Download U.S. Emergence as World Leader, Nov. 2, 2010

Emergence of the U.S. as World Leader
Lecture by Robert M. Coen
Emeritus Professor of Economics
Northwestern University
Alumnae Continuing Education
November 2, 2010
Measuring economic performance
GDP = value of final goods and services produced domestically
GDP per person -- or per worker, per labor hour, per life
Market exchange rates, or purchasing-power-parity rates
Comparing commodity bundles across nations
Measuring non-market public and private production
Real GDP adjusts for changes in general price level
Accounting for quality change and new products
Other indicators
Unemployment
Inflation
Inequality
Extent of business cycles (instability)
Health
Longevity
Environment
Freedom
Data for 1995
United States
GDP
N (population)
GDP/N
$7,415.7 billion
267 million
$27,774
Japan
483.22 trillion yen
125 million
3,866 thousand yen
Use market exchange rate of 94 yen/$1 to compare:
GDP/N
$27,774
$41,128
Japan 48% above US!
_______________________________________________________________
Big Mac
$2.00
340 yen
PPP exchange rate is 170 yen/$1 (yen is over-valued)
GDP/N at PPP
Japan 18% below US
$27,774
$22,741
Real GDP/N in Big Macs
13,887
11,371
Data for 1995
United States
Japan
GDP/N at PPP
Japan 18% below US
$27,774
$22,741
GDP/E at PPP
Japan 23% below US
$55,334
$42,838
CONS/N at PPP
Japan 38% below US
$18,800
$11,691
Life expectancy (years)
77.2
Japan 34% below US in lifetime consumption
81.8
Measuring economic performance
GDP = value of final goods and services produced domestically
GDP per person -- or per worker, per labor hour, per life
Market exchange rates, or purchasing-power-parity rates
Comparing commodity bundles across nations
Measuring non-market public and private production
Real GDP adjusts for changes in general price level
Accounting for quality change and new products
Other indicators
Unemployment
Inflation
Inequality
Extent of business cycles (instability)
Health
Longevity
Environment
Freedom
Broader Measures of Performance
Human Development Index
United Nations, Human Development Report
HDI is average of three indexes:
Life expectancy index
Education index = (2/3)*ALI + (1/3)*GEI
ALI = Adult literacy rate index
GEI = Combined gross enrollment index
GDP per capita index
Broader Measures of Performance
Gallop World Poll
Asks people about satisfaction with personal life and nation
On a scale of 0-10, from worst to best possible life for you:
Where do you feel you stand?
Where did you stand 5 years ago?
Where do you expect to stand 5 years from now?
Same questions for country rather than for self
Optimism = outlook for 5 years hence – present
See Nestor Gandelman and Ruben Hernandez-Murillo,
“The Impact of Inflation and Unemployment on Subjective
Personal and Country Evaluations”
Federal Reserve Bank of St. Louis Review, May/June 2009
Comparison of Real GDP per Capita with Subjective Measures of Happiness
Top 20 Ranked by GDP/N
Rank
GDP/N
Satisfaction Rank
Optimism Rank
HDI Rank
GDP/N
Country
2005
Self 2006
Country 2006
Self 2006
Country 2006
2006
1
Norway
45,694
4
1
50
61
3
2
United States
41,870
11
16
38
56
8
3
Ireland
38,659
12
2
31
40
5
4
Singapore
38,441
22
6
42
41
28
5
Hong Kong
38,156
44
17
51
46
22
6
Switzerland
35,444
5
5
59
70
10
7
Canada
34,590
7
7
43
63
3
8
Australia
34,323
9
9
45
72
4
9
Austria
33,450
15
10
44
68
14
10
Netherlands
32,638
3
18
67
71
6
11
Denmark
32,162
1
4
60
57
13
12
Belgium
31,750
8
11
52
69
17
13
Sweden
30,657
6
14
54
62
7
14
United Kingdom
30,276
17
28
41
58
21
15
Japan
29,780
24
31
74
67
8
16
Finland
29,761
2
3
73
65
12
17
Germany
29,548
23
52
68
53
23
18
Spain
29,150
16
19
65
54
16
19
France
28,779
18
32
55
64
11
20
Italy
27,795
19
35
61
66
19
Comparison of Real GDP per Capita with Subjective Measures of Happiness
Top 20 Ranked by Self Satisfaction
