Bryan Caplan  

"The American Disease": View from 1989

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Here's a striking paragraph from 1989:


It was in Singapore that I first heard of the "American Disease," a primary symptom of which is living beyond one's means. A significant dimension of this pathology often is a slowing of productivity gains. When friends in Singapore suggested I look at our productivity record, I found that in the 1980s, with the exception of Greece, all other industrial countries delivered stronger gains in productivity than have we. Worse, when trends of the 1980s are extrapolated through the next decade, Japan's per capita income exceeds ours by 40 percent, incomes in West Germany and France are above ours, and the gap between ours and British and Italian incomes closes.
So what actually happened to per-capita income in Japan, West Germany, France, Britain, and Italy versus the U.S.?  Here are the World Bank's numbers for 2007:

Country Per-Capita Income
Japan $33,525
Germany $33,154
France $33,414
Britain $35,535
Italy $29,934
U.S. $45,790


Notice: Instead of Japan being 40% richer than us, we're practically 40% richer than them!  I bet that linear extrapolations of Chinese per-capita income will prove just as misleading.  Anyone care to propose a bet?

* Yes, reunification clouds mattershere.  Does anyone know per-capita income for West Germany alone?

HT: Bill in the comments.



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COMMENTS (7 to date)
Dennis Mangan writes:

The American trade deficit has added leverage to the economy, so our return on equity has been greater than those other, less indebted nations. Ken Fisher has been an advocate of this view. In fact, he thinks that we are under-indebted.

Steve Roth writes:

Interestingly, as of 2007 the US was also 40% ahead of Japan in GDP per work hour.

France 52.9
United States 52.4
Germany 48.1
EU15 44.6
United Kingdom 42.5
OECD 39.9
Italy 38.6
Japan 37.2

(US dollars by PPP. stats.oecd)

Current writes:

You can have hours of fun with the Penn World Tables looking at this stuff. See http://pwt.econ.upenn.edu/php_site/pwt62/pwt62_form.php

For example. In 1980 French real GDP per capita was higher than British GDP per capita. In 2004 British real GDP per capita was higher than French.

What happened in the intervening time? Surely the British invested more heavily? But no, for every single year between those dates British investment was lower in real terms.

Cyberike writes:

I don't see the point of this article. I agree that we suffer from what is called the "American Disease" more so than other countries, but there is no evidence this actually leads to lower productivity growth. America has had substantial productivity growth since 1980 (I have seen numbers approaching 80%)

In addition, the American experience is that productivity growth in practice does not lead to the wage growth that is predicted. Productivity has grown nearly 20% since 2000, while wages (adjusted to inflation) have dropped.

I would say that whatever wage growth we realized was at the expense of international wages as America soaked up the excess savings of other countries. This situation is one I predict will halt, and when that happens it will be a (the?) major source of economic turmoil.

We better have higher productivity than the rest of the world, and we better hope that the models that show productivity growth tied to income gains are true. If not, we are in big trouble.

John Thacker writes:

What happened in the intervening time? Surely the British invested more heavily? But no, for every single year between those dates British investment was lower in real terms.

Among other things, the British stopped digging coal out of the ground for many times more than what it cost them to buy it elsewhere. This was a hugely criticized act of Thatcher's at the time, though.

worried dude writes:

So perhaps that represents return to capital.

Does anyone worry about capital flight?

Steve Sailer writes:

Well, yes, except that we're not actually that rich. Those are obsolete statistics based on the assumption that all those half-million dollar mortgages in the four "sand states" (California, Nevada, Arizona, and Florida) were going to be repaid and the economy was going to keep humming along based on people taking money out of their ever-growing home equity and buying crud with it.

How's that working out for us lately?

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