7/29/2004

Why has the US been the richest country since 1880?

If you go to this blog site I think you'll find a very interesting article about why the US is so far ahead of other countries in terms of GDP, employment, wealth and productivity.  Many people that commented on this site have different opinions on why we're the richest, but the article I saw and liked said that we're richer for mainly three reasons.
"1.  Institutional structures: political, administrative, legal-and-regulatory, financial, corporate governance, and educational;
2.  Policy differences, especially in the degree of openness to foreign trade and investment, regulations that further or block market competition at home, vividly different levels of taxation and welfare transfers, and social expenditures in general;
3.  Cultural attitudes toward two related things: 1) toward risk-taking and entrepreneurship; and 2) toward radical economic and social change that, if adapted to quickly, allows the Schumpeterian forces of creative destruction to operate freely, for all the dislocations such change entails to the status quo. "

To me this seems like the most logical argument toward the reasons about why the US has been the richest country since 1880.  

11 comments:

Dr. Tufte said...

I agree with all of this.

BTW - Schumpeterian is an adjective formed from the last name of an economist who did most of his work 50-75 years ago. His work wasn't forgotten, but it was neglected until the late 1980's. Schumpeter argued that it is the destruction of less profitable firms (through bankruptcy or liquidation) that creates thriving economies, by opening up opportunities for newer and better ideas. Today, there is a strain of growth theory loosely called Schumpeterian which argues that policies that support firms that would otherwise fail lead to growth rates that are substandard.

Boris said...

I agree with those statements as well. Especially the first point. If you think about it, economic growth is based upon having working institutional structures. Otherwise, countries would have been growing and expanding their economies hundreds of years ago. Without the establishment of the United States government and it's revolutionary institutional ideas, substantial growth in economies worldwide might still be stuck in their stagnant state. This relates very much to the discussions we had at the beginning of the class.

Jules said...
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Kid said...

This article was a very interesting one. I’ve visited many countries and our freedoms, in all aspects, are the biggest reason we are the richest country.

When chapter 8 was discussed in class, Dr. Tufte mentioned how the Steam Engine was built in Scotland in the mid 1800’s but then went on to tell us that it really had been invented hundreds of years earlier, but there was no reason for its use. There was no reason for its use because Governments use to punish people for being inventive. When there is no incentive to invent things or work hard people just don’t. This was proven with the former Soviet Union.

The beauty of our country is that even if the idea seems totally absurd we still have the right to pursue the idea. Who would have ever thought people would be able to talk to each other half way across the world? Not my grandparents. It happens though every day because Alexander Graham Bell had an idea and went with it. Where did he do all this…no other place then the good ol’ USA, which happens to be the richest country in the world.

metromut said...

Seems pretty simple to me...We are free. Free to think Free to try. Free to either fail or succeed. Free to believe in anything we want. Put all this freedom together...wealth, enployment, and productivity follows...

Rolf Tiblin said...

As I read through the comments on this blog I kept asking myself why no one has commented on the importance of freedom. Then Metromut chimed in and beat me to the punch. There are many factors that have contributed to our long-lived riches and the comments made support why. Let’s also give credit to the founding fathers of this country for their visionary talents and collective abilities to create a document that would allow us to continue to pursue our dreams even two hundred plus years after it was written. I often wonder after all the prosperity we enjoy, how some people can still find things to complain about?

Lizzie said...
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Lizzie said...

I want to focus on the first reason…Institutions. I agree whole-heartedly that institutions have brought about a lot of changes that make our country so impressive; a good example of this is social security. I also think that politics and elected officials have done their part in making this a great country.

kavindavis said...

When I lived in Brazil, it comes to you quick why we are so much ahead. I noticed a lot of little things that we do that Brazil dident, and when you add them up on a large scale it makes a differace. For example in Brazil if you get pulled over for drunk driving, the only thing that the police can do is give you a ticket and send you on your way. Your not forced to go to school. You dont need a business license to open a store, so becouse of that you get a hole neighborhood that will go to the store of eney kind, buy stuff, and then try and sell the stuff out of thier houses. It creats confusion of prices, and then people end up with an overhead of goods at there house, that nobody would ever buy.

But my point is that we are very furtunate to have the laws and regulations that we do. So the next time you get pulled over be gratful, becouse its inforcing laws like 5 over the speed limit that makes our nation so great.

kamm said...

I think that this is an excellent blog. The two things that I think are the most important are our political structure and our cultural attitudes toward entrepreneurship and social change. The basis and structure of our government(The US Constitution), has made it possible for us to have a system that encourages entrepreneurship and social change.

Dr. Tufte said...

I just want to bring some of the discussion of freedom and institutions back on track.

With respect to freedom, perhaps the boundaries on what we can't do are also important. For example, you're not free to sell yourself into slavery. This seems pretty straightforward, but it isn't a big step from selling your children into slavery, which is still practiced in many regions of the globe.

With respect to institutions, remember that I didn't often say that it was specific laws (say) that make a growth compatible institution. Rather, it is the predictable enforcement of those laws that is the important institution.

The bottom line is that economists are currently accumulating a lot of evidence about what freedoms and institutions influence growth the most, but we don't have a solid footing in this area yet.