Reports of Our Death
America is in decline. Its problems and prospects are worse than its competitors’. It is, in effect, the next Greece.
That was the overwhelming message of focus groups in Western Europe conducted by the German Marshall Fund of the United States during the past two months. The articulation and the motivation of respondents in Berlin, Brussels, Paris, and Warsaw varied, but the message was the same—and it represented the majority opinion among the wider populations as well. In 15 of 22 nations surveyed by the Pew Global Attitudes project in 2011, majorities or pluralities thought that the United States was no longer, or would soon cease to be, the world’s leading economic power. This view was especially widespread in
Western Europe, where at least six in 10 people in Britain, France, Germany, and Spain said that the U.S. was in relative decline. The sentiment may have grown even stronger in the past year.
At best, such European schadenfreude lacks context. At worst, it is a willful deception. America’s economic challenges are indisputably daunting; the next president and Congress ignore them at great risk to the country’s future. But whether measured by the tractability of public debt, growth prospects, demography, or competitiveness, most advanced industrial societies would be much better off with our problems than their own. As Robert Kagan, author of the new book, The World America Made, has argued, “Much of the commentary on American decline these days rests on rather loose analysis.”
Concern about American prospects, both at home and abroad, often centers on the mounting public debt. Federal, state, and local government debt is expected to equal 106.6 percent of America’s gross domestic product in 2012, according to the International Monetary Fund. It’s true that this number exceeds the eurozone’s government debt—even accounting for the crises in Greece and Italy— which is 90 percent of GDP.
But U.S. debt problems are much easier to solve than those in Europe. General government revenue will equal only 31.9 percent of America’s GDP in 2012, according to the IMF. That’s 2 percentage points lower than it was before the recession, so there’s room to raise taxes. (The only economic constraint is to do it slowly to avoid choking off the recovery.) By comparison, the eurozone’s tax burden is 45.9 percent, a proportion that has remained relatively unchanged throughout the crisis, suggesting that Europeans have maxed out on their economic and political toleration for taxation.
Economic potential is another big advantage that the United States enjoys over Europe. The U.S. economy is expected to grow by 2.1 percent this year and 3.3 percent by 2017, according to IMF estimates. In comparison, the eurozone economy will shrink 0.3 percent this year and expand by only 1.7 percent by 2017.
America’s economic future is brighter because a country’s potential for growth depends upon, among other things, the increase in its labor supply, productivity, and the availability of capital to fuel technological improvements. In each of these realms, America’s performance trumps Europe’s.
The European Union will add only 4.9 percent more people by 2040 and then begin an inexorable demographic decline, according to Eurostat, the E.U.’s statistical agency. Over that same period, the American population will grow by 30.7 percent, according to the Census Bureau, adding new consumers and workers to fuel growth. The Organization for Economic Cooperation and Development
expects U.S. labor productivity to grow by 1.1 percent this year, while eurozone productivity will increase by only 0.4 percent, continuing a superior American performance that goes back a decade and a half. And the U.S. capital stock will grow by 2.5 percent this year, compared with only 1.5 percent growth in available capital in Europe, the OECD says.
Better growth prospects translate into more job opportunities. Joblessness in the eurozone will average 10.9 percent this year and drop to 9 percent by 2017, according to IMF estimates. American unemployment will be 8.2 percent this year and is expected to be just 5.8 percent in five years.
Finally, the future of any economy depends on preparing the next generation to compete. American children outperform their counterparts in 21 of 29 European countries in reading, and in 18 of 29 in science, according to the OECD. Only in math do U.S. students trail those in most European countries.
This is not to say that the United States does not face serious challenges. Public debt is too large, and Washington gridlock makes it hard to curtail. The country’s infrastructure is crumbling. Unemployment among the young and minorities exacerbates inequality that is already worse here than in Europe. The U.S. runs a significant trade deficit with the rest of the world, while the eurozone maintains a small surplus. And America’s future competitors— China, India, and Brazil—all pose their own unique, albeit longer-term, challenges.