'Never bet against America'
Recent world events, political and economic divisions, and the Covid outbreak have taken a toll on many Americans. People lack confidence in the strength of our economy and institutions to overcome these challenges. Some see the United States as declining in economic power and world influence.
Last February, I was watching a Bloomberg TV show reporting on Warren Buffett’s annual letter discussing the economy. Despite the rising number of covid cases and business closures, his message included a powerful reminder of the resilience of America: "In its brief 232 years of existence, there has been no incubator for unleashing human potential like America. Despite some severe interruptions our country’s economic progress has been breathtaking. Beyond that, we retain our constitutional aspiration of becoming a more perfect union......Our unwavering conclusion: Never bet against America."
I nodded to myself, but the two young correspondents smirked in reporting the story. They implied that Mr. Buffet was out of touch with current economic conditions and was ignoring the nation’s political conflicts. As a reader of history and a world traveler, the rise and fall of empires have always interested me. My belief is that the comparative economic strengths of the United States are not well understood and the nation’s historic ability to overcome challenges even during periods of disunity is often forgotten.
A country’s share of the world’s gross domestic product is an important indicator of economic power. For close to 700 years, the heavily populated areas that comprise modern China, India and Pakistan generated an estimated 50% of the world’s GDP. However, the economic power of those nations declined precipitously after 1700 because of antiquated institutions, economic obsolescence, the industrial revolution, and colonial exploitation.
In recent decades, the relative economic strength of many nations has shifted again due to technological innovations and the relocation of manufacturers to lower cost, emerging economies. Based on data issued by the World Bank, the United States' share of nominal GDP hit a 65-year low of 21% percent in 2011. But over the past decade the rebooted United States economy has outperformed traditional rivals like Japan and the major economies of the Europe. With the U.S. recovering from the COVID recession at a faster pace than most other nations, our share of world GDP will reach or exceed 25% by the end of 2021.
During these same decades, China’s GDP has also dramatically increased. Some analysts argue that China's GDP will soon surpass the U.S. Others claim that China's GDP is already as large as the U.S. if you use the highly subjective purchasing power parity (“PPP”) approach to measuring output. Whether China does reach GDP equivalence with the U.S. in coming years is irrelevant when you consider per capita GDP. The U.S. had a nominal GDP of $22.73 trillion at the end of June 2021 which translates to a per capita GDP of $68,000 based on an estimated population of 333 million people. Meanwhile China's GDP per capita lags at about $11,000 per capita. So, while the U.S. is always near the top in this GDP measurement, China is ranked about 75th among all nations. Their current competitors are Romania and Panama, not the U.S. or even wealthier Asian nations like Japan, Singapore, or South Korea.
In summary, the economic miracle of the past 125 years was and is the United States. With only about 4.3% of the world's population and 6% of the world's land mass, we generate 25% of the world's gross domestic product.
The ability of a country to overcome unexpected events and compete with rival nations is another measure of economic power. The resiliency of the United States is remarkable. The “Greatest Generation” went through 16 years of depression and war and the U.S. emerged from World War II in 1945 with a strength of purpose that led to economic growth and status as a world superpower.
From 1962 to 1980, the nation also faced numerous challenges. These included surviving Cold War brinksmanship with the Soviet Union, securing basic civil rights, the Vietnam struggle, foreign energy dependence, crippling stagflation, Watergate, the decline of key cities and industries, and cultural clashes. When I was eleven and busy collecting baseball cards, the song “Eve of Destruction” summed up society’s trepidation about the future. By the time I graduated from law school in 1979, the President was complaining of a national malaise, interest rates were 18%, and Iran was holding American diplomats hostage.
Predictions of America’s decline were quite common in this era. One book we were assigned to read in college was “The Emerging Japanese Superstate.” It examined the Japanese growth model and proclaimed that Japan would become the world’s top economy by the year 2000. In 1987, a leading historian pronounced that the United States was a dominant power in relative decline and implied that the Soviet Union and other nations would pass us by. The collapse of the U.S.S.R. and its communist empire followed only a year or two later.
During the past 20 years, we have also faced major shocks. The Great Recession of 2008, 9/11, and now COVID tested our institutions and people. The shortcomings of some officials in responding to these crises are well documented. What is not fully appreciated is our nation’s continuing ability to rebound and move on.
China now faces major problems of its own that will restrain future economic growth and challenge its rulers. These include: a declining population, colossal debt of close to 300% of GDP, energy dependence on foreign sources, pollution impacts and climate inaction, water shortages, fundamentally flawed business practices, and rapidly deteriorating relationships with India, Australia, Japan, and other regional powers.
Critics may say that this analysis ignores the elevated level of conflict and anxiety present in society today. On any given day, half of the country does not agree with whatever the sitting President says. Meanwhile, views on civil rights issues and cultural mores remain strained, public debt is growing, and the role of government in redistributing resources and regulating public health is hotly debated. Even with these problems, the United States is highly likely to work through our current difficulties and continue as the world’s leading economic power. You can bet against it, but Mr. Buffet and I would respectfully disagree.
Glenn Carberry of Norwich is a retired attorney. He has been a frequent contributor to the Day’s opinion page on international and economic issues and has traveled to more than 60 countries around the world. As a Republican, he ran unsuccessfully for Congress in the 2nd District.