Beware of the New American Triumphalism

The news on the U.S. economy has been pretty good lately. Our labour market has more than recovered from covid, defying predictions that predicted permanent "scars" from pandemic shocks. Inflation has fallen, and it has fallen faster than in any other major advanced economy. At the same time, economic problems seem to abound abroad, especially in China, where the end of the "covid zero" policy has not brought the expected rebound of the economy.

Perhaps inevitably, in recent times I have sensed a change in mood in the way America sees itself in the world. American triumphalism – we are number one! – is back in charge. As always, we must curb enthusiasm. Our position in the world is never as good or as bad as popular wisdom claims at any given time. And the downside of boasting so much about our relative results is that we may not learn from the things that other countries do best.

I say this as someone who has seen us go through multiple ups and downs on this front. We had the manic phase of "America's Dawn" in the mid-1980s, followed by the depressive mood of the early 1990s: "The Cold War is over and Japan has won." Then came the wave of triumphalism at the end of that decade, when the United States temporarily took the lead in capitalizing on the internet, and then backed down when other countries went online as well, the productivity gains that technology brought dissipated, we paved the way for the global financial crisis, and China emerged as a powerful economic rival.

Now the bluster is back, with particular emphasis on scuttling Europe's economic performance. For example, I've seen media outlets that you might expect more to say things like "the U.S. economy is almost twice the size of the eurozone. In 2008 they were similar," as a chart in The Wall Street Journal could read.

It's not exactly a false claim, but it's deeply misleading. It is true that in 2008 the dollar value of our GDP was only 4% higher than in the eurozone – while in 2022 US dollar GDP was 81% higher. But most of this widening disparity reflected the decline in the value of the euro relative to the dollar in foreign exchange markets, rather than real differences in economic growth. And as any international economist can tell you, a strong currency is nowhere near the same as a strong economy.

Measured in purchasing power parity, i.e. adjusted for differences in the cost of living, the US economy was 15% larger than that of the euro area in 2008; Now the percentage has risen to 31%. The difference in growth is still significant, but the gap is not as huge as the dollar figures might suggest. And almost half of the difference in performance that still exists if you look at the right numbers simply reflects demographics. (By the way, demographics are a very relevant factor when comparing the economic performance of the United States with those of Japan, whose working-age population is rapidly declining.) The U.S. working-age population has increased by nearly 6% since 2008, while that of the euro zone has declined by more than 1%. Adjusting for differences in the rate of growth of the relevant population continues to leave Europe with a relatively underperformance, enough to be meaningful and demand explanation, but not to justify the apocalyptic rhetoric that some Americans are throwing around.

Let's put it this way: if we compare only the dollar value of GDP in the United States and Europe, the real difference in economic performance is possibly exaggerated by up to 10 times.

My conclusion is that all modern economies have roughly the same technological level. They are also capable of doing extraordinary things when they put their minds to it. Have you noticed how quickly Pennsylvania managed to reopen I-95 after a stretch of this essential highway collapsed? But our societies often make different choices. Some of these decisions are simply just that, decisions, for which there is not necessarily a right answer. For example, one of the reasons why European countries tend to have a lower GDP per capita than ours is that their workers have much more holidays. We have more things, they have more time. About tastes there is nothing written and all that.

However, there are other areas where some countries are almost certainly wrong. Europe's lower growth rate probably reflects, in part, a lack of flexibility and resistance to innovation. On the other hand, Americans should ask ourselves why we seem to be worse at building livable cities or, to look at an important aspect of life, not dying: life expectancy was much lower than in other comparable countries even before covid.

The point is that advanced countries are, in important respects, laboratories of economic and social policy: no one is the best at everything, and we can learn a lot by looking at the things that other countries seem to do better than we do. Yet Americans have always struggled to learn from the experience of other countries. The return of economic triumphalism will reinforce this insular tendency, especially if we dedicate ourselves to releasing figures that grossly exaggerate our relative results. The U.S. economy has been doing pretty well lately, but we shouldn't let success go to our heads.

Paul Krugman is a Nobel laureate in economics. © The New York Times, 2023. Translation of News Clips.

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