Emergence of the U.S. as World Leader

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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

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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
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Data for 1995
United States
Japan GDP
7,415.7 billion 483.22
trillion yen N (population)
267 million 125 million
GDP/N
27,774 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
27,774 22,741
Japan 18 below US Real GDP/N
in Big Macs 13,887
11,371
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Data for 1995
United States
Japan GDP/N at PPP
27,774 22,741
Japan 18 below US GDP/E at PPP
55,334
42,838 Japan 23 below US
CONS/N at PPP 18,800
11,691 Japan 38 below
US Life expectancy (years)
77.2 81.8
Japan 34 below US in lifetime consumption
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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
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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
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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
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Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness
Top 20 Ranked by GDP/N Top 20 Ranked by GDP/N Top 20 Ranked by GDP/N Top 20 Ranked by GDP/N Top 20 Ranked by GDP/N Top 20 Ranked by GDP/N Top 20 Ranked by GDP/N Top 20 Ranked by GDP/N

Rank GDP/N Satisfaction Rank Satisfaction Rank Optimism 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
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Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness
Top 20 Ranked by Self Satisfaction Top 20 Ranked by Self Satisfaction Top 20 Ranked by Self Satisfaction Top 20 Ranked by Self Satisfaction Top 20 Ranked by Self Satisfaction Top 20 Ranked by Self Satisfaction Top 20 Ranked by Self Satisfaction Top 20 Ranked by Self Satisfaction


Rank GDP/N Satisfaction Rank Satisfaction Rank Optimism Rank Optimism Rank
GDP/N Country 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
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Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness Comparison of Real GDP per Capita with Subjective Measures of Happiness
Top 20 Ranked by Self Optimism Top 20 Ranked by Self Optimism Top 20 Ranked by Self Optimism Top 20 Ranked by Self Optimism Top 20 Ranked by Self Optimism Top 20 Ranked by Self Optimism Top 20 Ranked by Self Optimism Top 20 Ranked by Self Optimism


Rank GDP/N Satisfaction Rank Satisfaction Rank Optimism Rank Optimism Rank
GDP/N 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
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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
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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
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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
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GDP per Capita of World Leader, bold italic (1990 interternational dollars) GDP per Capita of World Leader, bold italic (1990 interternational dollars) GDP per Capita of World Leader, bold italic (1990 interternational dollars) GDP per Capita of World Leader, bold italic (1990 interternational dollars) GDP per Capita of World Leader, bold italic (1990 interternational dollars) GDP per Capita of World Leader, bold italic (1990 interternational dollars) GDP per Capita of World Leader, bold italic (1990 interternational dollars) GDP per Capita of World Leader, bold italic (1990 interternational dollars) GDP per Capita of World Leader, bold italic (1990 interternational dollars) GDP per Capita of World Leader, bold italic (1990 interternational dollars) GDP per Capita of World Leader, bold italic (1990 interternational dollars) 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) Leader's Share of World GDP (percent) Leader's Share of World GDP (percent) Leader's Share of World GDP (percent) Leader's Share of World GDP (percent) Leader's Share of World GDP (percent) Leader's Share of World GDP (percent) Leader's Share of World GDP (percent) Leader's Share of World GDP (percent) Leader's Share of World GDP (percent) Leader's Share of World GDP (percent) 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) Other Shares of World GDP (percent) Other Shares of World GDP (percent) Other Shares of World GDP (percent) Other Shares of World GDP (percent) Other Shares of World GDP (percent) Other Shares of World GDP (percent) Other Shares of World GDP (percent) Other Shares of World GDP (percent) Other Shares of World GDP (percent) Other Shares of World GDP (percent) 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
Western Europe 13.7 9.1 17.8 19.8 21.9 23.0 33.1 33.0 26.2 25.6 19.2

Source Angus Maddison, Contours of the World Economy, 1-2030AD Source Angus Maddison, Contours of the World Economy, 1-2030AD Source Angus Maddison, Contours of the World Economy, 1-2030AD Source Angus Maddison, Contours of the World Economy, 1-2030AD Source Angus Maddison, Contours of the World Economy, 1-2030AD Source Angus Maddison, Contours of the World Economy, 1-2030AD
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Chinas Leadership in Technology before
1400 See Joel Mokyrs The Lever of
Riches Examples of Chinas 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 Proc
elains, lacquers, explosives, pharmaceuticals Hor
se collar, crossbow
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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
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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
Antwerps 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
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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
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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, export of technology Currency became
overvalued
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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
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Growth Accounting for Leaders Annual
Growth Rates (percent) GDP per
Capital per labor per labor
Tech Leader Period hour hour
progress Dutch 1700-1785 -0.07 na
0 UK 1785-1820 0.5 0.0
0.5 UK 1820-1890 1.4
0.9 1.1 US 1890-1979
2.3 2.4
1.5 Source Angus Maddison, Phases of
Capitalist Development Authors estimate
assuming 1 percent increase in capital per labor
hour increases GDP per labor hour by 0.33 percent.