Could the U.S. Grow as Fast as China? Of Course It Could.
The U.S. still has what Alexander Hamilton called “the adventurous spirit, which distinguishes the commercial character of America.” Hamilton knew that British monopolists feared that spirit 250 years ago[i] and China ought to be fearful of it today. Yet in 2017 we have a President who is cheerleader-in-chief for those who believe America can’t compete and a Congress that makes it harder rather than easier to do so.
The question is why China, now the world’s No. 2 economy, is gaining on us, and why Trumpites want to build protective walls instead of going for first place the way Hamilton did. Trade, Trump’s culprit, is just 10 percent of the U.S. economy so it is not trade policy that is holding us back. No, it’s our austere macro-economic policies that suffocate the whole 100 percent of our economy, our austere unwillingness to let government spend on things that businesses and the ambitious, job-seeking public need to prosper.
China is gaining on us because its government is not prevented by the astounding economic ignorance of its legislature from spending on modern infrastructure, renewed cities, education, and new scientific centers that produce state-of-the-art public assets. This spending creates jobs for hundreds of millions moving from rural occupations to its cities. Our congressionally imposed austerity policies deprive us of both the new facilities and the jobs.
The U.S. is gripped by a fear of government spending even though 250 years of history shows that such spending boosts growth in the private sector. If China had legislative know-nothings like ours committed to austerity and to preventing its government from doing what governments have to do to be successful, that country would be lucky to grow at 2 percent a year, instead of today’s 6 or 7.
The Chinese government is supporting investment in all kinds of modern assets, while our government’s stinginess holds back our entrepreneurial private sector. Today, for example, the Chinese leadership is telling financial institutions to lend money to investors in its hugely ambitious Great Belt and Road Initiative (BRI), a cross-border/multi-country/regional infrastructure program. It seems not to care at all that many of the investments are certain to be unprofitable.
The Chinese government understands as our Congress does not that high speed inter-city and commuter rail, new airports, highways, internet capacity and even empty high-rises are the foundations of growth, even if they are not profitable. Once, Americans built canals and railroads that were not money makers but that nevertheless made us a great nation. No more.
The Chinese government is playing to win the future not to maintain the value of outmoded assets like 50 year old power plants and steel mills and coal mines opened in the 1950s and 60s. China’s aim is to create the world-beating facilities great countries need, the way far-sighted American governments did when Hamilton encouraged the building of light houses to aid commerce and water supply systems for growing cities.
The U.S. economy today is being strangled by small-government ideologues preoccupied by the fear of deficits, taxes, unprofitability and “waste.” These groundless fears have been hobbling us since the Clinton era (1993-2000). Those were years of 4 percent annual growth[ii] and 10 percent annual increases in plant and equipment investment. The failure of the Congress to empower the Federal government to help drive the economy since then has been a disaster for businesses and workers.
Unemployment dipped below 4 percent during Clinton’s last four years. It was still falling in 2000 and there was virtually no inflation. Low unemployment was raising wages and pulling people out of low-wage jobs. Ex-convicts were getting work laying fiber optic cable.
Those eight Clinton years show what the American economy can do. Americans should be watching poor China in the rear-view mirror, but we can’t beat them if these anti-government economic cranks continue to hang anchors on us.
[i] Hamilton, Alexander, 1775, Federalist 11.
[ii] 3.96 percent average over 8 years.