Rank
GDP/N
GDP/N
Country
Satisfaction Rank
Optimism Rank
2005
Self 2006
Country 2006
Self 2006
Country 2006
11
Denmark
32,162
1
4
60
57
16
Finland
29,761
2
3
73
65
10
Netherlands
32,638
3
18
67
71
1
Norway
45,694
4
1
50
61
6
Switzerland
35,444
5
5
59
70
13
Sweden
30,657
6
14
54
62
7
Canada
34,590
7
7
43
63
12
Belgium
31,750
8
11
52
69
8
Australia
34,323
9
9
45
72
22
New Zealand
24,551
10
8
46
59
2
United States
41,870
11
16
38
56
3
Ireland
38,659
12
2
31
40
25
Israel
22,327
13
30
35
35
43
Venezuela
10,973
14
24
25
9
9
Austria
33,450
15
10
44
68
18
Spain
29,150
16
19
65
54
14
United Kingdom
30,276
17
28
41
58
19
France
28,779
18
32
55
64
20
Italy
27,795
19
35
61
66
44
Costa Rica
10,694
20
27
53
52
Comparison of Real GDP per Capita with Subjective Measures of Happiness
Top 20 Ranked by Self Optimism
Rank
GDP/N
GDP/N
Satisfaction Rank
Optimism Rank
Country
2005
Self 2006
Country 2006
Self 2006
Country 2006
53
Dominican Rep
8,159
58
43
1
2
67
Morocco
5,096
71
50
2
1
47
Brazil
9,000
25
45
3
4
54
Jamaica
8,108
33
46
4
38
55
Panama
7,945
32
33
5
6
51
Botswana
8,558
70
25
6
29
57
Colombia
7,127
41
39
7
13
60
China
6,483
66
na
8
na
36
Kazakhstan
12,768
48
21
9
5
64
Sri Lanka
5,329
73
51
10
8
62
Peru
5,734
62
63
11
12
66
Egypt
5,230
57
na
12
na
72
Bolivia
3,577
52
44
13
7
58
Georgia
6,657
75
68
14
3
27
Trinidad &Tob
21,403
42
59
15
55
73
Honduras
3,368
54
64
16
51
68
Indonesia
4,884
61
47
17
14
31
Malaysia
16,481
34
12
18
21
46
South Africa
9,610
51
29
19
17
35
Argentina
13,603
28
20
20
15
Broader Measures of Performance
Dashboard Concept
Interntional Commission on Measurement of Economic Performance
and Social Progress (Joseph Stiglitz, Amartya Sen)
Speedometer alone not enough to steer car; need a dozen dials
State of the USA Project
National Academy of Sciences
Multi-faceted, 300 or more indicators arranged by categories
Health care legislation calls for new body to administer Key National
Indicators System web site
Not yet “live”
Sources of GDP Growth
Growth of factor s of production
Land (L), including natural resources
Labor (N), adjusted for health, training, experience
Capital (K), i.e., equipment, commercial and residential
structures
More efficient allocation of factors of production
Improvements in technology
Techniques of production
Management methods
Marketing and distribution methods
New products
Sources of Growth in GDP per Capita (GDP/N)
N increases through population growth
Increases in N alone reduce GDP/N: diminishing returns
K increases through saving and investment
Increases in K/N increase GDP/N, but less than in proportion
Improvements in efficiency through expansion of market (division
of labor), competitive pressures, advances in technology
Improvements in technology through research, creative activity,
entrepreneurial activity
Empirically, most GDP/N increase due to improvements in
efficiency and technology
GDP per Capita of World Leader, bold italic (1990 interternational dollars)
Year
1
1000
1500
1600
1700
1820
1870
1913
1950
1973
2003
Italy
809
450
1,100
1,100
1,100
1,117
1,499
2,564
3,502
10,634
19,151
West Asia
522
621
590
591
591
607
742
1,042
1,776
4,854
5,899
Netherlands
425
425
761
1,381
2,130
1,838
2,757
4,049
5,996
13,082
21,480
UK
400
400
714
974
1,250
1,706
3,190
4,921
6,939
12,025
21,310
USA
400
400
400
400
527
1,257
2,445
5,301
9,561
16,689
29,037
Leader's Share of World GDP (percent)
Year
1
1000
1500
1600
1700
1820
1870
1913
1950
1973
2003
Italy
6.1
1.9
4.7
4.3
3.9
3.2
3.8
3.5
3.1
3.6
2.7
West Asia
9.6
10.3
4.2
3.8
3.3
2.2
2.0
1.5
2.0
3.4
3.6
Netherlands
0.1
0.1
0.3
0.6
1.1
0.6
0.9
0.9
1.1
1.1
0.9
UK
0.3
0.7
1.1
1.8
2.9
5.2
9.0
8.2
6.5
4.2
3.1
USA
0.3
0.4
0.3
0.2
0.1
1.8
8.9
18.9
27.3
22.1
20.6
Other Shares of World GDP (percent)
Year
1
1000
1500
1600
1700
1820
1870
1913
1950
1973
2003
Asia
72.8
70.6
64.9
65.5
