America is still way better off than China
One thing that has emerged from this election season is that many Americans — and some politicians — really underrate the US economy and overrate China’s. Take these Gallup results from earlier this year for instance:
AEI
Or take last night’s third and final Clinton-Trump presidential debate. Here is the Republican nominee:
So I just left some high representatives in India. They’re growing at eight percent. China is growing at seven percent, and that for them in the catastrophically low number. We are growing, our last report came out, it’s right over from the one percent level. And I think it’s going down. Last week, as you know, the end of last week, they came out with an anemic jobs report, a terrible jobs report. In fact I said, is that the last jobs report before the election because if it is, I should win easily — it was so bad. The report was so bad.
Of course, India and China — although they’ve made huge strides forward in recent decades — remain poor countries compared to the United States. Starting from such a low base, then, they have the capability to growth very fast as they play catch up to advanced economies like America’s. On a per capita income basis, China is about as tenth as rich as America, India one-twentieth. And that may actually overstate things, according to research recently published by Charles Jones and Peter Klenow(and highlighted in Ben Bernanke’s blog). Jones and Klenow prefer a broader measure of living standards that “combines data on consumption, leisure, inequality, and mortality using the standard economics of expected utility.” On based of that standard, China and India only do about half as well as judging by per capital income.
Table 2 shows that economic welfare improved at quite a rapid pace over the two decades before the crisis (1995-2007), at more than 3 percent per year, notably faster than the growth rate of per capita GDP, at about 2 percent.[ As shown by the four rightmost columns of Table 2 and, graphically, in Figure 1, the gains in welfare were driven primarily by increases in per capita consumption and by improvements in life expectancy, which rose by 2.3 years over the period, from 75.8 to 78.1 years. Rising consumption inequality subtracted between 0.1 and 0.2 percentage points from the annualized growth rate in welfare during the pre-crisis period, and changes in leisure/work hours per person (which were stable) made only a very small contribution.
As can be seen in the table and the accompanying figure, economic well-being has continued to improve (growth in welfare is positive), but the pace of improvement has slowed considerably, to just about 0.9 percent per year. The biggest reason for the slowdown is the decline in the growth rate of per capita consumption, to only about 0.4 percent per year since 2007—about the same as the growth rate of per capita GDP. In other words, disappointing economic growth, including the slow improvement in consumer spending power, is the dominant reason for the decline in the pace of welfare gains, even by this broader measure. Life expectancy has continued to improve since 2007, adding about a half percentage point to welfare growth; however, the contribution from this source is less than in the pre-crisis period, a difference that accounts for about 0.6 percentage points of the slowdown. The longer-term trend toward inequality continued and intensified slightly after 2007, subtracting about a quarter percentage point from welfare growth.
AEI
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