No, the U.S. isn’t falling behind

A new study shows U.S. productivity rising at its slowest pace in a decade, slower even than Europe. Is it, as some suggest, a changing of the economic guard, with a resurgent European Union surpassing the once-mighty United States? Don't bet on it, says Investor's Business Daily (IBD).

It might be true, as the Conference Board reports, that U.S. productivity grew just 1.4 per cent in 2006 (remember, final data aren't in yet) while the European Union (EU) will likely post a 1.5 per cent gain. But even if those data hold, last year will likely be an anomaly. The United States is positioned to keep its place in the commanding heights of the world economy for decades to come, says IBD.

Projections by the Census Bureau show that by 2025, America's working population will have increased by 55 million; Western Europe's, meanwhile, will have shrunk by about 10 million.

A study by economists Ian Dew-Becker and Robert Gordon for the National Bureau of Economic Research notes that from 1995 to 2004, U.S. total labour productivity grew on average 73 per cent faster than the EU's.

In 1995, EU productivity was 94 per cent of the U.S. level; by 2004, it was down to 85 per cent.

In 2005, the average American worker produced close to $81,000 in real gross domestic product; the average European produced $66,000 – a difference of $15,000, or 22 per cent.

In other words, Europe is losing, not gaining, ground, says IBD.

Of course, no country's lead is insurmountable and bad policies can kill any economy – even one as powerful as the United States'. IBD worries, for instance, that the new Congress will over- regulate, overtax, slap new rules on U.S. companies to halt global warming and shut the United States to free trade. These would all be disasters for U.S. economic growth – as they already have been in Europe.

Source: Editorial, No, The U.S. Isn't Falling Behind, January 23, 2007; based upon: Gail Foster and Bart van Ark, U.S. Labor Productivity Growth in 2006 was the Lowest in More than a Decade, Conference Board, January 23, 2007.

For text: http://www.investors.com/editorial/editorialcontent.asp?secid=1501&status=article&id=254448638890080”

For study text: http://www.conference-board.org/utilities/pressDetail.cfm?press_ID=3049

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

FMF Policy Bulletin/ 30 January 2007