61.8
59.4
38.3
24.9
18.6
24.2
40.5
China
25.4
22.1
24.9
29.0
22.3
32.9
17.1
8.8
4.6
4.6
15.1
India
32.0
28.1
24.4
22.4
24.4
16.0
12.1
7.5
4.2
3.1
5.5
Japan
1.1
2.7
3.1
2.9
4.1
3.0
2.3
2.6
3.0
7.8
6.6
13.7
9.1
17.8
19.8
21.9
23.0
33.1
33.0
26.2
25.6
19.2
Western Europe
Source: Angus Maddison, Contours of the World Economy, 1-2030AD
China’s Leadership in Technology before 1400
See Joel Mokyr’s The Lever of Riches
Examples of China’s technical advances:
Wet-field techniques for rice cultivation
Advances in other agricultural techniques -- iron plow, fertilizers
Tracts and handbooks to disseminate agricultural methods
Blast furnaces, iron casting
Spinning wheel, driven by central power
Hydraulic power, waterwheel
Accurate water clocks
Maritime technology – compass, large ocean-going junks
Paper (money, wallpaper)
Wheelbarrow
Procelains, lacquers, explosives, pharmaceuticals
Horse collar, crossbow
Why Did China Fail to Become Europe?
Population pressure required increases in agricultural productivity, not
manufacturing
Chinese philosophy turned inward looking, stressed harmony with
nature, not exploiting nature
Chinese failed to develop system of formal, deductive logic –
no Galileo, Descartes, Newton, or Leibniz
Merchants did not rise to power in China; imperial bureaucracy dominant
Imperial court halts geographical exploration after 1430
Growing desire of traditional groups (government, e.g.,) in China to avoid
social conflicts associated with technological changes
Netherlands Leadership: 17th to late 18th century
Reasons for success:
Modern institutions
Land ownership by small proprietors
Small nobility
No church land
Religious tolerance
Rational approach to problems
Geography - coast; mouths of major European rivers
Mercantilist policies
Blocked Antwerp’s sea access
Captured Asian and Latin American trade from Portugal
Entrepôt trade (transshipment, warehousing)
Reasons Dutch dethroned:
Loss of monopolies in trade in conflicts with France and UK
Currency became overvalued
Entrepôt trade makes banking center
United Kingdom: Late 18th to late 19th century
Dutch had highest productivity, but little productivity growth
Spurs to UK productivity growth:
Higher capital investment than Dutch
Promotion of free markets, international competition
Technical advances in cotton textiles, iron and steel, steam power, railways
Application of scientific principles, but why in UK?
See Robert C. Allen, The British Industrial Revolution in Global Perspective
Property rights more secure in France
Italy and Germany develop science of steam engine
Dutch were highly urbanized, higher literacy rate
Military demands of Royal Navy create demand for technology
Development of patent system
High wages, cheap coal, consumer society
Reasons UK Dethroned
Did not explicitly foster education and technology
Capital stock grew slowly; savings available, but foreign
investment as large as domestic
Diffused growth process to follower countries through free
trade, foreign investment, exportof technology
Currency became overvalued
US: Late 19th century to ?
US advantages
Abundant natural resources
High rates of investment (twice UK in 1890-1950),
including public investment in infrastructure and education
Large, free domestic market fosters large companies enjoying
scale economies, able to fund research
Protectionist trade policies, slavery
Position strengthened by two world wars
Growth Accounting for Leaders
Annual Growth Rates (percent)
Leader Period
GDP per
per labor
hour
Capital
per labor
hour
Tech
progress*
Dutch
1700-1785
-0.07
na
0
UK
UK
1785-1820
1820-1890
0.5
1.4
0.0
0.9
0.5
1.1
US
1890-1979
2.3
2.4
1.5
Source: Angus Maddison, Phases of Capitalist Development
* Author’s estimate assuming 1 percent increase in capital per labor hour increases GDP per
labor hour by 0.33 percent.