Day By Day

Monday, May 23, 2005

Samuelson Speaks Sense

Every once in a while the US media go into a declinist tizzy. The public is assaulted day after day, month after month, with predictions of imminent decline. This year is no different. We are assured that the rising powers of Asia [China and India this time; Japan and the "Little Tigers" twenty years ago] are about to inundate us and bring an end to American prosperity and influence. Well, maybe..., but probably not.

Robert J. Samuelson addresses the current wave of fear-mongering with blunt common sense. He points out that none of these apocalyptic fantasies have panned out and wonders why. They are not pure fancy -- in each case there has been hard evidence to support the declinist's scenarios. But American society and the American economy just keep chugging along -- outperforming their would be conquerors.

He writes:

One puzzle about the U.S. economy is why it doesn't do worse when there are so many reasons that it should. Our students do fare poorly on international comparisons. In a recent study of math skills of 15-year-olds in 29 countries, done by the Organization for Economic Cooperation and Development, Americans ranked 24th. We do depend heavily on immigrants to fill science and engineering jobs. In 2000, immigrants accounted for 17 percent of U.S. scientists and engineers with bachelor's degrees, 29 percent with master's degrees and 38 percent with doctorates. And our savings and investment rates are low. In 2001, the U.S. savings rate ranked 22nd out of 25 OECD countries.

The explanation is this: every complex economy is more (or less) than the sum of its parts. What matters is not just how much we save—but how well we invest. The Japanese have squandered much of their higher savings on unproductive investments. Similarly, many work skills are learned on the job. Perhaps 70 percent of the gap in average incomes between the United States and Western Europe reflects the fact that Europeans work less than Americans. The Europeans are entitled to their preferences (longer vacations, earlier retirement), but their higher unemployment and lower labor-force participation rates mean that fewer people acquire real job skills—and that some people with skills don't use them.

But there is a larger problem with the reasoning underlying declinist scenarios -- they generalize from too few facts.
[They transform] a few selective economic happenings—a satellite here, a Toyota there, poor test scores everywhere—into a full-blown theory of economic inferiority or superiority. As often as not, the result is misleading.
He argues that the current anxiety over China and India is no different. There are real challenges in Asian prosperity, but there are offsetting benefits to be gained. The US will continue to outstrip its rivals and if there is danger in the offing it is:

that the China bloc destabilizes the world economy—not that it soon overtakes us.

There is a great deal of good sense here. But the public appetite for apocalypse and the political and economic profits to be gained from doom-mongering are too great to hope that we will see any diminution in the volume or frequency of Chicken Little scenarios.

Read it here.

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