Global Economic News Digest

Beware the New American Triumphalism

20 jul 2023
author: Paul Krugman
source: The New York Times

U.S. economic news has been pretty good lately. Our job market has fully recovered from Covid and then some, defying predictions of permanent “scarring” from pandemic disruptions. Inflation is down, falling faster than in any other large advanced economy. At the same time, economic trouble seems to abound abroad, notably in China, where the end of the “zero Covid” policy hasn’t brought the expected economic surge.

Perhaps inevitably, I’ve lately been sensing a mood swing in how the United States sees itself in the world. American triumphalism — we’re No. 1! — is making a comeback.

As always, we should curb our enthusiasm. Our global standing is never as good or as bad as conventional wisdom has it at any given moment. And the downside of getting puffed up about our relative performance is that we may fail to learn from things other nations do better.

I say this as someone who’s seen us go through multiple ups and downs on this front. There was the manic Morning in America phase of the mid-1980s, followed by the depressive mood of the early ’90s: “The Cold War is over and Japan won.” Then came a late-90s surge in triumphalism as America temporarily took the lead in taking advantage of the internet, which receded as other countries also got online, productivity gains from information technology petered out, America led the way into global financial crisis and China emerged as a powerful economic rival.

Now the boastfulness is back, with a special emphasis on trashing European economic performance. For example, I’ve been seeing media organizations that really should know better saying things like this: “America’s economy is nearly twice the size of the eurozone’s. In 2008 they were similar,” which appeared on a chart in The Wall Street Journal.

This isn’t exactly a false statement, but it’s deeply misleading. It’s true that in 2008 the dollar value of our gross domestic product was only 4 percent higher than that of the eurozone — the group of European countries that share a common currency — while by 2022 America’s dollar G.D.P. was 81 percent larger. But most of that widening gap reflected the declining value of the euro relative to that of the dollar on foreign exchange markets rather than real differences in economic growth. And as any international economist can tell you, a strong currency is by no means the same thing as a strong economy.

Measured at purchasing power parity — that is, adjusted for differences in the cost of living — the U.S. economy was 15 percent larger than the euro area economy in 2008; it’s now up to 31 percent. That’s still a significant difference in growth performance, but not the yawning gap the dollar numbers might suggest.

And almost half the performance gap that remains if you look at the right numbers simply reflects demography. (Demography is, by the way, a huge factor when you compare U.S. economic performance with that of Japan, which has a rapidly shrinking working-age population.) America’s working-age population has risen almost 6 percent since 2008, while the eurozone’s has declined more than 1 percent. Adjusting for differences in the growth rate of the relevant population still leaves Europe with some relative underperformance, enough to be significant and demand explanation, but not enough to justify the apocalyptic rhetoric some Americans are throwing around.

Put it this way: Just comparing dollar values of G.D.P. in America and Europe arguably overstates the true gap in economic performance by a factor of around 10.

My take is that all modern economies are at roughly the same level of technology. They’re also all capable of achieving remarkable things when they put their mind to it. Have people noticed how quickly Pennsylvania managed to reopen I-95 after a section of the crucial highway collapsed?

But our sophisticated, capable societies often make different choices. Some of these choices are just that — choices where there isn’t necessarily a right answer. For example, one reason European nations generally have lower G.D.P. per capita than we do is that their workers get a lot more vacation. We have more stuff; they have more time. De gustibus and all that.

In other areas, however, some countries almost surely get it wrong. Europe’s lagging growth probably does, in part, reflect inflexibility and resistance to innovation. Americans, on the other hand, should ask themselves why we seem to be worse at building livable cities or, to take one important aspect of life, not dying: U.S. life expectancy had fallen far behind comparable countries even before Covid.

The point is that advanced countries are, in important ways, laboratories for economic and social policy: Nobody is the best at everything, and we can learn a lot by looking at things other countries seem to do better than we do.

Americans, however, have always had a hard time learning from other countries’ experience. A return of economic triumphalism will reinforce that insular tendency, especially if we throw around numbers that grossly exaggerate our relative performance. The U.S. economy has been doing pretty well lately, but we shouldn’t let it go to our heads."