Interesting post by Richard Hanania, Why Are Americans So Rich?
Americans have been blessed in terms of both culture and policy. We have a common language, and the cultural differences between various parts of the country are relatively small. Moreover, while Europe has done a good job of creating an integrated single market for goods, there are still substantial barriers to trade in services, which make up the majority of a modern economy. Rigid labor laws also remain a problem. During covid, the United States was more willing to just directly give people money, while Europeans focused on trying to protect already existing jobs.
It’s easy to dismiss this as due to Americans also taking on more debt, but there are other factors too. Of course, there are other nations that are also very wealthy on a per-capita basis, such as Monaco, but what makes America interesting is how this wealth is scaled to so many people.
The question of why Americans are so wealthy, comes down to why America is so economically successful compared to other developed nations. This was especially evident post-Covid as the U.S. pulled way ahead of the rest of the world in terms of economic growth and stock market gains:
So why is America so successful and economically dominant? It comes down many factors:
1. Reserve currency status. This allows the U.S. to borrow cheaply during crisis to ensure rapid stimulus-fueled recoveries, like during Covid as other countries struggled, or during the 2008 financial crisis. The dollar falling relative to other currencies does not make Americans poorer, as the dollar is implicitly understood to the the ‘global unit’ of wealth that all asset prices are measured in. The dollar falling 3% against the Euro does not mean Elon Musk is 3% poorer. Foreign countries that trade commodities benchmark these transactions to dollars, not their local currencies.
2. America is a magnet for top talent from around the world, such as top-ranking universities and top tech companies. This is in spite of wokeness and affirmative action. It’s worth keeping in mind that other countries also have those problems, too. For example, U.K. universities also have Gaza protests and their own equivalent of ‘cancel culture’; it’s not just an American phenomenon or only American college students who are coddled or intolerant of speech.
3. Booming tech sector. This alone can explain how the U.S. pulled way ahead of the rest of the developed world starting in the ’80s. There are few, with exceptions such as Spotify, European-equivalent tech giants compared to the U.S., which has dozens, such as Nvidia and Meta. These tech companies contribute greatly to GDP and are a growing share of the overall economy compared to retail and other sectors, which are comparably small or stagnant.
4. America is the financial capital of the world. The biggest and most prestigious financial firms are in the U.S., such as Citadel, Jane Street, Goldman Sachs, JPMorgan Chase & Co, and so on.
5. Military dominance and a sprawling network of 3-letter agencies to enforce U.S. economic interests domestically and abroad. This is why federal agencies are so aggressive about pursuing crime worldwide, such as the drug trade, money laundering, or cryptocurrency crime. It’s not so much about making America safe, but about protecting the supremacy of the dollar.
6. Economic conditions and framework conducive to entrepreneurism and capitalism, such as low taxes, considerable discretionary income to fund consumerism, competitive wages, government investment and R&D, and less regulation compared to other developed nations. Programs such as Medicare, although costly, creates an incentive for pharma companies to develop new treatments. Same for defense spending.
7. Rule of law. Despite BLM, antifa, and the George Floyd riots of 2020, America respects property rights and ‘rule of law’ more so compared to elsewhere. Much of Europe also had plenty of protests and unrest over the years. Canada and Germany during Covid saw protests and a near-total breakdown of law and order, whereas things were comparably stable in the U.S., save for the George Floyd riots, which were mostly contained to a handful of cities. France has protests every year it seems–dating back to the Revolution. Same for Brazil. If anything, America is an outlier in terms of having such infrequent protests, and what little protesting is inconsequential.
Hong Kong despite being held up by some on the ‘online right’ as a posterchild of claimed East-Asian superiority compared to “decadent woke America” has seen considerable protests and unrest over the past decade. Same for South Korea being under martial law this year. Meanwhile the US, despite being woke, is also more stable, which is is preferrable to instability. It never made sense to me how a region where hentai is the national pastime, is somehow held up as a model or bastion of traditional values that the West ought to emulate. Of course, America also has plenty of porn, but it goes to show how no culture is superior.
Although America is sometimes criticized as being under-policed, I posit American policing and the American criminal justice system is more effective on a per-capita basis and relative to demographics compared to other countries, as I will expand on in a forthcoming article. If American police and criminal justice system was swapped with the Scandinavian-style criminal justice system and policing, crime would be way worse here. Demographics and the under-reporting or the ignoring of crime play a huge role in explaining apparent differences of national crime rates, or why America seems worse. It’s likely Europe has a lot of underreported crime and better demographics.
As any tourist who has visited Western Europe and especially Southern Europe can attest, theft is a huge problem. In much of Europe, the expectation is police will not do anything or are too incompetent to solve crimes, so people do not even bother to report crime. And what crime that is reported is unsolved or unprosecuted, hence the low crime rate.
8. A propensity to consume. Consumerism is often cast in a negative light by social critics, but much of the U.S. economy and job creation centers around people buying stuff. During Covid, when the lockdowns were lifted, Americans flooded the stores at record speed. A combination of stimulus and pent-up demand led to a much faster than anticipated U.S. economic recovery.
9. Monetary and fiscal flexibility. This is also why the national debt may not be as big of a deal as headlines suggest, owing to the U.S. being able to use its reserve currency status and fast growth to fund the interest payments and to inflate the debt away. Provided economic growth is in excess of the rate of debt accumulation, the debt burden falls or stays the same relative to GDP even if the nominal debt keeps increasing. But what happens if economic growth falls due to crisis, like during Covid or 2008? Then treasury bond yields plunge and the U.S. again can again take advantage of the flight-to-safety trade to issue cheap debt to restart its economy and to pay down earlier debt.
10. Reactive policy. This is related to above. Even though policy makers can seem out of touch or indifferent, when times call for action, they tend to respond quickly, like the TARP bailout, in 2008, which was widely maligned but likely necessary to restore confidence and liquidity in the financial system to stave off worse crisis; the stock market would go on to bottom just 5 months later, in March 2009, starting a record-setting 11-year bull market that was only stopped due to Covid. Of course, this is not perfect, like ignoring the threat of Bin Laden during the ’90s, the consequences of such inaction which were made clear on 9/11 .
During Covid, America led the world in developing a vaccine, and stimulus programs engendered a rapid economic recovery as other countries stalled out with endless lockdowns, economic stagnation, unrest, and Covid relapses despite lockdowns.
11. The x-factor. This is the myriad of cultural variables that does not fit into any economic framework. Interestingly, America’s flaws are also why it’s so successful. When commentators complain about the lack of a national identity, or short-termism, overconsumption, national division, or ‘Congress being out of touch’, these are also reasons why America is so successful. America’s industrious individualistic culture in which property rights and ownership are delineated and protected by strong laws, goes a long way to explaining its success. It’s not even about Christianity, as America’s dominance has only grown despite being more secular.