News about the US economy has been pretty good lately. Our labor market has largely recovered from the Corona crisis and contradicts the forecasts of permanent “scars” from pandemic-related disruptions. Inflation has come down, faster than in any other major advanced economy. At the same time, economic problems appear to be widespread abroad, particularly in China, where the end of the “Covid Zero” policy has not led to the expected economic recovery.
Perhaps unavoidably, lately I have sensed a shift in attitude in the way the United States sees itself in the world. American triumphalism – we are number one! – returns to the charge. As always, we must contain the enthusiasm. Our position in the world is never as good or bad as popular belief claims. And the downside of boasting so much about our relative results is that we may not learn from what other countries are doing better.
I say this as someone who has seen us go through many ups and downs on this front. We had the manic phase of “Dawn America” in the mid-1980s, followed by the depressive mood of the early 1990s: “The cold war is over and Japan is victorious.” Then came the triumphant wave of the late 1980s, when the United States temporarily took the lead in capitalizing on the Internet, but then fell behind as other countries went online, the productivity gains brought about by technology disappeared, we ushered in the global financial crisis, and China became a powerful economic rival.
Now the boast is back, with a particular focus on destroying Europe’s economic results. For example, I’ve seen media where you would expect more when they say things like, “The US economy is almost twice the size of the eurozone’s. In 2008 they were similar,” according to a Wall Street Journal chart.
Not exactly a false claim, but deeply misleading. It is true that in 2008 the dollar value of our GDP was only 4% higher than that of the Eurozone – while in 2022 US dollar GDP was 81% higher. Most of this growing inequality, however, reflected the declining value of the euro against the dollar in foreign exchange markets, rather than actual differences in economic growth. And as any international economist can tell you, a strong currency is far from the same as a strong economy.
Measured in terms of purchasing power parity, i.e. adjusted for differences in the cost of living, the US economy was 15% larger than that of the euro zone in 2008; now the percentage has risen to 31%. The growth differential is still significant, but not as big as the dollar numbers suggest. And almost half of the performance gap that still exists when you look at the right numbers is simply down to demographics. (By the way, demographics are a very relevant factor when comparing the economic performance of the United States to that of Japan, whose working-age population is rapidly declining.) The US working-age population has increased by nearly 6% since 2008, while that of the eurozone has declined by more than 1%. Adjusting for disparities in the rate of growth of the relevant population, Europe is still relatively underperforming, enough to be significant and warrant explanation, but not enough to justify the doomsday rhetoric some Americans are peddling.
To put it this way, if we only compare the dollar value of GDP in the United States and Europe, the actual difference in economic output may be exaggerated tenfold.
My conclusion is that all modern economies have roughly the same level of technology. They are also capable of extraordinary things if they only put their mind to it. Have you noticed how quickly Pennsylvania reopened I-95 after a section of this vital highway collapsed? But our societies often make different choices. Some of these choices are simply choices that don’t necessarily have a right answer. One of the reasons European countries, for example, tend to have lower GDP per capita than ours is that their workers have a lot more vacation time. We have more things, they have more time. Nothing is written about taste and the like.
However, there are other areas where some countries are almost certainly wrong. Europe’s slower growth rate is probably due in part to a lack of flexibility and a lack of resilience to innovation. On the other hand, Americans should ask themselves why we seem to be worse at building livable cities or, for the sake of one important aspect of life, not dying: Even before Corona, life expectancy was far lower than in comparable countries.
The point is that advanced countries are in many ways laboratories of economic and social policy: nobody is the best at everything, and we can learn a lot by looking at things that other countries seem to be better at than we are. However, Americans have always found it difficult to learn from the experiences of other countries. The return of economic triumphalism will amplify this island trend, especially if we dump numbers that grossly inflate our relative results. The US economy has been doing pretty well lately, but we must not let success skyrocket.
Paul Krugman is a Nobel laureate in economics. © The New York Times, 2023. Translated from news clips.
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