Wonking Out: Is the American Economy Awesome?

Readers who are older may remember that thirty years ago, there was a general feeling that America's days of being an economic powerhouse were numbered. Two best-selling novels published in 1992 captured the sense of decline: Michael Crichton’s novel ‘Rising Sun’, which imagined a Japan-dominated future, and Lester Thurow’s ‘Head to Head’, which depicted a battle for supremacy between the United States and Europe that America would likely lose.

Evidently, things did not turn out this way. Today, America faces a real geopolitical threat from China. It has become a true economic superpower. The U.S. has been a leader in economic growth, leaving other rich nations behind. The real Gross Domestic Product (GDP) has grown from 1990 to the year 2022.

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The Economist highlighted this divergence in a recent cover story entitled 'America's Amazing Economic Record', which served as the basis for a column written by my colleague David Brooks. The U.S. economic situation has defied the dire predictions made three decades ago.

It's still important to know that this record is not without its limitations. The economic achievements of the United States are not as impressive as they appear. The American society is not doing very well.

Let's walk around before I start with the numbers. I am a data lover -- it is my friend -- but you should always compare data with what you see in reality.

Some of my American readers, like myself, may have recently visited Europe or Japan; others, perhaps, have been there several times over the years. Did you find these nations to be poor and backwards? Do they feel that they have fallen further behind the U.S., say 15 or 20 year ago?

I would say no. My personal opinion is that the technological gap between Europe and the United States opened in the early 2000s because we were faster to use the internet. However, this gap has almost disappeared since then.

How can we reconcile this feeling with the enormous disparity in growth rates? Demography plays a major role in the answer. The United States' population has grown faster than many other advanced countries, thanks to higher birthrates, and increased immigration. The United States still leads in terms of growth per adult working age, but there is a much smaller gap, especially when compared to Japan.

This comparison shows that France is still weak, but it's because the French take more vacations than Americans and have used up some of the economic gains through leisure. The United States has seen a faster rise in productivity -- the output per hour of work -- than other countries, but it is not a huge difference.

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When you consider the demography, and how people make decisions about their work-life balance, U.S. performance is less impressive, even though it's real. G.D.P. alone may suggest.

Even with these qualifications, we have still seen a good economic growth compared to other advanced countries. Should we feel proud?

G.D.P. This is a horrible, terrible, useless measure, and governments adopt bad policies to try and maximize it. G.D.P. G.D.P. tells us how much an economy can produce. This is valuable information. You're also being hopelessly romantic if you believe that governments have a coherent plan to maximize economic growth or anything else.

It's important to remember that G.D.P. tells us at best how much money a society is able to afford. It does not tell us if the money spent is good. It does not necessarily translate into good quality of living. Rich people can also be miserable.

There are many reasons to think that America's economic growth is being misused.

You know, the most important factor to consider in determining your quality of life, is not dying. Even as America has advanced economically, life expectancy in the US is falling dramatically compared to other developed countries.

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When an economy grows, it's important to know who will benefit from the growth. In the United States, the income of those at the top has increased dramatically over the last few decades. The middle class has experienced much lower income gains than the overall economic growth would suggest. According to the team that produced "distributional national accounts," gains in average income are overstated for around 85 percent:

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Other countries have also seen an increase in inequality, but not as much as here. The impressive U.S. economy may not translate to a comparable rise in living standards for the average American. Does it matter that the wealthy can afford bigger and more expensive superyachts than we can?

The U.S. has proven to be more resilient and dynamic than people thought a few years ago. We've also maintained our status of an economic superpower despite predictions that we would decline. However, you should temper your excitement: the numbers aren’t as impressive as they seem and there are many shadows that cover America.