America’s economy is bigger and better than ever

Over the past three decades America has left the rest of the rich world in the dust. In 1990 it accounted for about two-fifths of the GDP of the G7. Today it makes up half. Output per person is now about 30% higher than in western Europe and Canada, and 60% higher than in Japan—gaps that have roughly doubled since 1990. Mississippi may be America’s poorest state, but its hard-working residents earn, on average, more than Brits, Canadians or Germans. Lately, China too has gone backwards. Having closed in rapidly on America in the years before the pandemic, its nominal gdp has slipped from about three-quarters of America’s in 2021 to two-thirds today.

This record is now in jeopardy. As America has become more partisan, both Kamala Harris and Mr Trump, the two presidential candidates, are focusing on policies that protect their own supporters, rather than expanding the overall economic pie. America is not about to lose its economic dominance. But, sooner or later, rotten politics will start to exact a heavy price, and by then it will be hard to reverse course.

To see why, consider first the factors behind America’s success. Innate advantages play an important role. America is a big country blessed with vast energy resources. The enormous size of its consumer and capital markets means that a good idea dreamt up in Michigan can make it big across America’s 49 other states.  Yet good policy has been important, too. 

This combination of factors has fuelled a powerful virtuous cycle. America’s dynamic private sector draws in immigrants, ideas and investment, begetting more dynamism. It is home not just to the world’s biggest rocket-launch industry, but also its internet giants and best artificial-intelligence startups. Its seven big tech firms are together worth more than the stockmarkets of Britain, Canada, Germany and Japan combined; Amazon alone spends more on research and development than all of British business. Because the dollar is the world’s reserve currency, meanwhile, investors have a keen appetite for American debt. 

So far, America’s worsening politics have had little visible effect on the economy.   The turning-point may not come tomorrow, or even in the next four years. But with every mistake that politicians make, it draws another step closer.