NCPA - National Center for Policy Analysis

SWEET ECONOMY ALABAMA

January 18, 2010

Is the United States rich because it's rich, thus obviating any worries that socialist-leaning policy change could make us poorer, as Matt Yglesias argues?  The Super-Economy blog has some analysis about economic growth levels and rates worth contemplating on this point, accusing Paul Krugman of leading Yglesias astray on this point. 

Theory and a mass of empirical evidence show that in general, richer countries grow slower and poorer countries grow faster.  The fact that America has not only kept its advantage over Europe but also even expanded the gap is extraordinary, says Super-Economy:

  • The United States is the exception, the only country in the top five 100 years ago that is still in the gross domestic product (GDP) top five.
  • And even the gap between the United States and Western Europe has closed in the last 100 years, it only stopped converging in the 1980s.

The pattern during the last 100 years has been for countries with functioning economies to grow faster the lower they start, says Super-Economy: 

  • The EU 15 has the same per capita GDP as Alabama.
  • Being a poor American state, Alabama grew faster than the U.S. average between 1990 and 2008; in fact it grew by 1.75 percent per year.
  • During the same period the EU 15 managed to grew at 1.64 percent (in other words Alabama's per capita earnings grew by 37 percent and the EU 15 by 34 percent).
  • In the same period, rich Maryland grew by only 1.39 percent; by Krugman's logic, Maryland should be learning from Alabama. 

Alabama has the same per capita income and slightly faster growth rate as the Social Democratic EU 15, which New York Times columnist Paul Krugman wants us to believe is a dynamic region the United States should learn from.  Alabama is poor and has a lower standard of living, just like the EU 15.  It only manages to grow faster than others because it starts off at such a low level (the EU doesn't even manage to do that), says Super-Economy. 

Source: Brian Doherty, "Sweet Economy Alabama," Reason, January 15, 2010; Blog, "Krugman deceives Yglesias (updated)," Super-Economy, January 13, 2010; Matthew Yglesisas, "The United States Has Always Been Rich," YGLESISAS, January 12, 2010; and Paul Krugman, "Learning From Europe," New York Times, January 10, 2010. 

For Reason text:

http://reason.com/blog/2010/01/15/sweet-economy-alabama  

For Super-Economy text:

http://super-economy.blogspot.com/2010/01/krugman-deceives-yglesias.html  

For Krugman column:

http://www.nytimes.com/2010/01/11/opinion/11krugman.html 

 

Browse more articles on Economic Issues