The U.S. Enjoyed a Century of Economic Predominance
"If you are rich and are worth your salt, you will teach your sons that though they may have leisure, it is not to be spent in idleness; for wisely used leisure merely means that those who possess it, being free from the necessity of working for their livelihood, are all the more bound to carry on some kind of nonremunerative work in science, in letters, in art, in exploration, in historical research -- work of the type we most need in this country, the successful carrying out of which reflects most honor upon the nation. We do not admire the man of timid peace."When Roosevelt delivered his address to the Hamilton Club of Chicago, the United States was on the verge of eclipsing the United Kingdom in terms of per-capita gross domestic product (GDP). Effectively, the United States was in the process of emerging as the world's most powerful economy. The ensuing century was undoubtedly one of American economic dominance, a carriage drawn by the horses of technological innovation and private-sector growth.
-- Theodore Roosevelt, "The Strenuous Life", April 10, 1899
But sic transit gloria mundi: As of 2004, the economic growth rate of the United States was in a long-term holding pattern around 2%. Meanwhile, China has been operating at a per-capita growth GDP growth rate of more than 8%.
The United States Will Not Be the World's Largest Economy in Twenty Years
Admittedly, China has much more ground to cover in order to deliver individual prosperity even remotely comparable to that of the United States. Per-capita GDP in China is about $5,000 (US), while the figure is close to $38,000 in the United States.
When taken as a whole, however, China's economy at $6.45 trillion, growing at rates of 8% to 9%, will shortly match the United States' $10.99 trillion, growing at a real rate around 2% to 3%. In fact, the day of reckoning is likely to arrive within a decade.
The ramifications of a rapidly-growing China are enormous unto themselves:
- World energy supplies are exhibiting unprecedented demand as China uses more fuel than ever before
- Increased personal consumption in China is putting pressure on world food supplies -- particularly for beef and pork, which has a secondary impact on the world environment
- Raw materials demand in China has exploded, contributing to upward price swings on steel and other raw goods
Changing the Economy Before Time Runs Out
Virtually no one believes that China can perpetually maintain an 8% growth rate, nor that the United States can raise its long-term growth rates by more than a percentage point or two at the very best. But the world is one of leaders and followers, particularly in the geopolitical and economic arenas. The US growth model set the pace for the entire world through the 20th Century. For those who favor that model -- looking beyond the little particulars and toward the big brushstrokes of freedom, opportunity, and widespread prosperity -- it is imperative to advocategrowth and innovation in the United States and other Western economies ahead of any other agenda.
The US has fallen prey to a sort of prosperity trap, described by Robert Barro in his Determinants of Economic Growth: Having achieved material wealth alongside political freedom, many Americans vote for political activity which has a negative effect on growth.
- The United States must deal urgently with the twin entitlement burdens of Social Security and Medicare. Both of these political programs are set to encounter unmanageable budget shortfalls in the foreseeable future: Medicare by 2012, Social Security a decade or two later. Note the simultaneity of Medicare's insolvency with China's economic ascendancy.
- Many political activists in the US actively orient themselves against free trade. The US cannot solve the problem of falling behind rapidly growing economies like China by cutting them off from trade. Withdrawing from trading relationships punishes American interests more than it punishes others, because American interests export relatively low-wage, low-skill work. Failing to trade simply forces American interests to expend material resources and worker productivity on low-return work. Yet Presidential candidates can actually generate political momentum by calling for trade protectionism.
- Serious scientific research is obstructed by political groups who actively reject scientific rationalism in favor of theological agendas in schools and elsewhere.
Conclusion: If People Favor American-Style Growth and Behaviors, They Should Vigorously Advocate Growth
Whether one believes in Solow's model of growth or any of the many others that have been advanced over time, it's difficult to improve upon Roosevelt's words from 1899. Having achieved material prosperity -- or at least a set of conditions under which they may selectively complain -- Americans are in extraordinary need of new work in science, exploration, and research. On a microeconomic scale, these are the factors that distinguish successful firms from unsuccessful ones. It is not only wise but imperative to acknowledge their importance on a macro scale as well.
A renewed dedication to prosperity through growth and innovation is perhaps the only route by which the United States can hope to maintain its stand on the top rung of the world's economic ladder. For those who think it's hard to protect intellectual property rights against theft in places like China today, wait until their economy is larger than that of the United States. For those who object to media bias, wait until the world's largest economy belongs to a government that doesn't acknowledge press freedom. For those who decry American military unilateralism, wait until the engine fueling the fire behind the world's largest army is the world's largest economy.
If one concurs that the American model is preferable to the Chinese, there is little time to waste: Pro-growth policies are the only objectives that will matter for the next ten years.
Table of Projected Growth Rates
Following are the projections for estimated growth over the next 20 years in the US and Chinese economies:
- The starting figures for GDP and actual growth rates are taken from the CIA World Factbook. Values and projections are in millions of US dollars.
- The long-term growth rate for each economy is taken from the UN Human Development Report.
- The US long-term growth rate is actually reported at 2.0% by the UN report, but other estimates suggest that US GDP inadequately measures the impact of technological innovations which disrupt normal estimates of economic growth (downward price pressures on advanced computer technology, for example, may cause the share of GDP contributed by the computing sector to shrink or stay level even though it represents large returns to investment and vastly improved productivity). For this reason (and in order to illustrate that even a full percentage point improvement in growth cannot fully insulate the US from China's rapid growth), the estimate for long-term US growth is over-estimated to 3.0%.
- The pessimistic estimate for growth is simply a rough figure that may reasonably be assumed to be the low end of what either economy might reasonably expect over the intermediate term, in both cases about 1/3 lower than actual growth in 2003.
|Year||US GDP||2003 Actual Growth Rate||US GDP||Long-Term Growth Rate||US GDP||Pessimistic Rate||China GDP||2003 Actual Growth Rate||China GDP||Long-Term Growth Rate||China GDP||Pessimistic Rate|