Americans might be forgiven for basking in self-satisfaction when it comes to the economy. The country’s most prominent CEO, Jamie Dimon, has called the country’s boom “unbelievable,” and its most stimulating magazine, The Atlantic, has dubbed it a “superstar.” (“If the United States’ economy were an athlete, right now it would be peak LeBron James. If it were a pop star, it would be peak Taylor Swift.”) This week’s 50-basis points cut in interest rates suggests that the Federal Reserve is confident that the dragon of inflation has been slain.
The US dominates the industries of the future to an extraordinary degree. Sixty-one percent of global funding for AI start-ups goes to US companies, compared with 17% to Chinese companies and 6% to European companies. The US attracts 50% of global private funding for quantum computing compared with just 5% for Europe. Three giant US companies account for 65% of the global market for cloud computing. And so on and so forth.
The US also dominates a wide range of more down-to-earth industries from chemicals to pulp. One of the great pleasures of visiting out-of-the-way America is how often you come across world-beating companies in places such as Wichita, Kansas, (Koch Industries LLC) and Stratham, New Hampshire (Timberland LLC). If the world economy divides into competing blocks, as pessimists warn, then the US will continue to thrive.
Yet look a bit more carefully at this productivity machine and cracks appear. The extraordinary dominance of America’s “magnificent seven” tech companies is not necessarily a good thing. These goliaths may be hoarding innovation rather than allowing it to spread across the broader economy. And some of the country’s most basic economic indicators are flashing red.
The reddest light is the deficit, which is now 6% of gross domestic product. Neither Kamala Harris nor Donald Trump has a credible plan for addressing the nation’s debt problem. On the contrary: Both candidates have suggested spending increases and revenue cuts that would make it even worse, startlingly so in Trump’s case. At some point the markets are likely to intervene and administer a painful electric shock.
US health statistics are relatively dismal. French people can expect to live six years longer than Americans, as of 2021, and Germans 4.3 years longer (the relevant figures for 2018 were four years and 2.5 years). The proportion of Americans classified as obese has increased from 15% in 1980 to 41.9% today, the highest rate in the advanced world. Obesity is linked to a wide range of other ailments, including heart disease, depression, hypertension, lifestyle-related cancer and diabetes, which afflict 13% of the population.
Education statistics are also depressing. In 2022, the US ranked 34th in math proficiency on the Program for International Student Assessment (PISA) tests of 15-year-olds. In 2023, US 13-year-olds received their lowest scores in mathematics and reading for decades. according to the National Assessment of Educational Progress. Scores on the ACT, a popular college admissions test, declined for the sixth year running. Scores at the top end of the distribution curve are particularly worrying given the importance of raw intelligence in driving the new economy. Only 7% of US teens scored at the highest level for math proficiency in the PISA tests compared with 23% of South Koreans.
The US has traditionally made up for its lackluster K-12 education system with its world-class higher education system and ability to import talent from abroad. But both assets are under threat. Universities are beginning to look like the General Motors of the 1970s, plagued by price inflation and administrative bloat and surrendering their lead to foreign competitors.
Two-thirds of American universities slipped down the international rankings compiled by Quacquarelli Symonds QS, an educational consultancy, while 68% of Chinese universities improved their positions. Six US universities ranked in the top 100 fell ten places or more. A decade ago, US universities easily led the world in terms of producing highly cited scientific papers, according to the Nature Index, which tracks 82 premier science journals. Today, China does.
American universities are still a talent magnet, with foreign students (particularly Indian and Chinese), powering its PhD programs in STEM. But a growing number of those students now return home: For example, 80% of Chinese students who studied in the US in 2007-2017 returned home compared with only 25% in 1978-2007. And America’s perverse immigration system means that even those who want to stay must jump a series of hoops that may result in disappointment.
Addressing these problems would be tricky for even the wisest politicians. But wise politicians are not exactly in ready supply in today’s Washington. Republicans and Democrats disagree profoundly on how to solve America’s most pressing problems, with Democrats pushing for more inclusive policies, even at the expense of excellence, and Republicans pushing more immigration restrictions, even at the expense of economic efficiency. And the bitter hostility between the two sides is condemning policymaking to paralysis.
That the US is currently the world’s superstar economy there can be no doubt, given Europe’s lack of innovation and China’s shortage of children. But even superstars can run to fat and live beyond their means: there may be something of Taylor Swift about the US economy but there is also more than a touch of late Las Vegas Elvis Presley.
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