MONEY The Economy

Don’t Count the American Economy Out Just Yet

Sure, China is gaining ground. But that's what they said about Japan a generation ago. And the U.S. remains the world's economic champ in more ways than one.

Now that China has passed Japan in Gross Domestic Product (GDP), some pundits figure it’s only a matter of time before it surpasses the United States to become the world’s economic power.

It’s way too early to come to such a conclusion. Here are the standings as of 2013, according to the International Monetary Fund:

GDP Chart new new In the 1980s, many people felt it was only a matter of time before Japan topped the U.S. Japan had a homogeneous population, low crime, good elementary education, a minimal defense budget, “just in time” inventories, “continuous improvement” in business practices, and a strong tradition of excelling at exports.

But when Japan hit what turned out to be an excruciatingly long period of economic stagnation, the tune changed. All of a sudden people were talking about Japan’s “structural economic flaws,” excessive consultation, inefficient subsidies for rice farmers, and political gridlock.

What it proved was a truth that has been demonstrated over and over – that people are good at predicting anything except the future.

To my mind, the advantages the U.S. has over China are considerable: a free market system, a tradition of rewarding success, peaceful resolution mechanisms for disputes, and best of all a culture of innovation. And while our education system at the lower levels may be so-so, our higher education system is still the envy of many countries.

Total GDP counts for a lot in determining which nations will wield power on the world stage. If you want to amass armed forces, or to send an astronaut to the moon, GDP is the raw material for those achievements.

However, the total gross domestic product doesn’t tell you how rich the average person is. For that, a decent approximation is GDP per person, and the rankings would be topped by the likes of Qatar, Luxembourg, and Singapore.

And even that measure fails to capture the ultimate thing that matters, the quality of life. Close to 50 years ago, Senator Robert Kennedy spoke eloquently about the limitations of GDP.

GDP, said Kennedy, “counts air pollution, and cigarette advertising, and ambulances to clear out highways of carnage. It counts special locks for our doors, and jails for the people who break them.”

At the same time, GDP “does not allow for the health of our children, the quality of their education, or the joy of their play….It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials….

“It measures everything in short except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.”

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