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Winning Strategy For Global Competition

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I was born in 1954.  No thanks to me, the United States contributed 26% of the world’s economic output (GDP) in that year. Western Europe produced 24%, and India/China together produced only 9%.

America was the undisputed economic superpower in the 1950’s; the envy of the world back then. Our cars had fins, our girls had curves, and our radios played Elvis, Chuck Berry, and the blues.

China and India were the poorest places on earth; we were told to eat everything on our plates because children were starving there.

That was a long time ago, and it feels even longer every time I have to lift something heavy. Today, Europe has dropped from 24% of world economic output to 15%; the United States has dropped from 26% to 19%; and India/China has grown from 9% to 24%.

Those Asian nations have been here before. In 1813, India and China comprised 49% of world GDP, while Europe made up 23% and the fledgling United States contributed only 2% of world’s goods and services.

A century later, in 1913, the Indian/Chinese economies had fallen to 16% of world output, while the Europeans increased their share to 33% and the United States had rocketed from nothing to 19% of world GDP.

Credit to Angus Maddison for compiling and publishing world GDP statistics going back to year 1 AD; I have no idea how, but there is no reason to doubt the numbers. There is a simple lesson to be learned from economic history and his world GDP statistics: the mighty fall.

Under central government control and protectionist trade policies, China and India fell from their dominant positions in world output. When they tried to isolate themselves from global competition in the 19th century, they became poor and weak.

Conversely, when India and China liberated their economies in the 1990’s and began to trade again with the world, they started their rise back to the top. This is no fluke; when the U.S. economy was its most free (19th century) is when we rose up from obscurity to become the dominant economic power in the world.

We became rich and strong by embracing global competition. The unprecedented economic freedom enjoyed by Americans after our independence ignited the industrial revolution. Competition with the newly democratized nations of Europe pushed both of us to levels of productivity unimaginable by earlier generations. Global competition is a good thing. We like to win; we are Americans.

Europe’s dominant economic position in the world began to erode over a century ago as they constructed their social welfare states and imposed protectionist policies to insulate their unions and industrial managers from global competition. In the past half-century, the United States has gone down that same path and we are now seeing our economic power decline. We trail the world average in economic growth, and a recent study revealed that 49% of American households are now dependent on government for at least some of their income.

In the decades that I have been alive, the size of American government at all levels has more than doubled, minimum wage laws have been enacted, fiscal stimuli have been a fixture of government policy, as has monetary stimuli courtesy of the Federal Reserve. Women entered the workforce to supplement family incomes, a record number of Americans have gone to college, and trillions have been spent to eradicate poverty. We saddled ourselves with a crushing debt load, armed the world, and fought in five wars – a Keynesian prescription for boom times.

And over that time, per-capita income has risen in the United States by 278% in constant (1990) world dollars. Sounds impressive, doesn’t it – like maybe all those things worked. I’m sure that’s how they write it up in the textbooks these days.

What they probably don’t mention is that over an equal number of years, from 1854 to 1913 – the glory years for economic libertarians – per-capita income rose by 294% without doing any of those things.

That’s right, when we bound government and trusted markets, we did better than when we trusted government and bound markets. We outperformed the rest of the world back then and our standard of living rose faster than in any period before or since.

Between 1850 and 1908 we had 13 years with 9% or more annual GDP growth in this country. In 1908 government at all levels consumed less than 12% of GDP, there was no income tax, and no Federal Reserve. Between 1950 and 2008 we had zero years with 9% or more GDP growth. And there you go.

1912 was the end of over a century of laissez faire capitalism that propelled us to #1 in the world with virtually no sovereign debt and no unfunded liabilities. The next 100 years of the Federal Reserve and Keynesian economics has left us a nation in economic decline with a debt load and a mountain of unfunded liabilities that will depress our economic growth for the next 50 years.

Since 1990, the world’s per-capita GDP has risen at a compounded growth rate of 2.17%. The United States has lagged behind at 1.76% and so have Western Europe (1.56%), Latin America (1.78%), and Africa (1.24%). The modern-day world-beaters are East Asia (4.12%), West Asia (3.90%) and Eastern Europe (2.42%).

Why? They work harder than us, they tax less than us, they regulate less than us, they trade more than us, they develop their natural resources, and they make things. That’s six things we need to do better than them; it’s not very complicated.

So why does Mitt Romney need 53 more things in his economic recovery plan? And why doesn’t Barack Obama even have a plan?  That’s what I want to know.

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