Tuesday, January 8, 2008

Catching Up, Forging Ahead and Falling Behind

One of the big stories of late-19th/early-20th century economic history is the US catching up with and surpassing Britain as the global economic leader. This can be seen in the data from Angus Maddison's Historical Statistics for the World Economy, 1-2003 AD:

This year may see a role reversal. Heather Stewart of The Observer says "at least we've got one up on the Yanks" -
For the first time since Queen Victoria was on the throne and Britain still had an Empire, average living standards are now higher on this side of the Atlantic.

New calculations by consultancy Oxford Economics show that GDP will reach £23,500 per person in the UK in 2008, beating £23,250 in the US, and also topping the levels in both Germany and France by 8 per cent.

Those figures are not adjusted for purchasing power and partly reflect the strength of the pound/weakness of the dollar. Nonetheless, Britons have a reason to feel chuffed, if not cock-a-hoop.

Note: The title of this post is swiped from a classic 1986 Journal of Economic History paper by Moses Abramovitz.


Ming said...

By the late 19 century, Britain was at the peak of its time as an empire, and somehow the law of diminishing returns kicked it.

Since I lived in the U.S., I hope that history would not repeat. Nevertheless, the U.S. economy in the 1990s is still an era stronger than the recovery period of the early 21th centuries. We may follow a similar pattern of U.K.'s growth by the end of the 19th century.

I know, economists would come up with some institutional or policy arguments that the U.S. is different. However, I have become sceptical on such theoretical arguments on macro-changes.

Bill C said...

Thanks for the comment. I think the UK "overtaking" the US is an artifact of the exchange rate, so I'm not too inclined to worry that the US is no longer the "leader."

The real problem for the US is what we do with our GDP - the point isn't to win bragging rights, but to provide a better life for people, and when you consider things like health care, leisure time and income distribution, arguably we compare unfavorably to Europe.

That said, I do wonder if our low saving and the weakness of our public sector - both in terms of regulation and investment (education, infrastructure) - may ultimately jeopardize our place in the GDP rankings.