Why the ‘Oughts will go down as great years

“It may not feel that way right now, but the last 10 years may go down in world history as a big success.

That idea may be hard to accept in the United States. After all, it was the decade of 9/11, the wars in Iraq and Afghanistan, and the financial crisis, all dramatic and painful events. But in economic terms, at least, the decade was a remarkably good one for many people around the globe.

The raging economic growth rates of China and India are well known, though their rise is part of a broader trend in the economic development of poorer countries. Ideals of prosperity, freedom and the rule of law have probably never been more resonant globally than they’ve been over the last 10 years, even if practice often falls short. And for all of the anti-capitalistic rhetoric that has emerged from the financial crisis, national leaders around the world are embracing the commercialization of their economies.

Putting aside the United States, which ranks third, the four most populous countries are China, India, Indonesia and Brazil, accounting for more than 40 percent of the world’s people. And all four have made great strides [this past decade]. …
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One lesson from all of this is that steady economic growth is an underreported news story — and to our own detriment. As human beings, we are prone to focus on very dramatic, visible events, such as confrontations with political enemies or the personal qualities of leaders, whether good or bad. …

In a given year, an extra percentage point of economic growth may not seem to matter much. But, over time, the difference between annual growth of 1 percent and 2 percent determines whether you can double your standard of living every 35 years or every 70 years. At 5 percent annual economic growth, living standards double about every 14 years.
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It might be pleasant to boast that America is — or should be — a world leader in every area, but the practical reality is that if some other country solves the problem of green energy, so much the better for us.”

 
Tyler Cowen, "Fruitful Decade for Many in the World", The New York Times (2 January 2010).
               
Tyler Cowen is a professor of economics at George Mason University.
 
 
At the dawn of the Twenty-first Century the position of the United States and other economically advanced countries in the world seemed unchallengeable.  In the second half of the previous century, the countries of the West had marshaled the economic resources of the world, controlled its oceans and space, and extended their trading relationships not only to the other side of the globe but deeply into every country on every continent.  Their per capita incomes, already far higher than other regions of the world, had risen markedly as they witnessed a strong renewal of progress following a protracted and deep depression and a devastating full-scale war extending across several continents.  Labor productivity rose rapidly in response to a broadening division of labor, more capital per worker, and innovations in organization, products, techniques and transport.  As a result, living standards in these countries far exceeded those of the rest of the world and as the end of the Twentieth Century approached these countries enjoyed an economic boom.   Equally important, the development of those countries that had lagged in the process of world development was spurred, and prosperity spread, indeed, with time, accelerated, across the globe.
 
The global economic landscape of year 2000 reflected the progress made by these countries and encouraged the expectation of continued advances.  A relatively small proportion of the world’s population residing in these fortunate countries, only some 15 per cent of the its inhabitants, produced the vast bulk of its wealth and was the center of scientific and technical advance.  One country, the United States, endowed by its geography and history with the position of leader of the West, comprised  a much smaller five per cent of all people on earth but exercised unchallenged global economic supremacy and political hegemony as its former adversaries either lay prostrate and exhausted from an economic competition that they could not win, as in the case of the states former of the old Soviet Union, or were so weak and poor and divided so as to represent no threat to its dominant position.  For Americans, a future of peace and prosperity smiled upon them.
 
America sees itself as a land of economic success.  It regards its economic success as almost foreordained, inevitable in the grand scheme of things, and it always sees itself as the principle source of economic advance in the world.  It has no intention of monopolizing that advance but wants to share it and is welcoming of others economic advance.  It looked to the Twenty-first Century with hope of further success.
 
But the ‘oughts have not been at all successful for America.  Two recessions, one very deep, growing internal and external imbalances, high unemployment and a financial crisis scorched the economy and left a legacy of tarnished hopes.  It is not surprising that after a half century of progress a decade of setbacks soured Americans on what was a very difficult decade.  It is not too much to say the experience of the past decade has shaken many Americans to their core.
 
But as Professor Cowen notes, for the rest of the world the first decade of the Twenty-first Century was a good one.  Developing countries grew very rapidly most years during the decade and, while affected by the global financial crisis, it appears they are now rebounding strongly from the downturn.  For these countries, and for the vast majority of the world’s population, these have been very good years, even great years.
 
Geopolitically, these years could also represent a turning point in the political and economic history of the world.   By its position astride the main shipping routes of both the Atlantic and the Pacific, its large and skilled and educated population, its huge territory of abundant resources, its temperate climate, its highly capital-intensive and technologically-oriented economy, and its commercial culture and extensive network of trading relations, the United States should continue to be the world’s leading country and economy for many decades to come.   No other country has these qualities and no other country could replace it in its role as a world leader. 
 
But it is also fair to say that the United States has been incautious in its economic policies and has allowed its economy to fall from being the wonder of the world to become the debtor to the world.  At the same time, other countries, many initially much poorer and backward in their technological sophistication and business acuity, surpassed it in many areas during the past decade.   They have undertaken the development of their countries not by force of arms or unwelcome intrusion but by hard work and wise policies.  For them, the past decade is truly one of great economic achievement.
 
The world economic landscape of 2010 is very different than that of 2000 and it is different not only because of the success of other countries but because of a failure of the United States to conduct itself with the seriousness and purpose of a Great Country with Great Responsibilities.  Americans made great errors in policy and consequently suffered economic setbacks and financial panics at their own hands. 
 
The world economic scene that will be before us in 2020 is now being set.  If the U.S. returns to the theme of national growth and development and of limited government and free markets, it will prosper and retain its position in the world.  If it continues down its current road of excesses and imbalances and of expansive government and interferences and controls on the economy, it will find itself falling ever behind a roaring world economy dominated by the rapidly expanding economies of Asia, Africa and Latin America.
 
The choice is up to the Americans.