Opinion

The Great Debate

U.S. power: Down but still unrivaled

By Glenn Hubbard and Tim Kane
May 21, 2013

This essay is adapted from the author’s new bookBalance: The Economics of Great Powers from Ancient Rome to Modern America.”

Hard power. Soft power. Smart Power. Superpower. This is the language of foreign affairs, full of meaning but empty of measurement. Vagueness is, of course, purposeful in the hands of skilled diplomats and politicians, but it can signal shallowness, ignorance or worse. Lacking clear metrics for power, the U.S. national security establishment speculates about possible rivals while being led astray by trendy catchphrases.

The “emerging foreign power” is a rotating special guest in the narrative of the American century. That role was taken by the Soviet Union during the Cold War, was filled by Japan for a decade and now stars China. Yet Beijing does not threaten to counterbalance U.S. power as gravely as America’s economy threatens to become unbalanced on its own.

To get a better understanding of the world’s “balance of economics,” we developed a new measure of economic power. What it shows is that U.S. power has declined from its peak in 2000 by roughly one-fourth, yet remains unrivaled.  China is surging, to be sure, but has just one-third of the economic power of the U.S. Europe is sluggish, while Japan, South America’s big three economies and India are not even close to their potential.

The U.S. remains the dominant economic power in 2010
United States
Europe
China
Japan
South America
India
GDP per capita ($)
41,365
32,004
7,746
31,447
9,236
3,477
Growth
1.40%
1.20%
9.90%
0.50%
3.60%
7.70%
GDP ($T)
12,833
12,875
10,303
3,988
2,394
4,079
Economic Power
623
456
251
93
42
39
Economic Power
Ratio to U.S.
100%
73%
40%
15%
7%
6%

The problem with growth

Today, the United States is nagged by incessant fears of lost strength, largely because the mismeasurement of power acts as a central pillar of “declinism.” “In every single decade since the end of World War Two,” as Yale University historian Robert Kagan recently observed, “Americans have worried about their declining influence and looked nervously as other powers seemed to be rising at their expense.” Perhaps the conversation is stuck because we are all looking at growth rates in isolation.

Consider the latest rival, China.  Many analysts and journalists fail to contextualize Chinese growth rates with any mention of the overall size of the economy or average incomes. To confirm our suspicions, we scrutinized a random sample of recent newspaper articles, selecting 10 from five major publishers. We then scored each article for any mention of key terms – growth, gross domestic product and GDP per capita – and we counted any mention of GDP or productivity generously. Articles in the Washington Post and the New York Times often refer merely to the relative size of the Chinese GDP, but we credited these citations as well.

The results were still a surprise. Eighty percent of stories mention China’s growth rate, but GDP was mentioned in only 13 of the 50 articles, while productivity (or GDP per capita) was mentioned in just six – three in the Wall Street Journal, two in the Financial Times and one in the Washington Post. GDP per capita and GDP are important indicators, yet newspapers neglect them, and television coverage is likely worse. Is this because growth rates fuel more captivating tales of decline and triumph?

We understand that growth is the modern yardstick of international economics. It’s a good yardstick, but it should be combined with other metrics to have meaning.

A yardstick for economic power

A measure of economic power should be a combination of total GDP, technological advancement and growth. (We use a 10-year moving average.) In the 1970s, Europe — an aggregate of 17 nations including euro-zone members Germany and Spain as well as non-members Sweden and Britain — had the largest overall GDP; Japan was the fastest-growing power in history; and the United States led in productivity.

As interesting as these figures and their evolution over the decades may be, it can be difficult for non-experts to keep track of these three dimensions and see how they interact. We came up with a measure that combines them into one number that represents national economic power: GDP times productivity times the square root of growth.

Using 2010 data, Europe’s economic power is 73 percent of the U.S. level, China’s is 40 percent and Japan’s is 15 percent. The rising power of India is real but relatively minuscule. The same goes for South America.

Our assessment is that China’s growth surge is probably leading to overheated estimates of its power, which will likely stabilize in the decades ahead. Unfortunately, the long-term relative declines of Europe and Japan seem likely to continue, especially when considering their demographic challenges. In contrast, America’s path is uncertain.

The United States itself has a larger GDP and higher productivity than 10 years ago, but its long-term growth rate has slowed by half. That’s a reflection of internal imbalance – budget deficits, heavy taxes that hinder incentives to work and innovate, unfunded entitlements and more. Existential threats hide in plain sight. If the United States wants to be a superpower for another century, it needs to focus on the barriers to economic growth within — not phantoms abroad.

 

PHOTO (Top): Workers on the moving line and forward fuselage assembly areas for the F-35 Joint Strike Fighter at Lockheed Martin Corp’s factory located in Fort Worth, Texas, October 13, 2011. REUTERS/Lockheed Martin/Randy A. Crites/Handout

 

Comments
7 comments so far | RSS Comments RSS

Interesting piece, but it fails to mention yest another contextual measure of power, which is relationships – both strategic and economic.
For example, the US helped the EU in its struggle to stabilize banks, the euro, etc. Japan without the US military umbrella and strong economic ties with the US would be meaningless. China without its access to US markets would be a shadow of itself, etc.
The US is powerful not just by itself, but as a world political and economic leader who enjoys good relationships with most countries in the world.
To some extent, the US is also cultural leader, and as a result it has additional ‘soft’ power.

Posted by reality-again | Report as abusive
 

I would like more of an explanation about why growth is scaled down to its square root in the authors’ metric while GDP and productively are unscaled.
It makes it seems like this metric might undervalue growth.

Posted by roboticowl | Report as abusive
 

I would like to see intelligent debate as to the purpose of “national power”. Obviously there have been both legitimate and illegitimate uses.

Authority should always carry responsibility of equal measure. Accountability is the Joker in every deck.

Posted by OneOfTheSheep | Report as abusive
 

GDP, by itself, cannot measure a nation’s power, any more than a company can be measured by looking at its income statement.

The US balance sheet is so heavy with debt we would not be certified as a “going concern” during an audit.

Posted by EconCassandra | Report as abusive
 

why usse the square root of growth? It seems this is likely to weigh unfavorably for countres with high growth rates like china,thus lessening there importance. Is there some rationale for this formula that is based on real world findings?

Posted by zotdoc | Report as abusive
 

GDP and growth are absolutely meaningless terms. Both of these gentlemen are simple monetarists who believe printing money makes a difference. The only thing it does is rob the savings of those who, unlike them, actually work for a living. You can call that power if you want, but in a larger view, I certainly wouldn’t.

Posted by REMant | Report as abusive
 

Very interesting, and useful information too.

Posted by matthewslyman | Report as abusive
 

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