America Is Number 1 Again
How a Prediction of Japanese and German Dominance Went Awry
MAY 01, 1999 by MARK SKOUSEN
Filed Under : Regulation, Taxation
“By the year 2000 Japan may well be enjoying the highest standard of living of any industrialized country.”
—Economics textbook, 1987
In 1991, I prepared an advertising campaign for my book Economics on Trial (Irwin). The headline was: “Japan and Germany Win World War III,” followed by the subtitle, “Their formula multiplies wealth so rapidly that they will achieve their goal of world domination by the year 2000.” In this ad, I referenced the sound economic model that had transformed war-torn Germany and Japan into economic powerhouses in one generation and vulcanized their stock markets. These principles were high savings rates, low taxes on capital and investment, low inflation, balanced budgets, and free markets.
Friedman Sets Me Straight
I sent a copy of my ad to the Nobel laureate economist Milton Friedman, who wasted no time debunking it: “This prediction is a bunch of nonsense,” he wrote to me. “I will not live long enough to see it falsified, but you will. In the [year 2000] as in 1991, the U.S. standard of living will be higher than the Japanese.”
It wasn’t long before Professor Friedman was proven right. (He has set me straight on a number of occasions.) My prediction of German and Japanese dominance went awry. Not because the market formula for growth is wrong, but because Germany and Japan abandoned their model of success. Germany adopted high-cost labor-union controls, imposed anti-business regulations, and dramatically increased taxes to pay for a unified Germany. Japan exacted substantial tax increases (including a capital gains tax), propped up inefficient banks, and imposed a severe tight money policy in the early 1990s (following an excessive liberal monetary policy in the 1980s that created a bubble in real estate and stocks). Japan is still trying to recover from these devastating anti-market measures. Easier money and a higher national sales tax haven’t helped. If Japan and Germany want to regain their fast-track status, they need to embrace a healthy dose of supply-side tax cuts and deregulation (known as Reaganomics in this country).
Meanwhile, the good ol’ USA is rolling right along. The tax increases in the early 1990s are being reversed (long-term capital gains are now taxed at only 20 percent). Corporations have downsized and labor remains wage-flexible and productive. We lead the world in technology and employment creation, among other categories.
Friedman (and others) convinced me to turn bullish on the U.S. economy and stock market in the early 1990s. In January 1995, I made a major prediction in Forecasts & Strategies, arguing that America was on the comeback, and would lead the world in stock market performance. So far it has.
How Does the U.S. Rank?
Recently I came across a delightful book that confirms my view that America is once again on top of the world: the fourth edition of The Illustrated Book of World Rankings, edited and compiled by George Thomas Kurian. Out of some 100 positive listings, the United States received top billing in 33 categories. Among them:
- Most powerful nation (based on military manpower and economic capacity), way ahead of number 2 Russia.
- Largest gross domestic product (GDP), way ahead of number 2 Japan and number 3 Germany.
- World’s highest per capita income based on purchasing power parity (though number 6 based on exchange rates), ahead of number 2 Switzerland.
- World’s biggest exporter and importer, ahead of number 2 Germany and number 3 Japan.
- World’s leader in retail sales.
- Leader in production of electricity, timber, and milk.
- Number 1 in airline travel, passenger cars, and commercial vehicles.
- Primary country of destination based on tourist expenditures.
- Number 1 in mail, telephones, faxes, and e-mail addresses.
- Tops in number of scientists and engineers, patents in force, and Nobel Prize winners (three times more than number 2 United Kingdom).
- Number 1 in televisions and radios per capita, number of movie theaters, museums, botanical gardens, and zoos. (India produces more films per year, but the United States dominates in movie revenues.)
The United States was edged out by Canada for number 1 in the Human Development Index (longevity, educational achievement, and standard of living). Japan is number 3.
Lest you think America can do no wrong, the United States is also ranked number 1 in several negative categories: teen pregnancies, divorce rate (among industrial nations), sulfur and carbon emissions and nuclear wastes, AIDS cases, and number of prisoners. However, it is way down the list in several crime statistics.
Debunking the Pessimists
A new book confirms America’s lead in the world. In Myths of Rich and Poor, Michael Cox and Richard Alm highlight a slew of facts demonstrating American prowess and denying economic decay since the mid-1970s: real wealth has skyrocketed, the poor have not gotten poorer, corporate downsizing has created jobs, and the trade deficit suggests the United States is the “best place to invest.”
What about the future? Another fascinating book argues that the United States has a monopoly position on future technology. In Probable Tomorrows: How Science and Technology Will Transform Our Lives in the Next Twenty Years, Marvin Cetron and Owen L. Davies compile an exhaustive list of possible technological breakthroughs in engineering, manufacturing, computers, communications, energy, space, and medicine, noting which countries are likely to produce these innovations. The United States was named the likely choice in 95 percent of the cases.
No wonder so many people from abroad want to come here. Their best alternative: invest in U.S. stocks, businesses, and real estate.