nil. Feel like a bum sleeping in till 3 am before getting up my morning prayers, LOL!
The LORD does indeed work in baffling Ways...
Ageing population in America actually may bring a positive economic impact. As people realize that they have to save in order to maintain certain economic standard during their old age, the saving rates would go up. Of course, this assumes that savings would be used productively and to produce more capital. Some economists call this "second demographic dividend".
MANY American companies are going to announce that they exceeded their numbers this Friday. Can'$ Wai$...
If you think our math is bad, you should try to figure out the Chinese formula. The 10% growth they claim is in my opinion, a real lie!
Oh, man, he ALMOST made it all the way through without saying something stupid. Pity. "Wealth inequality" is what we have instead of poverty now. It means "the poor are getting richer, but the rich are getting a WHOLE LOT richer." Sooner or later, we're going to have to have a national conversation about the difference between injustice and envy.
I'm an average person, and I've seen plenty of benefit. And even if I weren't, what difference would it make how the rich were doing? Would it somehow make my situation better if the rich were doing worse, too?
My own personal wealth and quality of life is not affected by the wealth and quality of life of my neighbor. Any other approach is socialist.
Me, I'll take capitalism. With all its inequalities, we still have the fattest poor people in history.
I agree thanks for the good read Ivan. What the anglo nations need to do is a form an exclusive anglo-economic bloc to counter china in the future.This will insure our economic growth and preserve our sphere of influence.
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