A Sense of Economic Decline: The U.S. vs. The Globe
In the early 1990s, many experts were concerned about the United States' economic trajectory. The Competitiveness Policy Council, a key advisory group for both the president and Congress, voiced its fear that the U.S. was heading towards prolonged slower growth compared to other major industrial powers. This worry stemmed from the perception that America was losing ground to booming economies like Japan and Europe. Yet, the opposite unfolded. While Japan entered a prolonged period of stagnation and Europe’s growth lost steam, the U.S. experienced a resurgence, largely driven by the rise of the internet.
Fast forward three decades, and a similar narrative is emerging, but with a new player—China—now viewed as the dominant economic force in the East. Meanwhile, within the U.S., there is a general sense of unease about the state of the economy. According to polling firm Gallup, the percentage of Americans satisfied with how things are going has dropped from around 40% in the 1980s and early 2000s to only about 25% over the last two decades. The recurring theme of economic decline begs the question: are the forecasts of America’s economic downfall this time accurate?
U.S. Economic Resilience
While it’s true that the U.S. economy has faced significant challenges since the bombing 1990s, including the dot-com bust, the global financial crisis, and the COVID-19 pandemic, the data tells a different story when compared to other industrialized nations. Even though the U.S. share of the global economy in purchasing-power-parity (PPP) terms has fallen from 21% in 1990 to 16% today, this decline is not an indictment of the U.S. economy. Rather, it reflects the rapid growth of populous countries like China and India. Despite the rise of these economies, U.S. per capita output remains far superior. China’s per capita GDP is still less than a third of the U.S., and India’s is even smaller.
The U.S. has consistently grown faster than other advanced economies since the 1990s. It has also bounced back from economic setbacks more quickly. Today, America accounts for about half of the GDP generated by the G7 countries, up from two-fifths in 1990. Per capita, the American economy produces those of Western Europe, Canada, and Japan by significant margins—40% higher than the former two and 60% higher than the latter. Even in the poorest U.S. state, Mississippi, average wages outpace those of the United Kingdom, Canada, and Germany.
One of the most striking aspects of the U.S. economy is its recent acceleration in growth. Since the start of 2020, real growth in the U.S. has reached 10%, triple the average rate of the other G7 countries. In fact, the U.S. is the only G20 country where both output and employment have surpassed pre-pandemic expectations. The nation’s ability to combine strong growth with the power of the dollar has translated into economic influence and personal wealth for its citizens. This can be observed in the record numbers of Americans traveling abroad and spending heavily.
The Foundations of the U.S. Economic Strength
So, what underlies America’s sustained economic strength? A large part of it comes down to the country’s unique attributes. The U.S. benefits from the geographical advantage of being a quasi-continental economy with a vast consumer market, enabling companies to scale products and ideas quickly across states. Additionally, the country’s integrated labor market allows workers to move freely in search of better-paying jobs, enhancing productivity. Furthermore, improvements in resource extraction, particularly the technological advances in shale oil and gas extraction, have made the U.S. the world's largest producer of these essential resources.
On top of these geographical and resource-based advantages, the U.S. also benefits from its dynamic financial and technological ecosystems. Its financial markets are among the deepest in the world, making it easier for startups to raise equity. The dominance of the U.S. dollar in global trade further reduces barriers for American companies. The country’s strong education system, particularly its world-renowned universities, continues to attract top talent from around the globe. Additionally, the relatively relaxed business regulations in the U.S. have fostered an environment where innovation, especially in high-tech sectors, can thrive.
U.S. Economic Challenges and Triumphs
While the U.S. economy certainly has its problems, including stark inequalities and concerns about the dominance of tech giants, the overall picture remains one of strength and resilience. Income inequality, though an issue, is often overstated, and the dominance of companies like Amazon and Apple should be viewed more as a testament to American economic prowess than a threat. These firms, despite their size, continue to face competition and, importantly, contribute significantly to everyday life and economic dynamism.
In terms of labor productivity, America remains far ahead of its peers. In 2023, the average American worker produced about $171,000 in output, compared to $120,000 in the eurozone, $118,000 in the UK, and $96,000 in Japan. Since 1990, labor productivity in the U.S. has grown by 70%, vastly outpacing Europe, Britain, and Japan.
America’s continued productivity success can be attributed to its high levels of investment in both physical and intangible capital, as well as its business dynamism. American firms reinvest heavily in research and development, a key driver of future growth, with only Israel and South Korea spending more on R&D as a share of GDP. The U.S. also maintains an environment that encourages business churn, with new companies frequently emerging and older ones being phased out. This dynamism keeps the economy evolving toward more productive ventures.
The Unstoppable Momentum of the U.S. Economy
While concerns about America’s economic future persist, the facts paint a picture of an economy that is not only resilient but also increasingly dominant on the global stage. America's combination of innovation, capital investment, and a robust workforce continues to propel it forward, making it a formidable force among advanced economies. The country’s relentless dynamism ensures that, even amid challenges, it remains at the forefront of global economic power.
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