Comparison of U.S. Economy with Other Economies Choose three countries that are

Question

Comparison of U.S. Economy with Other Economies

Choose three countries that are considered %u201CHigh Income Countries,%u201D three countries that are considered %u201CMiddle Income Countries,%u201D and three countries that are considered %u201CLow Income Countries.%u201D The United States should be one of the %u201CHigh Income Countries%u201D you choose.

For each of the nine countries selected, find the following data:

o Real GDP per person

o Adult literacy rate (total)

o Life expectancy at birth (total)

o Infant mortality rate (per 1,000 live births)

o Physicians (per 1,000 people)

o Income share held by the highest 10% of the population

o Income share held by the lowest 10% of the population

After collating the required data, answer the following questions:

What was the level of inflation during the time period relative to the history of inflation in the United States? What were the driving factors behind this trend?

How does United States compare to the other two countries you chose in the high-income group, middle-income group, and low-income group?

Explanation / Answer

Today, Republicans around the country are largely campaigning on the president%u2019s words. Conservative economists like Michael Bordo of Rutgers and John B. Taylor of Stanford have written columns for op-ed pages and blogs arguing that by the standard of previous American recessions, the economy should have rebounded much more strongly.

Running with this argument, Glenn Hubbard and Kevin Hassett, economic advisers to the Republican challenger, Mitt Romney, have accused the administration of providing a misguided short-term fiscal stimulus that ultimately contributed to a long period of below-par growth. And Mr. Romney has borrowed a tactic used by Ronald Reagan to defeat Jimmy Carter in 1980, using his acceptance speech at the Republican National Convention to intone %u201Cthis president cannot tell us that YOU are better off today than when he took office.%u201D

Whether you are better off today than in 2009 may not be the most useful question to ask about an economy emerging from its most severe downturn in 80 years. A more illuminating question is how we have done relative to other countries that were caught in the global financial cataclysm. By that standard, economic growth in the United States has done surprisingly well.

The president%u2019s early assessment of our economic troubles was wildly optimistic. By the administration%u2019s early forecast the economy would be growing by 4.6 percent this year. Instead, it is probably going to expand just over 2 percent this year and next. Economic production per person has not recovered to its level before the recession. Unemployment is still painfully high, at 7.8 percent. The share of the population with a job remains near its lowest in 30 years.

But glance across the Atlantic. The economy of the European Union will shrink by 0.2 percent this year, according to the International Monetary Fund. It is smaller than it was five years ago, while the American economy is 2.9 percent bigger. Even Europe%u2019s most competitive countries are slipping. The Dutch economy is shrinking. Germany and Austria are expected to grow at half the rate of the United States this year and next.

Some will argue that Europe makes for an easy comparison. The European Central Bank held the economy back for many months by refusing to slash interest rates aggressively or pump money into the economy. Germany%u2019s insistence that indebted Mediterranean countries cut government spending deepened recessions in those nations. And some other developed countries are growing faster than the United States: Canada, which didn%u2019t have a banking crisis to begin with; Australia, a big exporter of raw materials that benefited greatly from China%u2019s growth; the oil exporter Norway.

Yet the United States has recovered more quickly than other countries that don%u2019t use the euro %u2014 including Japan, New Zealand, Denmark and Britain. The performance is all the more remarkable considering that the financial crisis that sent much of the world into recession was set off by American homeowners defaulting on their mortgages, taking down a big chunk of the nation%u2019s banking sector.

The one crucial area in which the United States has performed worse than its peers is in jobs. Joblessness is at record highs in countries like Spain and Greece. But many European countries have done a much better job of protecting employment than the United States. In Austria, Germany and Belgium, the governments paid companies to put workers on short-time work rather than lay them off. Sweden also has a longstanding wage subsidy.

Alongside stronger unions and stiffer employment regulations that make it tougher to fire workers, these countries managed to prevent soaring unemployment. Total employment in Britain, Germany, the Netherlands, Austria, France and even Italy has recovered more since the financial crisis than it has in the United States. Though the United States has grown faster than France since 2007, the unemployment rate has risen higher here.

Yet the president%u2019s critics are not suggesting the government should have subsidized wages or financed more public works. Rather, they have championed the type of budget-cutting policies that have played such a large role in thwarting economic growth in Europe.

Federal Reserve officials today concede they were too slow to respond to the crisis. The Fed was nonetheless far more aggressive than the European Central Bank, quicker to drop interest rates to zero and pump money into the economy, buying government debt and other bonds. Fiscal stimulus %u2014 an initial $800 billion package in 2009 followed by about $600 billion in payroll tax cuts and other efforts %u2014 was bigger and more sustained than in other advanced countries. Banks in the United States were forced to raise billions in new capital, which allowed them to cope with the turbulent financial markets better than their European peers.

Every step was an uphill battle. The Republicans who took control of the House of Representatives in 2010 argued that fiscal stimulus was wasted and counterproductive, and pressed for German-style austerity. During the Republican primaries, the Texas governor, Rick Perry, accused the Federal Reserve chairman, Ben S. Bernanke, of treason for debasing the currency by printing money to buy debt.

Today, most economists say they believe that these policies provided vital support to the economy. In its most recent World Economic Outlook, published this month, the I.M.F. acknowledged that the fiscal stimulus was probably much more effective at bolstering growth than it had previously allowed.

So where does this leave President Obama%u2019s record? The Harvard economists Carmen M. Reinhart and Kenneth S. Rogoff, whose 2009 book %u201CThis Time Is Different%u201D is the most comprehensive study of financial crises and their aftermath, contend that the comparison by Mr. Hubbard, Mr. Bordo and others is flawed. It mixes relatively mild recessions with deep financial crises that blew up the banking system. Recovering from the latter, they say, is painfully slow and difficult.

By Ms. Reinhart%u2019s and Mr. Rogoff%u2019s accounting, the Obama administration%u2019s record on economic growth is pretty good: %u201CIf one really wants to focus just on United States systemic financial crises, then the recent recovery looks positively brisk,%u201D they conclude. Among countries that suffered as deep a financial crisis as we did since 2008 %u2014 from Greece and Iceland to Germany and Britain %u2014 %u201Cthe United States%u2019 output performance is, in fact, among the best.%u201D Even the American jobs market looks brighter when compared with other big financial crises in history.

Charles Dumas, chairman of the economic consulting firm Lombard Street Research in London, sees an American economy poised to rebound in the next presidential term. Household debt has fallen from its peak, and rock-bottom interest rates mean homeowners are spending only 14 percent of their disposable income on debt payments, the lowest level since 1992. The budget deficit is already down to 8.7 percent of economic output, from 13.3 percent in 2009. Even China is less of a problem, as high inflation has mostly eliminated its currency undervaluation.

According to most polls, President Obama is still the favorite to lead the country through such a rebound. If he loses in November, it won%u2019t be because he provided too much fiscal stimulus. It will more likely be because on arguably the most important economic variable for American voters, jobs, he didn%u2019t try hard enough.

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